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OPEC Sees Oil Glut Shrinking In Second Half Of Year

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OPEC Sees Oil Glut Shrinking In Second Half Of Year

OPEC forecasts that the world oil market will be more balanced in the second half of 2016 as outages in Nigeria and Canada help to speed up the erosion of a supply glut.

The Organization of the Petroleum Exporting Countries pointed in a monthly report to supply exceeding demand by just 160,000 barrels per day (bpd) in the second half. A surplus of 2.59 million bpd in the first quarter sent prices to a 12-year low.

Oil has risen to $50 a barrel from the 12-year low of $27 in January as the outages curb excess supply. These, say OPEC, are accelerating a tightening in the market it expected to happen anyway, as lower prices finally take their toll on higher-cost supply outside the group.

“The excess supply in the market is likely to ease over the coming quarters,” OPEC said in the report, published on Monday.

“Shutdowns in Nigeria and Canada tightened the oil market markedly and brought supply and demand more closely into alignment earlier than many had expected, bolstering prices.”

But OPEC cautioned: “Nevertheless, there is still a massive global supply overhang.”

Prices collapsed from $100 two years ago in a drop that deepened after OPEC refused to cut output, hoping lower prices would curb rival supply. With signs the strategy is working, OPEC at a June 2 meeting made no change to its output policy.

The price drop is hitting non-OPEC supply as companies have delayed or cancelled projects around the world. OPEC forecasts supply from outside producers will decline by 740,000 bpd in 2016 led by the United States, unchanged from last month.

OPEC supply had been climbing since the 2014 policy shift, reaching its highest since 2008 in April. But output fell by 100,000 bpd in May to 32.36 million bpd led by Nigeria, the report said citing secondary sources.

With demand for OPEC crude expected to rise to an average of 32.52 million bpd in the second half as non-OPEC supply falls and seasonal demand rises, OPEC’s report points to excess supply of 160,000 bpd if the group keeps pumping at May’s rate.

OPEC stuck with a forecast that world oil demand will rise by 1.20 million bpd this year.

The next closely watched report on global oil supply and demand is due on Tuesday from the International Energy Agency.

 

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Rising Oil Prices Encourage Shale Producers, Dissuade Investors

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Rising Oil Prices Encourage Shale Producers, Dissuade Investors

The oil market just hit a yellow light.

Crude’s advance of more than 90 percent from a 12-year low earlier this year has U.S. shale producers starting to return to their drilling rigs, threatening to slow further gains.

“The $50-to-$60 a barrel area is the sweet spot,” said Mark Watkins, the Park City, Utah-based regional investment manager for The Private Client Group of U.S. Bank, which oversees $128 billion of assets. “You start to have producers come back at $50, but a lot of them come in at $60.”

Money managers were cautious in the week ended June 7, betting more heavily on a price drop than on further gains, according to data from the Commodity Futures Trading Commission. WTI rose 2.6 percent to $50.36 a barrel on the New York Mercantile Exchange during the report week and fell 49 cents, or 1 percent, to $48.58 at 11:37 a.m. Singapore time on Monday.

Prices have climbed enough for Continental Resources Inc. to dispatch fracking crews to unfinished wells in the Bakken shale region, Chief Executive Officer Harold Hamm said June 9. Those wells were left uncompleted as tumbling prices forced explorers to halt projects to conserve shrinking cash flows. Helmerich & Payne Inc., the biggest drilling-rig contractor in the U.S., and Independence Contract Drilling Inc. said last week they were receiving more queries from oil explorers.

“Everyone is questioning the price when U.S. rigs come back,” Paul Sankey, an energy analyst at Wolfe Research LLC, said June 10 on Bloomberg Radio. “At $55-to-$60 we would return to growth in the U.S.”

The number of active oil rigs in the U.S. increased by three last week after jumping by nine in the prior seven days, the first back-to-back gain since August, Baker Hughes Inc. data show. U.S. crude production is still well below last year’s peak, and explorers have idled more than 1,000 oil rigs since the start of last year.

Forecasters including the International Energy Agency and Goldman Sachs agree that the crude glut is starting to dwindle as the Organization of Petroleum Exporting Countries’ policy of maintaining output squeezes out higher-cost rivals.

Global disruptions reached an average 3.6 million barrels a day last month, the most since the EIA began tracking outages in 2011. Fires that began early May in Alberta took out an average 800,000 barrels of Canadian supply last month, while Nigerian crude output dropped to the lowest in 27 years as militants increased attacks on pipelines in the Niger River delta.

“In April and May, before the worst of the disruptions, there was already a consensus that the market would be in balance the second half of the year,” said Michael Wittner, the New York-based head of oil-market research at Societe Generale SA. “Nigeria and Canada just accelerated the rebalancing.”

Hedge funds’ short position in WTI rose by 24,324 futures and options combined to 77,701, the biggest percentage gain in 11 months, CFTC data show. Longs, or bets on rising prices, increased by 17,065, reducing the net-long position by 3 percent.

Other Markets

In other markets, net bullish wagers on U.S. ultra low sulfur diesel dropped 8.8 percent to 14,115 contracts as futures climbed 2.9 percent. Net bullish bets on Nymex gasoline slipped 22 percent to 12,552 contracts, the lowest since November. Gasoline futures decreased 1.7 percent in the period.

The rally is setting up the conditions of its own demise, according to Watkins and Sankey. When the rigs return to the shale patch, prices will move lower.

“This is the most hated bull market in history,” Sankey said. “Everyone thinks it will end.”

 

 

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Royal IHC presents new solutions for offshore wind farm construction

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Royal IHC presents new solutions for offshore wind farm construction

IHC is expanding its extensive product portfolio with the introduction of innovative equipment for offshore wind farm installations. This includes a state-of-the-art, inter-array cable-laying vessel, and integrated jack-ups, both designed to facilitate more efficient operations.

Specialized tool for specialist operations

Based on knowledge of cable lay operations, from load-out at the cable manufacturer to burial of the cable into the seabed, IHC has designed a specialized vessel for specialist cable lay projects in Offshore wind. A lean approach in designing material flows and storage result in a right sized vessel for any project and will reduce costs for inter-array cable-laying operations by 20 to 30%.The two carousels below deck can be loaded simultaneously, which results in fast load-outs and thus saves time.

Cable storage below deck leaves plenty of deck space for an inline quadrant with a 50m track, making operations in deeper water possible. Containers to store the cable protection systems are positioned around the quadrant to ensure a safe and efficient flow of materials.

From design, to jacking system to complete jack-up vessel

IHC now offers an integrated approach to the design and build of jacking systems and complete Heavy-lift jack-up vessels, all designed with in-house components. This covers all aspects, including structural design, hydraulics, marine operations and automation, to ensure a safe and efficient jacking operation. IHC is capable of designing a complete jacking system with controls that allow for fully automated jacking and monitoring tailored to individual requirements. Because of our background in shipbuilding and ship design, we ensure you a sound integration in the jack-up vessel  Whether it is a IHC Jack-up design or a design from a third party. Besides the design approach, the scope of delivery is also flexible: from a basic design to a turnkey vessel; from its own shipyards or partner shipyards around the world, as well as separate components.

Noise mitigation technology

Another unique tool engineered to reduce costs is the noise mitigation system (NMS) from IHC IQIP, part of Royal IHC. It is the market leader for pile driving, noise reduction, and pile handling and guiding activities for the installation of monopiles, jackets and tripods at wind farms and substations. The NMS is the only proven technology for reducing noise during foundation installation. In addition, it allows for the safer and more accurate installation of monopiles.

 

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Coming Wave Of Gas Puts Focus On Finding New Shores

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Coming Wave Of Gas Puts Focus On Finding New Shores

Energy giants such as Royal Dutch Shell and Total are looking to build terminals and power plants in new markets to soak up the industry’s rapidly burgeoning supply.

Companies have invested billions in plants to produce liquefied natural gas (LNG) in places such as Australia and the United States.

But gas demand growth is slowing, prices are down and the LNG volumes companies are set to produce will exceed those even major buyers such as China and Japan can absorb.

That has turned attention to the downstream market and opportunities to create new markets from Ivory Coast to remote Indonesian islands by building gas-fired power plants, pipelines, regasification and storage terminals.

“We are ready to go downstream as much as it takes to unlock gas demand,” said Laurent Vivier, president for the gas division at Total.

“We need to be present in downstream ourselves, to create demand and unlock bottlenecks along the chain including regasification, pipelines and power plants.”

Total aims to triple the number of its gas and power markets and raise its annual LNG output to 20 million tonnes and its trading to 15 million tonnes by 2020.

The company is taking part in LNG infrastructure tenders, including several gas-fired power plants, in countries including Indonesia, Chile, Ivory Coast, Ghana and Morocco, Vivier said.

Shell believes the number of markets buying LNG could double, according to its chief financial officer, Simon Henry.

“From around 20 to 30 …we can see potential for around 50 different markets if you look out to 2030,” Henry said. “Our aim is to capture the best share of those who are looking now to start or grow.”

The focus on downstream mimics a model that companies such as Shell, Total, Exxon Mobil and Chevron have used for decades in the oil sector where their operations span oil wells, refineries and service stations.

But some analysts question how easily that model can be reproduced.

“Whether they succeed in this is another story, whether they have the mindset for this type of work is also another story,” said Thierry Bros, senior gas analyst at French bank Societe Generale.

“It will be a painful test for these companies who are not that experienced in building small downstream demand,” he said.

Technology

New technologies are helping speed development, with floating terminals, for example, offering a cheaper alternative to onshore units that cost more than $1 billion.

“We are looking at multiple markets around the world in terms of potential to regas,” said Shell’s Henry. “Quite a lot of it is floating regasification because it is quick and you can develop (a market) in stages.”

Shell, the world’s top LNG trader after buying BG Group, expects to produce around 30 million tonnes of LNG this year and trade nearly 50 million tonnes, accounting for about a sixth of global trading volume.

Global output capacity is expected to rise by half by 2020, potentially adding some 150 million tonnes of LNG to the market.

However, overall gas demand growth is expected to slow to 1.5 percent a year to 2021 from the 2.5 percent rate seen recently, the International Energy Agency has forecast.

In step with oil and gas, LNG prices have also struggled in the last two years. That has prompted traders to offer more single cargoes for immediate delivery on the spot market, making it easier for smaller buyers to find supply.

(Editing by Jason Neely)

 

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Consent for start-up of Rutil

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Consent for start-up of Rutil

The Norwegian Petroleum Directorate (NPD) has granted the licensees in Gullfaks (production licence 050) consent to start-up the facilities on the Rutil deposit on Gullfaks South, and to start producing.

Rutil is a gas-filled structure on Statoil-operated Gullfaks South, located in the Tampen area in the North Sea.

Rutil will be developed with a standard subsea template with four well slots (subsea template Q) with two gas production wells. The subsea template is tied-in to the existing infrastructure on the Gullfaks A facility for processing and export.

In the Plan for Development and Operation of Rutil, submitted in December 2014, the operator estimates that the in-place volumes are 17.9 billion Sm3 of gas and 2 million Sm3 of condensate. Expected recoverable reserves are 11.9 million standard oil equivalents.

The development has turned out to be far less expensive than expected. Investment costs are just under NOK 3.8 billion, while the PDO estimate was NOK 4.863 billion.

Production is scheduled to start in August/September 2016. This is several months earlier than the original plan (December 2016).

“The NPD is very pleased with the development of the Rutil project, which is expected to finish in less time and at a lower cost than originally planned,” says Tomas Mørch, assistant director of development and operations in the northern North Sea.

 

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Croatia Signs Contracts for Onshore Oil and Gas Exploration

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Croatia Signs Contracts for Onshore Oil and Gas Exploration

Croatia signed contracts on Friday with one local firm and one Canadian company that had been awarded onshore oil and gas exploration blocks in the north and east of the country.

Zagreb awarded four exploration blocks to Canada’s Vermilion and one block to Croatia’s energy firm INA, whose biggest shareholder is Hungary’s MOL, in June last year.

“We have secured an investment worth $75 million (500 million kuna) and much more if oil or gas are found. Croatia needs investments and this is a step towards a better investment climate,” Prime Minister Tihomir Oreskovic told reporters.

The exploration period will last five years and the concession for exploitation will be valid for 25 years in the case of a commercially viable discovery.

Another concession was awarded to Nigeria’s Oando Plc and that contract is due to be signed next week.

Economy Minister Tomislav Panenic said he planned to announce another round of tenders for onshore oil and gas exploration, possibly next month.

Under the previous government, Croatia was preparing to award offshore exploration and drilling licences in the Adriatic but the new centre-right government stopped them amid concerns they might harm the country’s lucrative tourist industry.

“There are no plans for oil exploration in the Adriatic,” Panenic said.

 

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Union: Petrobras 24-hour Strike Against Temer Will Not Cut Output

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Union: Petrobras 24-hour Strike Against Temer Will Not Cut Output

Brazil’s main oilworkers unions on Friday held a 24-hour strike as part of nationwide protests against the government of interim-President Michel Temer, attacking his oil policies and seeking the return of suspended President Dilma Rousseff.

The strike started just before midnight Thursday. Officials with the union, Sindipetro NF said there was almost no chance it would have an impact on operations at Petroleo Brasileiro SA , or Petrobras.

The union represents workers at Petrobras offshore oil fields responsible for the bulk of Brazilian output.

“There won’t be any oil production stops,” said Tezeu Bezerra, SindipetroNF’s communication director.

Petrobras said in a statement that it was operating normally despite the strike.

Bezerra, though, hopes workers can use this protest to boost support for a bigger strike later against what they believe is Temer’s desire to sell Petrobras and Brazilian resources to foreigners.

They also want the return of leftist Rousseff, who was suspended in May and replaced by Temer for up to 180 days while she faces a trial in the Senate on charges she broke budget laws.

Unions in November staged their biggest strike in 20 years in protest against plans by the Rousseff government to reduce the company’s $130 billion of debt, the largest in the oil industry, by selling up to $15 billion of assets by the end of 2016.

While the sales were announced under Rousseff, only a little more than $1 billion has been sold to date. Temer has appointed a new Petrobras chief executive, Pedro Parente, who is expected to speed up sales.

Despite the nearly three-week strike in November, Petrobras output in the month fell less than 2 percent. Several factors have prevented Brazil’s oil unions from being able to use strikes to win their demands.

Brazilian labor laws require unions to advise companies of future strikes, making it easier for Petrobras to make contingency plans, making it hard for a strike to have significant impact on company production if it lasts less than a week.

Wildcat strikes can also break the law if a walkout is done in a way that jeopardizes safety.

While many Petrobras workers want the company to remain state-controlled, union leaders have demanded 100 percent nationalization of oil and expulsion of foreign oil companies from Brazil.

 

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Oil Demand Boosted As Global Refinery Capacity To Reach Record

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Oil Demand Boosted As Global Refinery Capacity To Reach Record

Oil demand is set to surge in the short-term as refining capacity hits a record, yet the gains may not hold as a flood of fuel gluts the market, eroding profit margins and eventually forcing refiners to cut runs and crude orders.

Data on Thomson Reuters Eikon shows that available global capacity to refine oil into fuels like gasoline, diesel, or jet and shipping fuel, will reach 101.8 million barrels per day (bpd) in August, the highest on record, and up from about 97.25 million bpd in March.

Of this capacity, at least 80 million to 85 million bpd will be utilized over the upcoming northern hemisphere summer months, several refiners and oil traders estimated, triggering strong demand for crude oil as a feedstock, pushing up prices.

“A lot of (crude oil) buying for that (refining demand) is in the process of being done right now. It is a seasonally bullish sign,” said Virendra Chauhan of consultancy Energy Aspects.

The refining surge is occurring just as supply disruptions – including Canadian wildfires, Nigerian sabotage, and output cuts in the United States, Venezuela, and Asia – tighten crude supplies.

With disruptions amounting to 2.5 million bpd, global crude output is likely below 95 million bpd, and producers will be taxed to meet refining demand because of competing purchases for stockpiling, such as China’s and India’s strategic petroleum reserves.

Yet the refinery surge may not sustain itself as the reserve capacity, the difference between available and installed capacity, is about to fall below half a million bpd, the tightest since late 2013, the data shows.

Also, as refiners process more crude into fuels than consumers can absorb, they will eventually have to cut output, reducing demand for oil and leading to lower prices.

“Until new refineries are built, refining activity and, by extension refinery crude demand can basically only go down as facilities either go into unplanned outage or refinery runs are cut to reduce an emerging product glut,” said a senior oil trader in Singapore.

There are also ongoing economic worries, especially in Asia, where most oil demand growth has occurred over the past years.

“China’s economic engine… has begun to sputter,” said Frederic Neumann, HSBC’s co-head of Asian economics research in a note on Friday. “For the global economy that represents a problem.”

Still, the overall installed capacity of 102.25 million bpd will present a new base layer of demand for crude that should help support oil prices in the long-term.

While these developments are significant for oil producers and fuel refiners, consumers are unlikely to notice much of this at the pump since refiners will wind up eating most of the cost as their profits are squeezed by a product glut and the price of crude.

 

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How Far Can Oil Rally? Options Investors Bet on Surge Above $100

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How Far Can Oil Rally? Options Investors Bet on Surge Above $100

Oil investors are buying contracts that will only pay out if crude rises well above $100 a barrel over the next four years – a clear sign some believe today’s bust is sowing the seeds of the next boom.

The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch as oil companies cut billions of dollars in spending on developing fields. The International Energy Agency forecasts that non-OPEC supply will suffer its biggest decline in more than two decades this year.

“The market faces a supply crunch in the next 24 months,” said Francisco Blanch, head of commodities research at Bank of America Merrill Lynch in New York. “Some hedge funds are betting that oil prices will need to rise sharply to bring demand down again – that’s why they are buying deep out-of-the-money call options.”

Over the last month, investors have bought call options – giving the right to buy at a predetermined price and time – for late 2018, 2019 and 2020 at strike prices of $80, $100 and $110 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp.

Even before the most recent flurry, some investors had already built super-bullish positions. The largest number of outstanding contracts – or open interest – across both bullish and bearish options contracts for December 2018 is for calls at $125 a barrel. For December 2020, it’s for $150 calls.

Earlier this month, one investor bought more than 4 million barrels worth of call options at $110 and $80 a barrel for 2019 and 2020 in several transactions. In addition, another 800,000 barrels worth of $60 a barrel call also changed hands. The deals are public because of new regulations introduced in the U.S. by the Dodd-Frank Act. The disclosures don’t reveal the final buyer.

Funds making the trades aren’t necessarily expecting prices to jump as high as $100 to $150 a barrel, as the value of their call options will increase even if prices rise far less. These kind of options speculators are buying are often seen as lottery tickets because of they offer an outside chance of very large returns.

The options deals suggest sentiment is starting to shift from worry about oversupply to concern about shortages as demand begins to outstrip production – the traditional boom and bust commodities cycle.

“Large spending cuts on the back of low oil prices will lead to the demand and supply gap widening from 2018 onwards, if not earlier,” Abhishek Deshpande, oil analyst at Natixis SA in London, said. “This is likely to push oil prices up as early as 2017,” he added.

There are also reasons to be skeptical that this year’s rally from less than $30 in January to more than $50 today will be sustained. Production outages in Canada and elsewhere will probably prove temporary, U.S. shale producers may bring fields back on line as prices rise and global stockpiles remain well above historical averages.

Last year, some investors took the opposite bet, buying large amounts of bearish put options that would only pay if prices plunged below $30 a barrel. When West Texas Intermediate oil briefly fell in February to a 12-year low of $26.05 a barrel, the value of those options surged and speculators cashed in.

 

 

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Siemens improves subsea Ethernet communication

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Siemens improves subsea Ethernet communication

Siemens has successfully developed and tested a new cost efficient product for better subsea Ethernet communication. The Advanced Converter & Switch (ACS) is making it possible to communicate at higher data rates and over longer lengths, then with the current electrical distribution technology. The ACS increases precision and effectiveness of subsea communication. This transparent communication solution can be used for connecting to existing subsea fields, for field extensions or for new developments. Over all resulting in a simple and cost-effective solution for both brownfield and greenfield applications of subsea Ethernet. The ACS is qualified to industry standards and ready for the market May 2016.

The ACS is a reliable and cost-efficient alternative to conventional upgrades of existing subsea equipment from old communication standards to Ethernet and/or fiber. It does so by linking the existing, reliable and cost-efficient technology of copper cables with fiber technology for longer lengths which achieves high speed communication for longer distances in a subsea communication network. This includes communication between sensors and control systems subsea, as well as subsea to topside communication. The result is a product that can be installed to enhance communication and data transfer from brownfields and new developments on longer and more complex step outs.

Siemens has developed a fully-qualified product that can combine and convert various types of communication up to 84 km at 3000MBSL. Today, costly umbilicals, canisters and control modules are used to distribute and convert different types of signals over longer distances subsea.

Ethernet is commonly used technology for communication from platform or land to the sea floor, and for communication on subsea applications such as interfacing sensors and as the main communication tool between electronic control modules. Its capability to provide an extended capacity is due to the relatively high bandwidth. In line with conventional standards, Ethernet-based communication on twisted copper pairs is today limited to 100 meters, thus making communication limited within the confines of the same Christmas tree. Conversely, optical fiber is capable of longer distances and, if used instead of electrical lines, the maximum distance for distributing Ethernet is increased dramatically, making communication between different Christmas trees feasible.

The basic design of the ACS comprises one-atmospheric chamber housing, a PCB card (Printed Circuit Board) and a glass-to-metal penetrator on the copper side and glass-to-glass on the fiber side. This gives a field proven sealing for the one atmospheric chamber. Its modular design may be configured in various ways, providing the possibility to combine several fiber optic and/or electrical Ethernet interfaces integrated to a flying lead, sensor harness, umbilical termination, or even a subsea Ethernet switch. The solution is based on the well field-proven Siemens Subsea products, as it is based on proven distribution technology for fiber and electrical signals and umbilical terminations. Same sealing technology as used on the Siemens Advanced Fiber Terminations (AFT) and Advanced Cable Terminations (ACT).

Performance can be monitored continuously or when necessary and does not require reconfiguration if units connected to the electrical subsea interfaces are replaced or upgraded. Challenges in power consumption, EMC, signal monitoring and conversions have been solved with the development of the modular PCB card, specially designed for installation in existing and field proven subsea technology.

 

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