NEWS

[MIDDLE EAST] Negotiations under way for no-bid contracts. Oil majors may return to Iraq after 36 years

2008-06-19T10:40:00.003+02:00

Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein consolidated his power.

Exxon Mobil, Shell, Total and BP, the original partners in the Iraq Petroleum Co., along with Chevron and a number of smaller oil companies, are in talks with Iraq's Oil Ministry for no-bid contracts to service Iraq's largest fields, according to ministry officials, oil company officials and a U.S. diplomat.

The deals, expected to be announced on June 30, lay the foundation for the first commercial work for the major companies in Iraq since the U.S. invasion, and open a new and potentially lucrative country for their operations.

The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.

There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract. The Bush administration has said that the war was necessary to combat terrorism. It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq's Oil Ministry.

For an industry being frozen out of new ventures in the world's dominant oil-producing countries, from Russia to Venezuela, Iraq offers a rare and prized opportunity.

While enriched by escalating prices, the oil majors are also struggling to replace their reserves as more of the world's oil patch becomes off limits.

The Iraqi government's stated goal in inviting back the major companies is to increase oil production by half a million barrels per day by attracting modern technology and expertise to oil fields now desperately short of both. The revenue would be used for reconstruction, although the Iraqi government has had trouble spending the oil revenues it now has, in part because of bureaucratic inefficiency.

The Iraqi Oil Ministry, through a spokesman, said the no-bid contracts were a stopgap measure to bring modern skills into the fields while the oil law was pending in Parliament.

Source: The New York Times|By ANDREW E. KRAMER

[OIL PRODUCTION] OPEC pumps 31.87 million barrels per day of crude oil in April, down 350,000 b/d., Platts survey

2008-05-11T14:48:00.002+02:00

The 13 members of the Organization of Petroleum Exporting Countries (OPEC) pumped an average 31.87 million barrels per day (b/d) of crude oil in April, a 350,000 b/d decrease from March, according to a Platts survey of Organization of Petroleum Exporting Countries and oil industry officials released Friday. The sharp drop was largely the result of steep output losses in Nigeria.

Excluding Iraq, the 12 members which participate in output agreements pumped an average 29.49 million b/d, 360,000 b/d down from an estimated 29.85 million b/d in March.

“Organization of Petroleum Exporting Countries production has been relatively steady in recent months, but the sharp fall in Nigerian output shows how vulnerable overall supply from the group can be to developments in one country,” said John Kingston, Platts global director of oil. “Given that spare capacity is also relatively tight, any disruption has a bigger impact on markets.”

Ongoing losses in Nigerian supply as a result of continuing strife in the Niger Delta were exacerbated by a week-long pay strike at ExxonMobil, which shut down most of the company’s 800,000 b/d of production and forced it to declare force majeure on exports from the 400,000 b/d Qua Iboe terminal. Other smaller decreases came from Angola, Iran, Qatar, Saudi Arabia and Venezuela.

Iraqi volumes were a shade higher at 2.38 million b/d, with a slight dip in exports offset by slightly higher internal supply. Libyan output also edged up, to 1.75 million b/d from 1.74 million b/d in March.

The latest estimates show the OPEC-12 missing their 29.673 million b/d output target by 183,000 b/d.

Source: Fox Business

[AFRICA] Nigeria woes mean gas flaring will continue. Royal Dutch Shell

2008-05-08T16:40:00.004+02:00

Royal Dutch Shell said it's unable to meet a 2008 deadline to end gas- flaring in Nigeria because of a lack of security in the region and funding shortfalls.

Attacks on oil workers and facilities have hampered the construction of gas-gathering equipment in the Forcados Yorki field, The Hague-based Shell said in an article on its Web site.

"Increased violence and kidnappings in the area made it unsafe for work crews and the project has been stalled for two years," the company said. "And now the project is not funded for completion by the Nigerian government."

Shell said it needs an additional $3 billion for Nigerian projects to build equipment to capture gases and for facilities serving the 1,000 wells scattered across a region that's larger than Portugal. The United Nations set a deadline to end flaring, or burning off natural gas, by 2008 under the 1997 Kyoto Protocol.

Nigeria flares the most gas of all countries after Russia, in part because oil companies struggle to meet the costs of gathering and transporting the associated gas that's produced in conjunction with crude from wells. The release of gas into the atmosphere may contribute to global warming.

Nigeria's Department of Petroleum Resources plans to increase the fine for flaring gas to $3.50 per 1,000 cubic feet, up from 10 naira (9 cents). No date has been set for imposing the penalty. The nation is also seeking to harness gas that's currently flared to produce power for domestic use.

The country showed the largest decrease in gas-flaring during a 12-year period ending in 2006, according to estimates from the World Bank's Global Gas Flaring Reduction Partnership and the U.S. National Oceanic & Atmospheric Administration. The nation reduced flaring by 10 billion cubic meters of gas a year, the data show. The biggest increase was in Russia, which burned off an additional 10 billion cubic meters a year, followed by Kazakhstan and Iraq.

Nigeria flared 23 billion cubic feet of gas in 2004, according to the World Bank. Russia burned off about 50.7 billion cubic meters.

Source: Bloomberg

[OiL FUTURES] Supply worries send oil past $120 for first time

2008-05-05T20:37:00.006+02:00

Oil futures have surpassed the once unthinkable price of $120 a barrel. Oil reached its latest milestone on a mix of threats to overseas crude oil supplies. A threat by Kurdish rebels in Iraq to attack American interests has investors concerned. And an attack on an oil facility in Nigeria cut oil supplies. Meanwhile, defiant comments by Iranian leaders about the country's nuclear program raised worries about broader conflict in the Middle East.

Light, sweet crude for May delivery rose to a trading record of $120.21 a barrel on the New York Mercantile Exchange. The falling dollar is also sending crude prices higher.

At the pump, the average national price of a gallon of regular gas slipped to $3.611 a gallon, down 1.1 cents from Friday, according to AAA and the Oil Price Information Service. Prices peaked at a record $3.623 a gallon on Thursday.

Diesel prices also fell, slipping to a national average of $4.239 from a record $4.251 on Thursday. The runup in prices of diesel, used to power most trucks, trains and ships, is one reason why food prices are so high.

The slight relief motorists are seeing at the pump could end quickly if oil's rise continues. Analysts say gas prices could still go up another 10 cents or so. Indeed, Andy Lebow, senior vice president at MF Global Inc., thinks the gas price declines of the last four days are almost entirely due to crude oil's sharp drop last week; prices fell from a trading record $119.93 on Monday as low as $110.30 on Thursday before rebounding. Gas prices tend to follow prices in the futures market, but with some lag.

This morning, light, sweet crude for June delivery was trading at $119.74 a barrel on the New York Mercantile Exchange after the brief foray over $120.

"The (oil) market is bolstered by news out of Iraq, where Turkish forces have once again been involved in cross-border raids against ... insurgents, and Nigeria, where rebels attacked three oil wells and pipelines feeding (an) export terminal over the weekend," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note. Kurdish rebels on Monday warned they could launch suicide attacks against American interests to punish the U.S. for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. Oil traders worry that any conflict in the oil-rich Middle East will cut oil shipments out of Iraq.

In Nigeria, a Royal Dutch Shell PLC spokesman said attackers hit an oil facility belonging to Shell's joint venture in southern Nigeria and that some oil production has been shut down. Nigeria is a major U.S. crude supplier.

Also pushing oil prices higher were concerns about Iran after Supreme Leader Ayatollah Ali Khamenei said Sunday that his country will not bend to international pressure and give up its nuclear program. Iran is the second largest producer in the Organization of Petroleum Exporting Countries.

Amid the supply worries, the dollar weakened, giving investors even more reason to buy crude. Many investors buy commodities such as oil as a hedge against inflation when the greenback falls. Also, a weaker dollar makes oil cheaper for overseas investors. Analysts blame the dollar's protracted decline for oil's rise to records near $120 this spring. Lebow isn't surprised that oil has come roaring back from its dip to nearly $110 last week.

"It really follows the pattern we've seen throughout this (rally)," Lebow said. "The corrections tend to be pretty short-term in nature."

In other New York Mercantile Exchange trading Monday, June gasoline futures rose 7.24 cents to $3.0388 a gallon, and June heating oil futures rose 9.92 cents to $3.3179 a gallon. June natural gas futures rose 34 cents to $11.117 per 1,000 cubic feet.

Source: Associated Press

MIDDLE EAST: Iraq boosts oil export to Turkey

2008-04-29T02:14:00.001+02:00

Iraq is pumping 430,000 barrels of oil per day from Kirkuk to Turkey through pipelines in the north of the country, an Iraqi official says.

Iraq has been pumping this volume of oil to Turkey since March 17, the unnamed Iraqi official was quoted by Reuters as saying. Oil exports to Turkey via the line have increased since last summer. The flow of oil through the pipeline halted in 2003 after the occupation due to sabotage attacks and technical failures.

According to the official, Iraq's oil export to Turkey is currently steady and stands at nearly 18,000 barrels per hour.

Turkey now boasts oil reserves of nearly 4.5 million barrels at its Ceyhan terminal along the coast of the Mediterranean Sea, the official concluded.

Source: PressTV

MIDDLE EAST: Iraq. The International Oil Companies qualify for bid round

2008-04-24T20:09:00.005+02:00

Iraq's oil ministry has qualified thirty five international oil companies (IOCs) to bid for its first post-war licensing round, which it hopes to launch in May 2008.

The list of IOCs, compiled by the oil ministry's Petroleum Contracts and Licensing Directorate and obtained by Platts, includes US and European oil and gas majors as well as Russian, Chinese, Korean and Japanese companies. More than 120 international companies submitted expressions of interest and the ministry document says some would be considered for future licensing awards.

"The Petroleum Contracts and Licensing Directorate will continue updating the process of qualifying companies, especially those that did not pass, by updating their information with the view to allowing as many as possible of the IOCs to participate in the next Licensing Rounds (following the First Round)," the document states.

The list excludes companies such as Austrian OMV and Norway's DNO, which angered Baghdad by concluding production-sharing agreements with the Kurdistan Regional Government on the basis of a hydrocarbon law approved by the Kurdish parliament without central government approval.

The Iraqi oil ministry in Baghdad decided to forge ahead with the further development of Iraq's oil fields without waiting for a federal hydrocarbon law, which has failed to win the approval of all three main sectarian groups in Iraq, the Shiites, Sunnis and Kurds.

Iraq's oil reserves, estimated at 115 billion barrels, are second only to Saudi Arabia's. But much of the country remains unexplored and its producing fields are suffering from a lack of investment as a result of decades of war and UN sanctions.

Iraq's oil production averaged 2.181 million b/d in 2007, oil ministry figures obtained by Platts showed. This is below the average 2.8 million b/d achieved in the final three months before the US-led war of 2003 and far below the country's potential.

The Iraqi oil ministry is negotiating separately with foreign oil companies on short-term technical service agreements as a stop-gap measure to boost production capacity from major producing fields.

It had hoped to sign agreements with multinationals in April but the talks appear to have stalled as the oil majors sought to link the Technical Support Contracts (TSCs) to longer-term contracts.

Source: Platts|

MIDDLE EAST: Iraq. Security environment the key element

2008-04-24T20:03:00.002+02:00

While the lack of a settled fiscal and legal regime governing oil contracts in Iraq represents a major uncertainty, as does the ability to improve internal infrastructure, the security environment remains the key element in whether technical service agreements can be translated into real action on the ground

The negotiations for oil contracts are likely to be conducted outside of Iraq, mainly in Jordan. As there will be practically no security risks during this process for international oil companies (IOCs), the question is what will the Iraqi political and security environment be like post-2009? In December 2007, the US military warned that despite a drop in violence, there is still no place in the country that is safe from attack by extremists.

"We have made no projections of peace at hand. We realize that security is very fragile and that at any moment any attack could occur at any place in Iraq," military spokesman Rear Admiral Gregory Smith said.

With a drawdown expected in US troop levels from summer 2008 and possibly a more radical change in US policy hinging on the year's US presidential election, companies will have to consider whether the recent improvements in security represent more than just a holding operation.

The US government has been relatively upbeat in its assessment of progress in stability and security in Iraq over the course of 2007, but there can be little doubt that the country remains in a highly fragile state.

Assessing the US Department of Defense's latest report on Measuring Stability and Security in Iraq, Anthony Cordesman of the Washington based Center for Strategic and International Studies had some serious reservations about recent progress.

Cordesman argues that Iraq's stability will require years of sustained US effort, writing that "2008 cannot be a decisive year in building stable accommodation, only a beginning."

Despite some legislative progress, Cordesman says "there are no timelines, for tangible action to either legislate major progress towards accommodation or to actually implement it."

Referring to the Department of Defense's assessment of internal tensions, and highlighting the weakness of Iraq's central government, he writes, "there remains a strikingly unrealistic contrast between the regional tension . . .and the data on provincial security transition assessment.

The provinces shown as "transitioned" or "ready for transition" are all either under the de facto control of the Kurdish Pesh Merga or competing Shi'ite factions in the south, and not transitioned to real world Iraqi Security Forces (ISF) responsibility or central government control.

This highlights a critical apparent gap between the plans for accommodation and the plans for developing the ISF."

Threats to security and stability

These concerns appears to be borne out by current events. The southern city of Basra saw an outburst of renewed violence at end-March as the ISF took on local militias in an attempt to control the city.

This battle is a major test of the reconstituted Iraqi army and the central government's ability to impose control on virtually lawless areas of Iraq.

In Baghdad, clashes have been reported between Iraqi and US forces and militants of the Mehdi army, led by Shia cleric Moqtada Sadr, who has called for a campaign of civil disobedience.

This raises the question as to whether the US military surge has had anything but a temporary impact on security. A major success, according to the US Department of Defense has been the 'tribal awakening movement' or 'Concerned Local Citizen' ('CLC') program, which is proving "crucial to the counter insurgency effort."

Cordesman notes this is a critical risk area for 2008, arguing that the unplanned Sunni uprising against Al Qaeda has been the real key to improvements in security. Any cuts in US forces will increase the dependence on the success of the CLC program.

The US Department of Defense itself recognizes the importance and risks attached to the CLC program, writing in its report, "the slow pace of integrating the CLC members into Government of Iraq institutions, lack of alternative employment and fears by the Maliki government that these forces may return to violence or form new militias are of concern

. . . Shi'a extremist and criminal activities have become growing threats to security and stability as the role of insurgents and Al Qaeda in Iraq wanes. The conflicts among communal groups for political power and resources continue."

It would appear that as nearly all foreigners in Iraq are currently either military or paramilitary personnel, the US surge has engendered a false sense of security. Iraq's regional and ethnic divisions are only being held at bay.

If IOCs do start work on the ground, there will be a much larger number of less well-protected foreign targets.

It would be very difficult for long-term service contracts to be run remotely or by proxy with contracting companies. If security cannot be guaranteed then major foreign investment in Iraq's oil industry is unlikely. It is possible that IOCs will take on more risk than they might normally assume because of the size of the oil resources at stake.

In addition, they are well aware that competitors, in particular state-owned Asian oil firms, have shown a larger appetite for risk in other countries.

With a drawdown of US forces in sight, discussions on a new licensing round may prove of little significance, if Iraq's central government cannot bring the regions under its control.

IOCs will be keen to keep the door to Iraq's oil riches open, but will be unlikely to commit resources until a safe operating environment can be established. Given that the prospect of an improved security situation remains a medium to long-term prospect, this suggests there will be no rush to conclude negotiations taking place in the calm provided by Jordan.

Source: Platts|

MIDDLE EAST: Iraq. The year of transfer?

2008-04-24T19:54:00.002+02:00

Iraqi oil minister Hussein al-Shahristani said April 23 that the recent government crackdown in the southern oil hub of Basra had been a success and had created a safer environment for the oil industry.

Shahristani, speaking to reporters on the sidelines of the International Energy Forum in Rome, said that Iraq was making progress in raising production from northern and southern oil fields and hoped to be producing 2.9 million b/d, up 400,000 b/d over current levels, by the end of the year. "That is why we are confident that we can increase our production, both in Basra and in Kirkuk beyond our current production of 2.5 million b/d. Our aim actually by the end of the year is about 2.9 million b/d..."

The Iraqi oil ministry has been negotiating with foreign oil companies on short-term technical service agreements, which accordingly to Shahristani were meant to provide a short-term fix to increase production capacity until Iraq was ready to sign longer term development contracts.

The fact that Iraq had succeeded in the interim in raising production by nearly 400,000 b/d in the last six months meant any further delay would render the Technical Support Contracts (TSCs) irrelevant.

"We are planning to increase by another 500,000 b/d by the end of the year or early next year and this is giving us what we are planing to get through the technical service agreement," he said.

"If there are going to be delays, and the delays are not due to the Iraqi side, then the relevancy of these technical support agreements will be in question," he said, explaining that the technical services agreements were meant to help Iraq raise production by 500,000 b/d in the immediate future.

"That is why we have told the IOCs, those who are interested to go ahead, that they are losing time. June itself is a bit late and whoever is not ready by then, we might not really require technical service agreements," Shahristani said, adding later that they might be dropped altogether. "We may drop them if they are not signed soon, yes," he said.

Companies negotiating technical service agreements include: Shell, Total, BHP Billiton, ExxonMobil, Vitol, Anadarko and Dome Energy.

Shahristani said the oil ministry hoped to launch an international licensing round for brownfield oil fields and a few gas fields, including the giant Akas gas field, in the summer.

"The first licensing round is going to go ahead as quickly as we can get it through the procedures and we are planning to announce a call for bids by this summer," he said.

Despite this significant advance in turning around the fortunes of Iraq's oil industry, the reality is that a totally safe operating environment in Iraq remains a distant prospect.

The US military 'surge' launched in February 2007 has met with some success, improving the security situation and facilitating a rise in Iraqi crude production (see chart on Iraqi monthly oil production), which has in turn bolstered the government's finances.

In Q1 2008, the total oil production for the country averaged 2.4 million b/d, close to 250,000 b/d higher than the 2007 average of 2.181 million b/d.

This figure is some way short of the 2.85 million b/d average achieved in the final three months before 2003's US-led invasion and still remains far below the country's potential (see chart on Iraqi oil production).

The substantial increase in the average daily production rate from Iraq's northern oilfields, including the giant Kirkuk field, climbed to a post-war high of 619,000 b/d in March, up 180,000 b/d from the previous month, Iraqi ministry of oil figures obtained by Platts showed.

But this is still substantially below the pre-war average of 870,000 b/d.

Exports from the north averaged 320,000 b/d in March 2008, 74,000 b/d lower than February, and 1.598 million b/d from southern Gulf terminals, 56,000 b/d higher than in February.

Iraq's oil ministry figures also showed that production from southern fields fell to 1.796 million b/d in March 2008 from 1.905 million b/d during February.

It is unlikely that production will increase in the southern fields from current levels of 1.9 million b/d, due to the need for incremental work of drilling and of reservoir management, which would take months to implement under present circumstances and is largely dependent on the ongoing security situation. The March 2008 figures also showed that Iraq exported 1.918 million b/d, down from 1.936 million b/d in February.

Iraq's potential too big to ignore
Investing in a factionally, ethnically and regionally riven country in which institutions and the rule of law are weak and which depends on an outside force for its stability is never going to look like a great proposition, but IOCs know that Iraq's potential is simply too big to ignore.

Iraq offers world class hydrocarbon resources that make it perhaps the last bastion of 'easy oil' on earth open to foreign investment. Proven reserves are estimated at 115 billion barrels of oil with low extraction costs.

Tariq Shafiq, director of Petrolog and Associates, and a member of the team charged with drafting Iraq's subsequently amended petroleum law, estimates the finding and development cost of Iraqi oil at just $0.5-$1.0/barrel and the operating costs at $1-$2/barrel, although costs may be inflated by security requirements and rising oil field equipment prices.

As a result, it is not surprising that a large number of companies contested to be qualified in the first post-war licensing round. Iraq represents such a big opportunity that IOCs cannot afford not to be involved.

Technical service contracts (TSCs) represent a foot in the door, with the possibility of much more lucrative exploration and production ventures in the longer term.

According to the Centre for Global Energy Studies' (CGES) recent study, Hydrocarbon exploration and field development in Iraq, new known fields in Iraq could support a plateau of 3.8 million b/d in addition to current output of about 2 million b/d, but this will not be realized soon.

Iraq's current production export facilities can handle up to 3.5 million b/d. This implies that a rise in existing output could be accommodated, but realizing the long-term potential of Iraq's reserves - output between 6-9 million b/d - would require major investment in new export infrastructure.

CGES forecasts Iraqi output of 2.146 million b/d in 2008, rising to 2.385 million b/d in 2009 and 2.692 million b/d in 2010 (see table on Oil production and export forecasts).

An important caveat is the contribution of the northern oil fields, where security issues have reduced capacity to 30-40%.

An improved security situation could result in an increase in production of 500,000 b/d, says CGES. An additional factor will be the success of service contracts negotiated with the majors. In the north, capacity is not a problem so long as the security of the Iraq-Turkish crude pipeline can be maintained. In the south, the current export system and the Gulf terminals are barely sufficient to export at current levels.

Raising export capacity here from it's present level of around 1.7 million b/d to 3.0 million b/d would require the development contracts to include the rehabilitation of Sea Lines and the Khor Al-Amaya export terminal, the installation of extra storage tanks and pumping units, as well as pipeline system development, including the upgrading and completion of the second internal strategic pipeline.

Source: Platts|

MIDDLE EAST: Iraq names 36 eligible oil companies

2008-04-14T19:45:00.004+02:00

The Iraqi Oil Ministry has released the names of 36 international oil companies which it says have the ability to securely develop the country’s rich oilfields.

The U.S. appears set to earn the lion’s share of the spoils, with some seven companies on Baghdad’s rulers’ list of pre-qualified oil firms: 120 companies from a around the world had taken part in the selection process. Baghdad and its advisors had examined technical merits, financing, company legal structures, training for Iraqies and health and safety records.

The list does not include a number of oil companies already developing northern Iraq’s Kurdish oilfields, where at least Norwegian and Irish companies are already working with the Kurdish Regional Authority.

The following companies have been given the go-ahead to bid for acreage in Iraq’s coming first licensing round:

Source: Scandinavian Oil

IRAQ: Chevron in talks with Iraq to boost production in oil field

2008-04-12T20:04:00.001+02:00

Oil giants Chevron Corp. and Total have confirmed that they are in discussions with the Iraqi Oil Ministry to increase production in an important oil field in southern Iraq.

The discussions are aimed at finalizing a two-year deal, or technical support agreement, to boost production at the West Qurna Stage 1 oil field near Iraq's second-largest city of Basra.

Chevron and Total confirmed their involvement in the discussions in e-mails received today by The Associated Press.

"Chevron is interested in helping the Iraq government's objectives to develop its oil and gas industry," Chevron spokesman Kurt Glaubitz said in an e-mail. Total spokeswoman Lisa Wyler confirmed the French company's involvement.

Basra, about 340 miles southeast of Baghdad, has been the scene of sporadic attacks and clashes since the U.S.-led invasion in 2003. The latest fighting broke out March 25 when the government launched an operation against Shiite militants, who remain in control of several neighborhoods.

West Qurna field, located about 40 miles west of Basra, is among Iraq's 10 "super giant" fields with its reserves estimated between 15 to 21 billion barrels, according to Iraqi Oil Ministry and Energy Information Administration.

The Ministry intends to add 100,000 barrels per day to the field's current capacity of 180,000 bpd. Its estimated pre-2003 production capacity stood at 250,000 bpd, the ministry's figures show.

In 1997, the Russian Lukoil oil giant struck a $3.7 billion deal with former Iraqi leader Saddam Hussein to drill at the West Qurna field. However, Saddam canceled the contract in 2002. The Russians hoped they would be able to revive it when Moscow wrote off most of Iraq's $12.9 billion debt.

The Iraqi Oil Ministry has said it also is negotiating with Royal Dutch Shell PLC, BP PLC, ExxonMobil Corp. to increase crude production in four other fields and under the same agreement. Iraq has the world's third-largest oil reserves, totaling more than 115 billion barrels. Iraq's average production for February was 2.4 million barrels per day and exports averaged 1.93 million barrels per day.

Source: Associated Press

OPEC MEETING: Organization of Petroleum Exporting Countries heads into meeting with prices at all-time high

2008-03-03T22:58:00.004+01:00

As oil prices shoot into uncharted territory, Organization of Petroleum Exporting Countries is wrestling with two powerful forces: need vs. greed.

Analysts expect the Organization of Petroleum Exporting Countries to take the easy way out and do nothing at all — at least for the time being — when the 13-nation cartel meets in Vienna on Wednesday.

Crude prices surged toward $104 today on the New York Mercantile Exchange.

Pressure has been mounting on Organization of Petroleum Exporting Countries to increase output and help ease the threat of record prices nudging the U.S. into recession and inflicting wider damage. Reflecting the worries of major industrial nations, Japan last week urged the group to open its taps, saying the soaring prices "are gradually damaging the global economy."

But Organization of Petroleum Exporting Countries members are reaping unprecedented profits, and analysts say it's unlikely that they will vote this week to raise production.

"I think that politically, Organization of Petroleum Exporting Countries should increase output. But I think what they will actually do is nothing," said John Hall, of John Hall Associates in London.

"They're controlling the market very carefully right now," he said. "They're getting greedy, and politically, it's a very bad move."

Oil shot up a dramatic 19 percent in February. Among the factors behind that: tensions in the Middle East, Turkey's incursion into northern Iraq and the slumping dollar, which has prompted speculators and other investors to shift cash to crude and other commodities.

Supply and demand, as always, are the wild cards.

Most industry experts say crude inventories are building, and key OPEC members contend the market is well-supplied.

What's less certain is demand. It typically slackens in the second quarter — and if the U.S. economy stumbles into recession, demand is likely to fall further as industrial production slows and factories adjust to weaker orders for consumer goods.

Surging oil prices are boosting gasoline prices at the pump, which is starting to dampen demand. The average price for a gallon of gas stood at $3.165 on today, according to AAA and the Oil Price Information Service, up nearly 70 cents from a year ago. Americans are responding by driving less — demand for gasoline has fallen for 5 straight weeks when compared to the same week a year ago, according to Energy Department figures.

"Organization of Petroleum Exporting Countries now finds itself in a difficult spot," said Stephen Schork, editor of The Schork Report, which keeps tabs on global energy markets and trends.

"The dollar is weak and getting weaker by the day, crude supplies continue to build, and the demand outlook is hardly sunny," Schork said. He thinks Organization of Petroleum Exporting Countries will be tempted to float a cut in output, "but in this price environment, that is a difficult sell."

Venezuela, one of OPEC's strongest price hawks, said it will lobby to keep current production levels unchanged. And Libya said OPEC probably "won't do anything" if oil holds around $100 a barrel.

"There are geopolitical factors that are pressuring prices," including the U.S.-led war in Iraq and the threat of new violence in Nigeria, said Venezuelan Oil Minister Rafael Ramirez. "It's not a supply problem."

Johannes Benigni, managing director of JBC Energy in Vienna, believes there is justification for a cut in output — but he doesn't think the cartel will intervene just yet.

A cut would push prices even higher, generating a storm of negative publicity for Organization of Petroleum Exporting Countries. And reducing output now would, as Benigni put it, "remove a bullet from their arsenal which could be used more effectively at a latter stage if prices begin to fall."

Benigni and others say the more likely trigger for Organization of Petroleum Exporting Countries action would be a drop in oil prices to $80 or $85 a barrel, which they think the cartel would be bound to defend.

"If oil retreats to these prices, then the group is likely to cut output," he said.

Including Iraq, which does not adhere to OPEC's production quotas, the cartel's total output is estimated at about 31.5 million barrels a day — roughly 40 percent of daily world demand, which is believed to be around 85.5 million barrels. Excluding Iraq, the formal OPEC output ceiling is around 30 million barrels a day.

Hall predicts that OPEC will maintain its current output, but to reassure jittery oil markets, will formally authorize the group's President Chakib Khelil to increase or decrease production in the coming weeks.

The cartel, he warned, may be trying to have it both ways.

"High oil prices do lead to recession," Hall said. "It takes time, but it gets there. And the problem is that it's self-perpetuating."

The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

Source: Associated Press

OiL PRICES: It is hit $102 as dollar sinks against Euro

2008-02-27T15:50:00.003+01:00

Oil prices broke through a new intraday high of $102 a barrel today as a slide in the U.S. dollar prompted investors to pump more money into energy futures as a hedge against inflation.

The dollar sank to a record low against the euro after the release of three disheartening U.S. economic reports Tuesday that show that the economy is slowing as prices for consumer goods rise. The dollar's decline prompted investors to seek a safe haven from turmoil in the financial markets and the threat of inflation.

"Crude has cracked through the $100-level again and that's driven by financial investors moving money into commodities markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"The U.S. dollar weakened against the euro and the economic data also indicated that inflation in the U.S. rose in January, and commodities are generally considered a hedge against inflation," Shum said. "We are therefore seeing these strong prices that have really little to do with oil market fundamentals."

Light, sweet crude for April delivery spiked as high as $102.08 a barrel in electronic trading on the New York Mercantile Exchange before slipping back to $101.23, up 35 cents. The contract on Tuesday jumped $1.65 to settle at $100.88 a barrel, a record close.

In London, Brent crude added 33 cents to $99.80 a barrel on the ICE Futures exchange, below the intraday record of $100.30 a barrel set earlier in the session.

The U.S. Labor Department said wholesale inflation rose by 1 percent in January on soaring oil and food costs. And Standard & Poor's also reported that U.S. home prices fell 8.9 percent in the last three months of 2007 from a year earlier.

A report by the Conference Board, a business-backed research group, that its Consumer Confidence Index fell to the lowest since February 2003, far below what analysts had been expecting, indicated that consumers might continue to curb their spending in the coming months.

But traders in both the energy market and the U.S. stock market, which also advanced sharply, seemed largely unfazed. Oil has risen in recent days amid an increase in speculative buying, with some traders believing that global demand will be high enough to support higher crude prices even if the American economy is slowing.

In currency trading, the euro rose above $1.50 for the first time, reaching $1.5087 before falling back to $1.5040.

Analysts expect the U.S. Energy Department's Energy Information Administration to report later Wednesday that the nation's crude oil stocks rose last week by 2.4 million barrels, which would be the seventh straight week of gains.

Gasoline inventories are expected to rise by 400,000 barrels while supplies of distillates, which include heating oil and diesel, fell by 1.8 million barrels last week, according to a Dow Jones Newswires poll of analysts.

Also supporting prices were concerns about supply disruptions from unrest in Iraq, a major oil exporter. Turkish ground forces pushed their offensive against Kurdish rebels deeper into the north of Iraq, seizing seven guerrilla camps, officials said Tuesday.

In other Nymex trading Wednesday, heating oil futures rose 0.65 cent to $2.8215 a gallon (3.8 liters) while gasoline prices added 0.2 cent to $2.5525 a gallon.

Natural gas futures lost 2.6 cents to $9.18 per 1,000 cubic feet.

Source: Associated Press|By GILLIAN WONG

IEA: World oil market could be set for lengthy slowdown

2008-02-25T23:41:00.005+01:00

The world oil market could be set for a lengthy slowdown, the International Energy Agency said on Wednesday, signalling a sharp shift in the climate that pushed the oil price to 100 dollars last month.

In light of weaker global economic prospects, the IEA cut its forecast for world demand for oil this year by 200,000 barrels per day. It said it expected world demand in 2008 to grow by 1.9 percent instead of 2.2 percent forecast last July.

"Just as the demand shock of 2004 shaped the oil market for the next three years, so too could the pending slowdown," the agency, which coordinates energy policies for the main industrialised consuming nations, commented in its monthly review of oil trends.

"One of the most indicative factors since we released the last (monthly) report was the negative news on the world economy, especially in the United States, yet the oil price remained unchanged," IEA chief analyst Lawrence Eagles told AFP.

The latest study, which noted that crude oil prices were little changed from mid-January at just over 90 dollars a barrel, said "an economic slowdown has the potential to change the landscape over the next few years: depending on how deep it is and how long it lasts."

But it also noted that projected robust economic momentum in China and the Middle East, two key centers for oil demand growth, stood in contrast to sluggish performances expected in the world's principal industrialised nations.

The IEA findings, according to Natexis bank analyst Moncef Kaabi, point to a "globally balanced oil market this year, apart from geopolitical tensions, but there will be no real price stability as long as Asian demand does not slow."

China's demand for oil is forecast to grow 5.8 percent this year to 7.9 million barrels a day after a 4.5 percent rise in 2007.

But the IEA cautioned that recent widespread power shortages and severe weather in China "have cast a shadow over the 2008 prognosis."

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While power cuts could point to a surge in oil demand for energy generation, recent snowstorms have disrupted transportation during the Lunar New Year holiday and could therefore depress demand for transportation fuel. The IEA found that in January, world oil supply had risen by 745,000 barrels per day to 87.2 million barrels "on new output from Brazil and recovering non-OPEC output elsewhere."

Supplies from the Organization of Petroleum Exporting Countries had remained close to 32.0 million barrels per day on increased output from Angola, the United Arab Emirates, Saudi Arabia and Kuwait, while production had eased in Iraq, Nigeria and Qatar.

However, OPEC's real spare capacity had risen to 2.4 million barrels per day in January.

"We've got low stocks and relatively low spare capacity," Eeagles said.

"Spare capacity is due to grow this year," he continued, adding that much would depend "on whether it is made available by OPEC."

"Spare capacity belongs to OPEC. The non-OPEC producers are producing flat out."

Non-OPEC January output is estimated by the IEA to have come to 50.2 million barrels a day in January, an increase of O.7 percent from December when production from Mexico, the former Soviet Union and China was much lower than preliminary estimates.

Overall, according to the agency, non-OPEC total production -- apart from Ecuador -- for 2007 and 2008 is predicted to remain at 49.7 million barrels a day and 50.6 million barrels a day respectively.

The IEA said that industrial stocks of oil in the area covered by the Organisation for Economic Cooperation and Development had fallen by 39.5 million barrels in December. The agency warned that oil inventories remained low, "as does spare capacity."

Geopolitical issues in Nigeria, Venezuela, Iraq and Iran had helped push up prices. Despite the pressures now bearing down on demand, there was "clearly" a need to rebuild stocks, the IEA said.

Source: Agence France Pressee

MIDDLE EAST: Geotimes Magazine Investigates Iraq's Oil Prospects

2008-02-25T02:56:00.002+01:00

The February issue of Geotimes magazine examines the complicated issues surrounding Iraq's oil exploration and production. Iraq boasts the largest untapped oil reserves in the world. Unfortunately, the instability that comes with war, attacks on infrastructure and the outdated technology currently in use in Iraq has led to the lowest reserve-to-production ratio of all oil-producing countries.

Before the U.S.-led invasion in 2003, Iraq was averaging 2.6 million barrels per day (bpd) in oil production. Currently, the average in the country is 2.0 million bpd. What will it take to bring production up to 6 million bpd by the end of the decade?

Exploration and development in Northern Iraq could easily, and quickly, increase production by 100,000 bpd. Because of this, the Kurdistan Regional Government has started the process of setting up oil exploration and production agreements with smaller foreign oil companies.

But these agreements are in direct opposition to the wishes of the central government and may not have any legal standing without a country-wide Hydrocarbon Law. Still, will these developments make it easier for other oil companies to invest in Iraq?

Source: SPX

GEOPOLITIC: European Union and Hungry for Iraq gas and oil

2008-02-25T01:43:00.003+01:00

Iraq is looking outside its legal and security troubles to establish mutually beneficial energy ties with Europe. Last week Oil Minister Hussain al-Shahristani met with top EU commissioners in Brussels to discuss energy cooperation. Iraq has 112 trillion cubic feet of proven gas reserves and, like its oil reserves, experts say complete exploration will find up to three times more.

But realities on the ground post-2003 as well as Saddam Hussein leftovers are making it hard to develop. Europe, meanwhile, is desperate for Russian alternatives and is offering helping hands to develop Iraq's electricity sector.

Both Turkey and the United States have discussed helping out as well.

"Energy is one of the important sectors that Iraq is working on in the relations with Europe," Sami Askari, an Iraq parliamentarian and adviser to Prime Minister Nouri al-Maliki, told United Press International. "Iraq has large reserves of gas and oil and we're looking for new markets and I think Europe will be the nearer and most important potential market."

One of Iraq's largest gas fields, Akkas, located near the Syrian border, is on the short list of developments. It could feed markets in Syria, as well as tie into a proposed Arab gas pipeline, where natural gas from Arab states would be piped to Turkey and on to Europe.

"It's a promising new supplier," said Ferran Tarradellas, spokesman for EU Commissioner for Energy Andris Pielbags, who met with Shahristani. Citing Iraq's 10th-largest gas and third-largest oil reserves, he added, "It's not that far from the European Union."

"In the foreign energy policy that we are following now, one of the main priorities is the diversification of supply sources," which are mostly Russia, Norway and Algeria, he said. "That leaves the EU, at a time when our own gas production is shrinking, in a very delicate position."

Royal Dutch Shell, France's Total and Italy's Edison are all courting Shahristani for a deal to develop Akkas. The European Parliament rejected a plan by a development committee last October to dedicate funds for the project.

Europe is also helping Iraq with its electricity sector, which is improving but still susceptible to post-2003 chaos and lags behind demand. "The (Iraqi) central government has directed the European Commission and accepted the European Commission's offer to rewrite the electricity law and establish a modern electricity framework along the lines of that which has been adopted and is functioning in Jordan," a member of the Energy Fusion Cell, a U.S.-orchestrated team in Iraq focused on strategic energy issues, told UPI on condition of anonymity.

Turkey, an increasing energy consumer and major transit country for the oil and gas trade, is looking at Iraq's north as well. Turkish President Abdullah Gul led a delegation to Washington early last month, meeting with President Bush, Vice President Cheney and the secretaries of state and energy. Part of the meetings included jointly working with Iraq to develop its energy sources.

Upon returning Energy and Natural Resources Minister Hilmi Guler said specifically Turkey was eyeing northern Iraq gas. Turkey's pipeline firm BOTAS announced it was studying a pipeline project to send gas along the same route as two pipelines pumping oil from northern Iraq to a Turkish port.

"We are looking forward really," said Abdul-Hadi al-Hasani, deputy chief of the Iraqi Parliament's Energy Committee, "to European government and companies to coming in and develop Iraq's oil industry."

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Iraq's energy sector -- oil, gas, power and fuels -- needs billions of dollars of investment, especially after Saddam Hussein's mismanagement and U.N. sanctions. Iraq could foot much of the bill but lacks the institutional capacity to spend its capital budget. And only part of the U.S. reconstruction effort in this area has been successful.

Disputes between the Kurdistan Regional Government and the central Iraqi government over control of the oil sector have stalled an oil law package that would, in part, govern how the oil sector is developed and how international oil firms would be able to invest.

The Kurds have gone on their own, signing deals and irking Baghdad while insisting the Constitution supports their efforts. Shahristani has called them illegal. He's beginning a process to sign deals without a law as well. A team from the Oil Ministry has been meeting with officials from Shell, BP, Chevron and ExxonMobil to negotiate special assistance deals on five key oil fields. Later this year the ministry will offer more fields for bidding.

Violence and other instability continue to take their toll on the energy sectors -- not to mention Iraqis themselves. Iraq oil production was praised for reaching 2.3 million barrels per day, but early estimates for January averages show it dropping by at least 100,000 bpd. This has affected, and been affected by, power outages in the middle of the month. Explosions, both accidental and malicious, are hampering refineries and electricity delivery.

"We are happy and open to working closely with Iraq," said Christiane Hohmann, spokeswoman for EU Commissioner for External Relations Benita Ferrero-Waldner, also at the Shahristani meetings. "The first problem which we always had is the security question, which is not new."

She said there are no official meetings planned, but Iraq has been invited to an upcoming ministerial conference on the Arab gas pipeline.

Source: United Presse International| by Ben Blando

MIDDLE EAST: Turkey in Iraq. Invation

2008-02-23T18:09:00.003+01:00

With oil purcolating at $100 a barrel, Turkey upped the pressure and waltzed 10,000 troops into Iraq on Friday to hunt Kurdish separatist insurgents.

Citing Turkish media, News agency Reuters reported fighter bombers were flying in support and referred to an Armed Forces Web site: “The Turkish Armed Forces, which attach great importance to Iraq's territorial integrity and stability, will return home in the shortest time possible after its goals have been achieved,” a General Staff statement said.

Turkish raids into Iraq have been known to trigger oil-trading.

Source: Scandoil

IRAN - IRAQ: Cooperating to develop of joint oilfields

2008-02-18T21:33:00.004+01:00

Iraqi Oil Minister Hussein al-Shahristani says there is general agreement with Iran on the need to establish a bilateral commission to invest in the development of joint oilfields, an Iraqi newspaper has reported.

Shahristani said Iran and Iraq will sign a bilateral agreement soon to invest in their joint oilfields, including the Majnoon field, al-Sabah quoted Shahristani as saying.

He described reports claiming that Iran has been exploiting the Majnoon oilfield as false. The Majnoon oilfield is located near the border with Iran, and it is estimated that it contains 30 billion barrels of oil, which makes it one of Iraq’s largest fields.

According to the U.S. Department of Energy, the Majnoon oilfield had a production capacity of 50,000 barrels a day prior to the U.S. invasion of Iraq in March 2003.

Source: Teheran Times

MIDDLE EAST: One strategy for Iraqi oil

2008-02-09T22:24:00.000+01:00

There's optimism in Iraq, at least from a mysterious cadre called the Energy Fusion Cell, which for the past eight months worked to bring coherence to both U.S. and Iraqi initiatives in the oil, gas and power sectors -- the backbone of its citizens' quality of life and the bulk of the national budget.

It's a U.S. creation for sure, spearheaded by Iraq,-based units in the Defense and State departments to meet U.S., U.N. and international finance and banking agreements. But it's now gotten active buy-in from a swath of Iraqi ministries in charge of building and protecting Iraq's energy sector.

"We offer advice to them on their own expressions of what their national policy is and give them the forum to come together with the coalition forces and the government of Iraq entities," one member told United Press International in a background conference call interview from Baghdad. "That wouldn't have happened a year ago" was a common refrain by members of EFC, which has weekly scheduled meetings and "a couple of layers of meetings ¿¿ led by the government of Iraq,."

Simplified, the EFC's goal is two-fold.
On a larger scale, to bring the Iraqi ministries of Oil, Electricity and Defense, as well as Planning, Finance, Water Resources and Interior to the table "to create an integrated energy policy for the country," which will also meet Iraq,'s economic obligations to the United Nations, International Monetary Fund and World Bank, a member said. "Vice President Barham Salih has adopted and is promoting" a first draft of the integrated energy strategy, UPI was told.

The EFC is also helping those Iraqi ministries apply the fundamentals of the strategy to current projects.

The electricity sector is dependent on oil and gas, and vice versa. Both require massive development and protection from insurgents and looters. "Getting them to collaborate in the past has been an issue and it seems to be moving to a more positive outlook, a more joint outlook," a member said.

Another member points to a recent combined Ministry of Electricity, Oil and Defense repair of a downed element of the energy sector, without U.S. support.

Power plants lacking fuel are getting "1 million liters a day shipped from Kuwait" and there are smaller projects ongoing to utilize the gas produced when pumping oil instead of just burning it.

But it's been a trying eight months, and efforts continue to be frustrated.

Violence this month has surpassed December -- the last of a successive seven-month decline -- and U.S. troop and Iraqi deaths are rivaling October numbers.

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Oil production, exports and, with higher oil prices, income in 2007 surpassed 2006, largely because of a mid-summer repair and security increase on the northern pipeline infrastructure. The electricity sector has steadily grown as well, from early summer complaints from Baghdad of powerless days to single day output records.

But oil production last month plateaued and earlier this month attacks, accidents and outages in refineries and other parts of the oil sector and power plants resembled the chaos of early last year with Iraqis in dire need of fuel and electricity in a harsh winter. The ministries of Electricity and Oil blamed each other. The Baiji refinery, Iraq,'s largest, may start running on a power generator instead of the power grid. And electricity towers could be moved near newly guarded pipelines.

"Progress is not linear here. There's still a war going on," an EFC member said. "But I think from a strategic standpoint there's clear progress being made."

Also nearly a year ago political factions were near agreement on a controversial draft oil law; now disputes over it and other oil issues are the largest wedge.

The EFC members said the oil law is "part of the diplomatic mission at the State Department," not theirs. But such legislation would fold into a national strategy, and the EFC members said proudly Iraq's government will work with the European Commission to create new electricity laws that would be modeled on Jordan's, "significant first-step accomplishments that have been done under the umbrella of the idea of the Energy Fusion Cell."

Political factions, especially on the national level, are shaping and reshaping alliances. Legislation on reversing early U.S. anti-Baath Party controls and changing the Iraqi flag were passed, but both met with loud critics from minority parties, highlighting the polarization in Baghdad.

It's not clear exactly how factions in stark disagreement on micro-energy policy will agree on a national strategy necessitating compromise instead of historic absolute control.

"The big political issues and tension ¿¿ is going to be settled at a political level above our pay grades," said an ever-optimistic EFC member. "The Energy Fusion Cell, along with the Iraqis, is pulling off a series of achievable successes. That's contagious."

Source: United Press International|by Ben Lando