Saturday, April 30, 2011

Russia bans gasoline export

Russia announced on Thursday it would not export any gasoline next month and would direct all sales to the domestic market in a bid to curb a recent shortage that saw a jump in prices, AFP reported.

"In May, the (Russian energy) companies are not going to export. All volumes will be delivered to the domestic market," news agencies quoted Deputy Energy Ministry Sergei Kudryashov as saying.

The move from the world’s leading oil producer came after two dozen Russian regions reported gasoline shortages, prompting Prime Minister Vladimir Putin to order officials to get to grips with the situation.

Kudryashov said Russia exported about three million tonnes of gasoline last year.

But this week, energy companies reported a recent jump in gasoline exports amid a surge in global energy prices.

The Russian domestic market remains tightly regulated and price increases have already resulted in probes and heavy fines against some of the country’s largest producers.

Several governors Russia’s Far North and Far East regions reported 30 percent increases in petrol prices and a general shortage of supplies.

The head of Russia’s largest private oil firm Lukoil forecast on Thursday a five to seven percent increase in short-term prices across the country and Kudryashov said that he expected an increase along the same lines.

But he flatly ruled out further government regulation of the market and hinted of stiffer export duties on gasoline exports in the months to come.

"We rule out the introduction of state regulation," the deputy energy minister said.

"There are other levers" he added in reference to higher export duties aimed at encouraging Russian producers to sell at home.

Russian Prime Minister Vladimir Putin has said that the country's oil industry would need more than 8.6 trillion roubles ($280bn; £180bn) of investment during the next 10 years.

Otherwise, it is estimated, oil extraction levels in Russia could fall 20% by 2020.

"It is important we create conditions for investment growth in technical upgrades of the fuel and energy system, and stimulate fuel companies to use new technologies which can provide greater returns in oil and gas production," Russian President Dmitry Medvedev told the country's Security Council earlier this week.

Both officials and ecologists have been saying that many Russian oil and gas pipelines and refineries are either reaching the end of their serviceable life or have even surpassed the mark, while ageing oil fields make companies think of how much it could cost to discover new ones.Could this situation put Russia in danger of losing a significant chunk of the global energy market?

Problems of Russian OilThe importance of serviceable life data must not be over-estimated, according to Anatoly Dmitrievsky, director of the Oil and Gas Research Institute of the Russian Academy of Sciences.

According to the government's estimates, Russia's known gas reserves stand at 165 trillion cubic metres.He added that while more than 50% of Russia's known oil reserves had indeed been extracted, "we still have not found about 60% of oil reserves in Russia, and have discovered only 25% of gas reserves".

Elena Anankina, credit analyst at Standard & Poor's, says that many Russian oil companies have oil reserves that will last 20 years, which is longer than what their western rivals have.

Thursday, April 28, 2011

Europe Diesel Import Dependency: Crisis Ahead

Mediterranean diesel: import dependency crisis ahead?

Mediterranean diesel trends not only depend on domestic demand and refineries but also on the diesel surpluses of its main diesel provider, Russia. Both markets need to be analysed to grasp future limitations.

 Mediterranean diesel demand

Diesel, currently the main oil product consumed in the Mediterranean, is expected to witness the largest increase in demand by 2015. Overall, Mediterranean diesel demand is expected to grow at an average rate of 1.8 per cent per year up to 2015. This growth is expected to be more sustained over the next 5 years (at around 2 per cent). Total Mediterranean diesel demand should increase from the current 180 Mt to nearly 215 Mt in 2015. In 2005, specifications for all diesel demand in the Mediterranean was above 50 parts per million (ppm). However, largely on account of EU policies, by 2010, 90 per cent of total diesel consumed in the region should switch to ultra-light sulphur (no more than 10 ppm). Around 1 per cent of the demand should be accounted for by 50 ppm products,

While only 9 per cent of diesel will remain above 50 ppm (see Fig. 3). At horizon 2015, the products of above 50 ppm are expected to account for less than 5 per cent of the total Mediterranean diesel demand. This slight increase is the consequence of expected fastgrowing transport demand in the south-west Mediterranean, where most countries are not following EU standards.

Most of the shift towards ultra-light sulphur products will occur in the north-west and more specifically, in the EU countries tied to specification targets by their EU policies. As a result, not only is diesel demand set to increase over time, but its specifications will have tightened drastically to meet environmental standards.

 Overall diesel imbalance
Upcoming refinery capacity additions will help sponge some of the increase in demand but will not be sufficient to match the increase in diesel Mediterranean demand by 2015. Mediterranean diesel deficit is expected to increase from –31 Mt in 2005 to –35 Mt in 2015 (see Fig. 4). The 2015 deficit figure includes the new Algerian refinery Tiaret capacity additions of around +6 Mt of diesel. If Tiaret is delayed, the overall Mediterranean deficit would surge to over –40 Mt in 2015.

Furthermore, within the Mediterranean, discrepancies prevail. The north Mediterranean and more specifically, the EU countries will account for most of this deficit with Italy, France and Spain as major diesel importers by 2015. Greece is expected to have comfortable surpluses, making up for some of its neighbours’ deficit. South-east Mediter-ranean is also expected to increase its diesel deficit significantly by 2015, mainly on
account of Turkey’s surging transport demand. Potential additional diesel exports within the Mediterranean will come from the south-west Mediterranean, mainly from Algeria.

Mediterranean diesel import dependency
The increasing diesel deficit at the Mediterranean level calls for increased import dependency of the region at horizon 2015. In 2015, indeed, over 35 Mt will need to be imported from outside the Mediterranean. At world level, Former Soviet Union (FSU) countries are expected to be major importers of middle distillates to the Mediterranean. Northern countries of the EU are also expected to provide the Mediterranean with middle distillates (IEA, 2006; Europia, 2007).

Currently, Russia supplies around 18 Mt of diesel directly to the Mediterranean region and around 6 Mt through northern Europe. Russia is the most important source of diesel for Europe and the Mediterranean. In 2005, Russia accounted for over 80 per cent of the total diesel Euro–Mediterranean imports. Concomitantly, Mediterranean diesel accounted for 70 per cent of the total Russian diesel exports in 2005. While there is no doubt that the Mediterranean will continue to be increasingly dependent on Russian diesel imports, qualms remain onwhether Russian diesel will be sufficient to cover both EU and Mediterranean needs in the coming years. Russia’s diesel prospects are, therefore, just as decisive to appraise Mediterranean future as its domestic trends.

 Russian demand and output prospects
Over the next decade, Russian diesel exports to Europe and the Mediterranean are expected to grow but at a slower pace than Euro–Mediterranean needs.The former Soviet countries, mainly Russia, supply the bulk of diesel fuel to the Euro–Mediterranean region.

Russia exports about 24 Mt. As shown in Table 1, the EU countries account for most of these imports; however, the Mediterranean EU is the largest importer of diesel in the region. Currently, European oil-producing and processing companies, while forecasting a future major shortage of diesel fuel, hope Russia will help them solve the problem. But foreign and Russian experts estimate that Russian oil companies are unlikely to seriously increase the output of diesel fuel (Izvestia, 2007).

Moreover, only 15 per cent of Russian diesel fuel supplied to Europe satisfies the Euro-4 standards. The rest undergoes further conversion at European plants. Russian oil demand is expected to grow at around 2.1 per cent per year on average by 2015 (IEA, 2006). With increasing domestic demand especially for diesel vehicles, Russian diesel demand is expected to outpace that of the total oil demand and increase at
2.4 per cent per year on average up to 2015. Russian diesel output is expected to increase from around 60 Mt in 2005 to reach about 82 Mt in 2015 (IEA, 2005; Koottungal, 2007).9 The concurrence of increase in demand and increasing output should lead to an expected surplus of around 49 Mt in 2015 (see Table 2).
According to Andrei Fyodorov (Izvestia, 2007), Russia can only partly make up for the shortage of diesel fuel in Europe. In his opinion, diesel fuel production is not a priority goal in Russia now, although the consumption of petrol and diesel fuel is expected to grow substantially.

He expects that producers will prefer to supply the domestic market rather than export. Besides, not all Russian refineries produce European-standard fuel. It is not profitable for Russian companies to increase the production of diesel fuel, as their plants are operating under an established scheme geared to a specific quality of oil.An increased production of all types of fuel without large-scale modernisation would result in the marketing of a large amount of fuel oil, which is not in demand. Furthermore, Nietvelt (2007) expects Russian companies will have no motivation for increasing the level of conversion, because the export duty on fuel oil is 22 per cent, and on diesel fuel, 42 per cent .Concomitantly, while Mediterranean diesel import needs are expected to increase from 31 Mt in 2005 to reach over 35 Mt in 2015, diesel import requirement of remaining EU is expected to reach 25 Mt in 2005. Overall, the Euro–Mediterranean diesel deficit is expected to reach about 60 Mt, while Russia’s diesel export potential should barely reach 49 Mt.

As a result, diesel trends are expected to lead to more than 10 Mt mismatch between the import requirement of the Euro–Mediterranean region and Russia’s export potential (see Fig. 5). Import dependency for diesel is, therefore, expected to be exacerbated in the region with no clear other import source to tap in the medium term.


To further this expected tightness, it is to be noted that while currently, 70 per cent of Russian diesel surpluses go to the Euro–Mediterranean zone, in the future, the growing demand from other regions with looser product specifications, and more specifically, Asia’s giant China, might attract some of this surplus, leaving less to fill in the Euro–Mediterranean deficit.

Wednesday, April 27, 2011

Gaddafi bypass UN fuel sanctions

U.N. diplomats in New York said they suspected Gaddafi's attempts to import gasoline might constitute a violation of U.N. Security Council sanctions banning any transactions with Libya's state-owned National Oil Corp (NOC).

One intermediary company, Hong Kong-based Champlink, previously unknown to the oil trading community, has sought a transaction for fuel delivery into Libya, and European oil traders said they had been approached by other such firms.

"Gaddafi's people are looking to buy gasoline, via (Tunisian port) La Skhira... and Champlink. They ship-to-ship at La Skhira," said a source with direct knowledge of the situation.

In a fax, obtained by Reuters, Champlink approached trading firms with an "urgent" request stating, "we have been appointed as procurers for end user in Libya and looking for ready shipments for gasoline."

The fax proposed either shipping directly to the western Libyan port of Zawiyah, near the capital Tripoli, or to Tunisia's La Skhira, to be transferred onto a waiting tanker.

The fax, dated April 1, requests fortnightly 25,000-tonne shipments of gasoline for the next six months, highlighting the possibility of "tanker-to-tanker transfer."

It said neither the cargo nor the end user company is on any international sanctions list.

Champlink's Bhagoo Hathey, whose signature is on the fax, confirmed in an email to Reuters last week that a shipment of 40,000 tonnes arrived at La Skhira earlier this month, but did not name the supplier or say whether or not the gasoline had been shipped on to Libya.

In a later email he denied receiving any shipment at La Skhira.

In a separate document seen by Reuters, a company called Afrimar Tunisia, which is part of Afrimar Group North Africa, sent a request on April 12 to shippers for a vessel with capacity to carry 40,000 tonnes of gasoline loading from Turkey to La Skhira for ship-to-ship transfer there.

The firm -- whose website shows it has a branch in Tripoli -- said it had two additional cargoes available from the end of April at two week intervals for which it needed to charter vessels.

Afrimar did not respond to an email enquiry and was not available for comment on Wednesday.

It is not known whether or not any shipments handled by Afrimar have reached Libya.

The United States, the United Nations and European Union imposed sanctions on the Libyan government and selected Libyan companies, including NOC, in late February and in March. It is not illegal for Libya to export or import oil or gasoline, but it is illegal to trade with NOC.

"We assume that somehow the NOC is involved at some level," a Security Council diplomat told Reuters.

He added that the council's Libya sanctions committee, which oversees compliance with the U.N. measures adopted on February 26 and March 17, has not been informed of the issue yet.

The sanctions on Libyan firms have left both government and rebel forces seeking fuel supplies, although shipments have begun to resume to rebel-held territory mainly in the east of the country.

While Gaddafi's government needs fuel to run its military assaults on rebels in the east and in the besieged, rebel-held western port of Misrata, as important for the stability of his rule is avoiding discontent in the capital by ensuring supplies of basic goods, including fuel for cars and public transport.

A month ago, shortages led to increasingly vocal complaints about the government. Residents reported long lines and even gunfights at petrol stations as people tried to stock up. The supply situation has markedly improved in recent weeks.


Oil trading and shipping sources said at least 120,000 tonnes of gasoline had arrived so far this month at La Skhira for ship-to-ship transfers, a figure that amounts to nearly half of Tunisia's annual imports.Libya imported gasoline from Italian refiner Saras in early April, taking advantage of a loophole in United Nations sanctions that permits purchases by companies not on a U.N. list of banned entities.

While La Skhira is used to trans-ship fuel to other countries in addition to Tunisia's domestic fuel needs, the volumes arriving there are unprecedented.

It was unclear which, if any, of the receiving vessels at La Skhira had then sailed for Libya.

OPEC member Libya is one of Africa's top crude oil producers but, even in peacetime, relies on gasoline imports because of inadequate refining capacity.

Libyan state television said on Tuesday Tripoli was working to ensure the arrival of several gasoline cargoes to meet demand, and that it had restored its refinery in Zawiyah to normal production capacity.

The sources said they know of three vessels transhipping gasoline in the port of La Skhira this month, and one of these cargoes had been picked up by a Libya-flagged vessel..The Valle di Navarra's owner, Navigazione Montanari SPA, said the tanker had been chartered by Saras for the voyage from Italy to Tunisia.

It was not clear whether Champlink or Afrimar was involved in any of these transactions.

A manager at the Tunisian importing body STIR, who asked not to be named, said he did not know of Champlink's existence, adding: "All imports to Tunisia are done by STIR and if there are other things going on, I am not aware of that."

A second source at STIR said Tunisia had received no gasoline imports into La Skhira for its own domestic use in April, which could imply the shipments were onward bound for Libya.

Saras is Italy's third-largest refiner with a 300,0000 barrel-per-day Sarroch unit on the Mediterranean island of Sardinia. The ship returned to Sarroch on 16 April, the tracking data shows.


Oil traders say they have been approached by several previously unheard of companies seeking to buy fuel to delivery into Libya. Several said they refused the offer because of the risk of breaching international sanctions.

"I had one enquiry for 10,000 tonnes from a company I had never heard of," said one trader, adding, "It's a difficult time, because you need to triple check all counterparties and make sure they are not breaching sanctions."

Although the United Nations named Libya's NOC and several subsidiaries on its list of entities whose assets were frozen, traders said they believed fuel deliveries could still be possible since it would take time to update sanctions lists to cover any newly emerging Libyan companies.

"My guess is that this can't continue. Refined products is one area of vulnerability for Gaddafi, but if the governments (imposing sanctions) have to play catch up on sanctions, then there is a window," said Saket Vemprala of research group Business Monitor International.

"From a military point of view, if the West can starve the government of fuels it will be important."

Oil traders have previously found ways of getting around international sanctions including those against Iran, Iraq and South Africa. Lawyers, though, say Libyan sanctions are robust by historical standards.

"Reloading products has always been big business. You re-do the bills of lading....this is nothing new as far as the industry is concerned," said a veteran oil products trader.

Saras S.p.A commented on its website:GXY9D7QB4EPP

With reference to the agency released by Reuters on April 26, 2011 at 
12.14, Saras S.p.A. denies having sold or delivered gasoline to Libya's General National Maritime  
Transport Company (GNMTC).  Saras S.p.A. is acting and has always acted in full compliance with 
all applicable restrictive measures concerning Libya.

Tuesday, April 26, 2011

US lifts sanctions, starts importing oil from Libya

President Obama on Tuesday authorized $25 million in non-lethal assistance to the Libyan opposition -- the first direct U.S. aid to the rebels after weeks of assessing their capabilities and intentions.

In a memo to the State Department and the Pentagon, Obama said he is using his so-called "drawdown authority" to give the opposition, led by the Transitional National Council in Benghazi, up to $25 million in surplus American goods to help protect civilians in rebel-held areas threatened by Libyan leader Muammar al-Qaddafi's forces. This falls short of providing military aid and weapons to the rebels, which some U.S. lawmakers have urged, most notably Arizona Sen. John McCain.

The U.S. and it's allies already have provided firepower in the form of airstrikes on Qaddafi defense sites as part of a U.N.-authorized no-fly zone intended to stop attacks on civilians. But the Obama administration has declined so far to pledge direct military aid to the rebels, as some have raised concerns about possible ties to terror groups.
The pledge of non-lethal aid includes medical supplies, uniforms, boots, tents, personal protective gear, radios and Halal meals, which are meals prepared according to Islamic tradition. But the money may not be used to offer Libyan rebels broader assistance, including cash, weapons or ammunition.
At the same time, the Obama administration has eased its sanctions against Libya to allow for the sale of oil controlled by the rebels. That move will allow Libya's opposition forces to use the income from oil sales to buy weapons and other supplies.

The U.S. Treasury Department's Office of Foreign Assets Control issued the order Tuesday. It will allow U.S. companies to engage in transactions involving oil, natural gas and other petroleum products if the petroleum exports will benefit the opposition Transitional National Council of Libya.
The new order modified sanctions the administration had imposed in February freezing $34 billion in assets held by Qaddafi, his family members and top government officials. The original order had imposed sanctions on Libya's oil companies.

Libyan government forces on Tuesday bombarded the port of Misrata, in a virtually nonstop assault on the sole lifeline of a battered population that has been under siege for the past two months.
While forces loyal to Qaddafi pulled out of the city over the weekend under pressure from NATO airstrikes, they have since unleashed a withering rocket and mortar barrage on Misrata that has killed dozens. The bombardment Tuesday was constant throughout the afternoon and into the evening, and loud explosions could be heard thundering across the city.

Mediterranean gasoline surplus and diesel shortage Volume 1

Despite an increase refinery capacities and an expected global reduction in oil product deficit in
the Mediterranean at horizon 2015, the future of the region appears troubled.With little time on their
hands to adjust and upgrade their refineries, Mediterranean countries will need to face the growing
demand for desulphurised diesel, while their current main provider, Russia, is looking less likely to
supply the required quantities and quality over the coming years. The increasing surpluses of gasoline
of the region seem to be likely to exceed the needs of its main importers, the USA and European
Union, and could possibly lead to future predicaments for the industry, the region and its populations.
Moreover, current and foreseen environmental measures are likely to reinforce the imbalance of the region.

The Case 
The Mediterranean region’s road transport is beaming. The demand for diesel has never been as high, and increasing. Refinery margins are high, and gasoline flows are uninterrupted to the thirsty American markets. However, the increasing mismatch of oil product supply and limited scope for capacity additions in the region are inducing a very tense situation.

The Mediterranean is facing an increasing Russian diesel-import dependency on one hand and a gasoline-export dependency to the USA on the other.2 While environmental restrictions are hindering new additions and upgrades in many parts of the Mediterranean,a shift in demand towards tighter product specification, mainly for transport, is pushing demand upwards and increasing the needs for upgrading units. The conversion units that are needed are costly and take a long time to build. Adding to these challenges is the prospect of Russian export potential lagging in volume and specification as well as a lesser need for gasoline to the USA.The challenge is a timely one but also raises future concerns on product outlets and providers. With only one main provider of diesel and one main outlet for gasoline, future trade prospects are demeaning Mediterranean oil product outlook.

This paper will first present the Mediterranean oil product demand and production outlook to examine the resulting imbalances and their evolution at horizon 2015. The analysis will then focus on, firstly, the diesel import challenge and will then proceed to examine the gasoline export prospects of the region, taking into consideration the domestic requirements of its main exporting and importing markets.

 Mediterranean oil products demand and output prospects

The Mediterranean oil products future outlook is marked by its growing demand, inadequate oil product output and limited capacity additions.

Mediterranean demand uneven trends

Currently, world oil demand stands at around 3.6 billion tonnes (Mt) of which 450Mt is in the Mediterranean region.3 In 2005, the Mediterranean region had a net deficit of –44Mt, including a net surplus of +12Mt of gasoline and a net diesel shortage of –31Mt. Data sources for oil demand and production include OME (2007), IEA (2006) and EC.

Total oil demand in the Mediterranean region is expected to increase at a slower pace compared with the past years, at an average growth of around 0.7 per cent per year, reaching to 486 Mt in 2015.4The increase in demand is set to strengthen after 2010. Oil products demand forecasts vary greatly, depending on the type of product considered. Two clear demand trends emerge in the Mediterranean future: a steady diesel demand growth and a receding gasoline demand. By 2015, middle distillates will remain, by far, the largest consumed
products. Residual fuel will have lost share to gasoline,while naphtha and liquefied petroleum gas will benefit from a robust growth in demand.

Gasoline and diesel accounted for over 50 per cent (235 Mt) of total Mediterranean oil demand in 2005 and are expected to account for 55 per cent (268 Mt) of total Mediterranean oil demand by 2015. The dieselisation trend is set to continue in the Mediterranean in the coming years, with an expected annual increase of diesel demand of +1.8 per cent per annum on average up to 2015, while gasoline demand is expected to decline at an average rate of around –0.3 per cent per year over the same period.

 Limited capacity increase and quality in the Mediterranean

From project phase to realisation, capacity additions take a minimum of 5–10 years to become operational because of the time constraints and environmental restrictions. There is hardly any place for additional increase within the time frame considered. Therefore, to horizon 2015, projects are known—either under completion or in agreement phase.

Overall, distillation capacity additions in the Mediterranean are expected to total over 39 Mt between 2005 and 2015. Taking into account the existing projects,5 most of the Mediterranean capacity additions are expected to take place in the south-west, notably through the Tiaret refinery project in Algeria (around 15 Mt) and in Spain and Portugal (around 13 Mt increase by 2015). In all other Mediterranean countries, capacity additions are limited and are mainly because of capacity creep.
Furthermore, most refinery upgrades are concentrated in meeting crude oil quality challenges and in increasing oil product quality specifications to meet new European Union (EU) regulations, not only in EU countries but also in most Mediterranean countries.

Crude oil quality is an issue that will have significant implications for the availability, affordability of oil products, as well as production of crude, its transportation by pipelines (i.e. corrosion) and refining. Besides those, crude quality is also an issue for the environment.

We are witnessing a gradual decline in the quality of crude oil being processed worldwide. For the refining industry, increase in sulphur and in density of crude oil trends have a significant impact on processing requirements, both desulphurisation capacity to produce high quality gasoline and diesel, as well as the conversion requirements to minimise fuel oil production,while meeting gasoline and diesel fuel demand requirements. Refiners will have to keep adjusting their upgrading capacity so as to be able to match the heavier supply barrel to the growing requirement for lighter products with less and less sulphur.

Overall, crude quality has been degrading and becoming more sour, and this trend seems unlikely to reverse through 2015. At a time when the USA, EU and progressively, more Asian countries are increasingly
capping the amount of sulphur in transportation fuels (because it can ruin catalytic converters in cars and cause damage to the environment), future crude quality is expected to continue to remain a major concern for Mediterranean refiners.

 Mediterranean output increase and demand mismatch

Up to 2015, refinery capacity is, therefore, expected to increase in the Mediterranean region at an average rate of 0.8 per cent per year. Refinery output will increase at a faster pace than capacity addition by 1.2 per cent per year over the same period on account of increased utilisation rates,which should bring refinery runs from the current 83 per cent to 87 per cent in 2015. Consequently, while refinery capacity is expected to reach 523 Mt in 2015 (a 33 Mt increase from 2005), refinery output should reach 473 Mt (a 53 Mt increase
from 2005) (Fig. 1). The increase in output will exceed that of the demand in the Mediterranean. Mediterranean refinery configurations, even for new projects, will enable increase in production not only for diesel but also for gasoline production.

All product outputs are expected to increase over time except for residual fuel.Residual fuel output has been declining and is expected to continue decreasing over time, leading to a reduction of around 13 Mt in 2015 compared with the current levels. Middle distillates supply, on the contrary, is expected to boom, increasing by 38 Mt by 2015. Gasoline and naphtha are also expected to contribute significantly to the increase in
supply, with additions of 13 and 10 Mt, respectively, by 2015.

As a result, limited oil demand growth, increased capacity and increased refinery output will lead the Mediterranean oil product balance to improve globally, more than halving the deficit of the Mediterranean region by 2015. By 2015, the total deficit is expected to amount to 21 Mt compared with the 44 Mt deficit in 2005. This improving product slate hides great disparities and an actual exacerbation of the current situation on a product basis (see Fig. 2). Most of this deficit will be the result of middle distillates deficit and more specifically, because of diesel shortages; all other major products are expected to be in surplus or near equilibrium (residual fuel6) by 2015.

Diesel and gasoline thus emerge as the two landmarks of future Mediterranean oil product trade predicaments. While diesel is in growing deficit, gasoline surpluses are surging—two interrelated and yet opposed trends and context.

Monday, April 25, 2011

US Short-Term Energy and Summer Fuels Outlook

    West Texas Intermediate (WTI) crude oil spot prices averaged $89 per barrel in February and $103 per barrel in March. The WTI price has continued to rise in recent days, reaching $112 on April 8. Crude oil prices are currently at their highest level since 2008. EIA expects oil markets to continue to tighten over the next two years given expected robust growth in world oil demand and slow growth in supply from non-Organization of the Petroleum Exporting Countries (non-OPEC) countries. These conditions result in an expected drawdown of global petroleum stocks and a call for increasing production from OPEC member countries, which will reduce surplus crude oil production capacity at a time when the disruption of crude oil exports from Libya and continuing unrest in other Middle East and North African (MENA) countries already highlight significant supply risks. Projected WTI prices average $106 in 2011 and $114 per barrel in 2012, increases of $5 per barrel and $9 per barrel, respectively, from last month's Outlook.

    The rise in crude oil prices is reflected in higher petroleum product prices. EIA projects that the retail price of regular-grade motor gasoline will average $3.86 per gallon during this summer’s driving season (the period between April 1 and September 30), up from $2.76 per gallon last summer. EIA forecasts the annual average regular retail gasoline price will increase from $2.78 per gallon in 2010 to $3.70 per gallon in 2011 and to $3.80 per gallon in 2012. Current market prices of futures and options contracts for gasoline suggest a 33-percent probability that the national monthly average retail price for regular gasoline could exceed $4.00 per gallon during July 2011.

Global Crude Oil and Liquid Fuels Consumption. 
World crude oil and liquid fuels consumption grew by an estimated 2.3 million bbl/d in 2010 to a record-high level of 86.7 million bbl/d. EIA expects that world liquid fuels consumption will grow by 1.5 million bbl/d in 2011 and by an additional 1.6 million bbl/d in 2012 . Countries outside the Organization for Economic Cooperation and Development (OECD) will make up almost all of the growth in consumption over the next two years, with the largest increases coming from China, Brazil, and the Middle East. EIA expects that, among the OECD regions, only North America will show growth in oil consumption over the next two years, offsetting declines in OECD Europe and Japan.

The projected increase in gasoline prices suggests that vehicle fueling costs for the average U.S. household will be about $825 higher in 2011 than they were in 2010. According to the 2009 National Household Travel Survey , U.S. households drove an average 20,251 miles with an average passenger car fuel efficiency of 22.6 miles per gallon. Assuming no change in travel or average fuel economy, the increase in the average annual gasoline retail price (all grades) from $2.40 per gallon in 2009 to $2.83 per gallon in 2010 and a projected $3.75 per gallon in 2011 implies an increase in average annual household expenditures on gasoline from $2,150 in 2009 to $2,535 in 2010 and $3,360 in 2011.

At the onset of the summer driving season (April 1) total gasoline stocks, at 215.7 million barrels, are 8.3 million barrels below the level of a year-ago, but still about 1 million barrels more than the previous 5-year average for beginning-of-season stocks. Stock withdrawals have not been a significant motor gasoline supply source for the summer season in recent years and are projected to average 48,000 bbl/d this summer, compared with 26,000 bbl/d last summer.

Continuing strong world demand for distillate fuels is forecast to contribute to continuing high U.S. net exports of distillate fuel averaging 500,000 bbl/d this summer, down slightly from 520,000 bbl/d last summer. In contrast, the United States was a net importer of distillate fuel, averaging 120,000 bbl/d during the summers of 2000 through 2007.

Saturday, April 23, 2011

Will Canada's Heavy Oil Sands rescue the US economy?

The past two years have been tough on the motorist, with oil prices at over $100/ barrel for much of the time and peaking at just over $122/barrel in april 2011. But in the long term, these historically high prices may prove to be beneficial for the motorist. For they are stimulating interest in the production of crude oil from unconventional sources, such as oil sands and coal, which tend to be uneconomic at low oil prices.

And eventually, when the oil does finally run out, it will be these unconventional sources that the motorist could turn to. Indeed, if the production infrastructure is set up now, they might even prevent the widespread disruption that has long been forecast for the end of the oil age.

According to the BP Statistical Review of World Energy 2010, in 1980, the remaining reserves of oil that could economically be extracted amounted to 668bn barrels. Oil consumption is 22bn barrels at 1980 which gives a 30 years of r/p ratio. By 2009, even though there had been an additional 30 years of oil consumption, remaining oil reserves had increased to 1333bn barrels. Total oil consumption through 2009 is 30bn barrels. Now r/p(reserve to production) ratio increased to 44 years. According to the 2010 statistics we will run out in around 2050. 

An even more pressing concern is that oil reserves are increasingly concentrated in a few, relatively unstable, areas of the world: the Middle East accounted for 56% of remaining oil reserves known in 2010, with Saudi Arabia alone accounting for 20%. It is conceivable that, at some point, the supply of oil from these areas could be shut off, due to conflict or the actions of an unfriendly government. These concerns are already affecting prices, with the Libya war and the increasingly Arab uprising movement, as well as high demand from countries such as China and India, greatly responsible for the high oil price.

The potential reserves available are huge. If all the world's unconventional sources could be transformed into oil, using current technology, it would produce 8800bn barrels. At the current oil consumption rate of 30bn barrels/year, this would last for 300 years. Furthermore, if more efficient ways for deriving crude oil from these sources could be developed, then the reserves would last even longer.

Potential oil reserves from different fossil fuel sources

Fossil fuel   Current reserves         Potential      Percentage
                                                   oil reserves
                                                 (bns of barrels) *

Crude oil     1300bn barrels           1200           12
Oil sands     4450bn barrels            3800           38
Oil shale      409bn t                       2800           28
Gas             180 trillion [m.sup.3]   1000           10
Coal            909bn t                       1200           12
Total             -                               10 000         100
Alberta Oil Sands: Facts and Statistics
  • Of the total 169.9 billion barrels of proven reserves, about 80% is considered recoverable by in situ methods and 20% by surface mining methods. Oil sands within 75 meters of the surface can be mined; whereas, oil sands below this threshold must be extracted using in situ methods.
  • In 2009, Alberta's production of crude bitumen was 1.5 million bbl/d; of this surface mining accounted for 55% and in situ for 45%.
  • In 2009, about 60% of crude bitument production was sent for upgrading to SCO in the province.As of August 2010, there were 91 active oil sands projects in Alberta. Of these, six mining projects have been approved; four of these projects are currently producing bitumen; and two are still under construction. The remaining projects use various in situ recovery methods.
  • By 2019, crude bitumen production is expected to more than double to 3.2 million bbl/d.
  • On average it takes about two tonnes of mined oil sands to produce a barrel of SCO.

The U.S. government is sending mixed signals to Canadian neighbors would be an understatement. In 2006, the U.S. was practically suggesting Canada to ramp up its oil sands production. Just two years ago (when oil was less than half of today's price of $120 per barrel), U.S. officials were asking the Canadian government to increase their oil sands production by fivefold.It's clear Us is looking to switch its Middle East oil addiction with Canadian oil sands.The fact is that production from oil sands has been increasing. Although it's not even close to the desired five million barrels per day, production from the Alberta oil sands is projected to be just under three million barrels per day by 2015. Production might reach that target another time.

Wednesday, April 20, 2011

Untapped Oil Reserves Could Fuel U.S. For 300 Years

Is Us running out of oil?

What is running low, given soaring demand for energy worldwide, is oil in fields that have already been tapped and are in production — in other words, the relatively easy-to-get stuff, which oil companies have proven exists and can get at with current technology. Those reserves are clearly being drained. The U.S. has around 20 billion barrels now, down from nearly 29 billion barrels a decade ago and about half the 1970 peak of 39 billion barrels. But…

The U.S. is sitting on the world’s largest, untapped oil reserves — reservoirs which energy experts know exist, but which have not yet been tapped and may not be attainable with current technology. In fact, such untapped reserves are estimated at about 2.3 trillion barrels, nearly three times more than the reserves held by Organization of Petroleum Exporting Countries (OPEC) nations and sufficient to meet 300 years of demand — at today’s levels — for auto, truck, aircraft, heating and industrial fuel, without importing a single barrel of oil.

What’s the problem then? Why aren’t oil companies jumping to pump the black gold?

Contrary to what some conspiracy theorists would have you believe, there is no cabal of oil companies and foreign governments blocking the way, bottling up U.S. oil production. The reality is much more mundane. Those untapped reserves are located in places that either Uncle Sam has put off-limits for environmental reasons or are too costly to get — or a combination of both.

Given current sky-high prices for crude oil and the likelihood that oil prices will remain high — at or above $100 a barrel — for the foreseeable future, it is now economically viable to tap some of those reserves. But environmental concerns — ranging from preservation of pristine lands to worries about increasing the use of fossil fuels and accelerating global climate change — remain a hurdle.

Here’s a look at some of the largest untapped reserves.

Oil shales: Oil extracted from shale fields represents the mother lode of untapped reserves, at about 1.5 trillion barrels — or 200 years worth of supply at current usage levels. Roughly two-thirds of the U.S.’s oil shale fields in Colorado, Wyoming and Utah are in federally-protected areas and closed to development. In addition, getting the oil out of the rock is a challenge, requiring cooking or chemical treatment of rock located as much as half a mile under the earth’s surface.To make oil shale production economically worthwhile, crude oil prices must remain above $50 a barrel for a protracted period. Given the outlook for continued high prices, oil companies such as ExxonMobil, Royal Dutch Shell Inc., EGL Resources, Brazil’s Petrobras and others are gearing up pilot projects on nonfederal lands. The potential is to produce 1 million barrels of oil a day within a decade from lands currently open — and several times that amount if the lawmakers give the green light to development of lands now off-limits.

Tar sands: Around 75 billion barrels of oil could come from tar sands, similar to Canadian fields, which now churn out a million barrels a day. The sands are located predominantly in Utah, Alaska, Texas and California, as well as in Alabama and Kentucky on federal and state lands that, by laws and administrative orders, are closed to mineral and petroleum development.

The outer continental shelf: Something in the neighborhood of 90 billion barrels of oil sit beneath the ocean bed 50 to 100 miles off the Atlantic, Pacific and Gulf coasts. Presidential bans and congressional prohibitions have put the tracts off-limits to oil company exploration at least until 2012, although there’s a chance that Congress may lift the moratorium before then. In recent months, several key policymakers, including GOP presidential candidate John McCain and Florida Governor Charles Crist Jr. (R), have reversed their positions on drilling in the OCS. Crist’s change of mind may signal a new trend. Concern about potential damage to his state’s beaches and Florida’s critical tourism industry had dictated his opposition to drilling off the state’s coasts. But the state’s growing budget woes — and the prospect of capturing some cash from off-shore leasing — is proving alluring.

The Bakken Play: With up to 100 billion barrels of oil, the reserves locked under rocks buried a mile or more beneath Montana and Saskatchewan, Canada, are more than twice the size of Alaskan’s entire oil cache. New drilling and oil recovery technologies are overcoming production obstacles and petroleum companies are rushing to stake their claims. Marathon Oil recently acquired about 200,000 acres in the area and will drill about 300 oil wells within five years. Brigham Exploration and Crescent Point Energy Trust also want a piece of the action. EOG Resources alone figures it can produce 80 million barrels of oil from its Bakken field. But It will take at least five years before the oil starts flowing in large volumes.
The Alaska National Wildlife Refuge: About 10 billion barrels of oil are locked away here, with little possibility that federal lawmakers will open the door.

Of course, it isn’t enough to simply get at the oil in these and other U.S. reserves. Providing major new supplies to U.S. consumers also requires a significant jump in refining capacity. But existing environmental regulations and community opposition make it tough to build new refineries. The last new domestic refinery was started up in 1976.

And even if the technology and political will came together to allow oil companies access to the untapped reserves, they’ll be reluctant to do so if the U.S. doesn’t also have the capacity to refine the petroleum produced.

Analyzing the US Oil Shale Market

Tuesday, April 19, 2011

US outlook for transportation fuel markets this summer

On April 12, the U.S. Energy Information Administration (EIA) released the April 2011 Short-Term Energy and Summer Fuels Outlook (Outlook) that includes a detailed look at the forecast for transportation fuels during the upcoming summer (April through September). Regular-grade gasoline retail prices, which averaged $2.76 per gallon last summer, are projected to average $3.86 per gallon during the 2011 driving season. The monthly average gasoline price is expected to peak at about $3.91 per gallon by mid-summer. Diesel fuel prices, which averaged $2.98 per gallon last summer, are projected to average $4.09 per gallon this summer. Weekly and daily national average prices can differ significantly from monthly and seasonal averages, and there are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 25 cents per gallon or more.

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are driven primarily by changes in crude oil prices and wholesale margins. The retail price projections in the Outlook reflect higher prices for the refiner acquisition cost of crude oil, which averages about $112 per barrel ($2.67 per gallon) this summer compared with the $75 per barrel ($1.78 per gallon) average of last summer. EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the refiner acquisition cost of crude oil) will average 53 cents per gallon this summer, up 18 cents per gallon from last summer and slightly higher than the previous 5-year average of 50 cents per gallon. Similarly, forecast wholesale diesel margins are higher this summer (60 cents per gallon) than last summer (40 cents per gallon).

The price forecast for transportation fuels is highly uncertain, in large part due to the uncertainty in the Outlook for crude oil prices. Both recent experience and the sizable participation in near-term futures options contracts (with a wide range of strike prices) clearly demonstrate that prices can move within a wide range in a relatively short period. For example, the lower and upper limits for the 95-percent confidence interval for the June 2011 WTI futures contract over the five trading days ending April 7, 2011 were $90 and $132 per barrel, respectively. (See the Outlook's discussion of Energy Price Volatility and Forecast Uncertainty). Realized crude oil prices that differ from our forecast would likely be reflected in the price of motor fuels, with each dollar-per-barrel sustained difference in crude oil prices relative to the forecasted prices translating into approximately a 2.4-cent-per-gallon difference in retail prices, absent consideration of factors specific to the markets for gasoline and diesel fuel. For the five trading days ending on April 7, 2011, market prices of futures and options contracts for gasoline suggest a 33-percent probability that the national monthly average retail price for regular gasoline could exceed $4.00 per gallon during summer 2011.

EIA projects gasoline consumption will average about 9.3 million barrels per day (bbl/d) over the summer, an increase of 45,000 bbl/d (0.5 percent) over last summer. Population growth and a recovering economy contribute to gasoline consumption growth, while higher gasoline prices and the increase in the Corporate Average Fuel Economy (CAFE) tend to moderate it. EIA expects distillate fuel consumption, which is more strongly affected by the continuing economic growth (particularly in industrial output and foreign trade), will average 3.8 million bbl/d, an increase of 87,000 bbl/d (2.3 percent) from last summer's average. Fuel ethanol blending into gasoline increased from an average of 735,000 bbl/d during the summer of 2009, to an average of 868,000 bbl/d during summer 2010 and EIA forecasts an average of 912,000 bbl/d this summer, which is about 9.8 percent of total gasoline consumption.

At the onset of the summer driving season, total motor gasoline stocks, at an estimated 215.7 million barrels, are 8 million barrels below the level of a year-ago, but 1 million barrels above the most recent 5-year average (2006-2010). Net imports of motor gasoline are projected to average 630,000 bbl/d, a decrease of 70,000 bbl/d from last summer. EIA projects the average total gasoline stock draw over the summer will be about 48,000 bbl/d compared with last summer's 26,000 bbl/d average stock draw and the previous 5-year average draw of 39,000 bbl/d. Distillate inventories started the summer season at 154 million barrels, 7 million barrels higher than this time last year and 26 million barrels higher than the previous 5-year average. Distillate stocks normally build during the summer season in preparation for winter heating demand. This summer's projected 7-million-barrel stock build is lower than the average 22-million-barrel build over the five previous summers and the 21-million-barrel build last summer.

In summary, our forecast calls for modest growth in motor gasoline and distillate fuel consumption, reflecting both continued economic growth and the restraining effects of higher crude oil and product prices compared with last summer.

Retail gasoline and diesel prices surge
The U.S. average retail price of regular gasoline surged this week, adding almost eleven cents versus last week. At $3.79 per gallon, gasoline is priced $0.93 per gallon higher than last year at this time; it is the highest price in April since EIA began tracking weekly data in 1990. For the second consecutive week, the biggest increase in the country was in the Midwest, where gasoline added more than 12 cents per gallon. On the Gulf Coast, gasoline prices jumped an even 12 cents per gallon. The East Coast saw its average gasoline price gain a dime. The West Coast average increased more than eight cents to $4.04 per gallon, the first time any major region has eclipsed $4 per gallon since August 11, 2008. Rounding out the regions, gasoline in the Rocky Mountains was about seven cents higher this week and remains the least expensive in the country at $3.57 per gallon.

Diesel prices added 10 cents this week to hit $4.08 per gallon. This is the first time the national average diesel price has been above $4 per gallon since September 2008. Diesel is $1.01 per gallon higher than last year at this time. Midwest diesel prices were up almost 11 cents per gallon, which was the biggest regional price increase in the Nation. East Coast diesel prices also saw a double-digit gain of 10 cent s per gallon. The West Coast and Gulf Coast both saw increases just under 10 cents per gallon. The Rocky Mountain region marked its 20th consecutive weekly increase by adding eight cents to last week's average price.

Propane inventories post a build
Total U.S. propane stocks received a build of almost 1.0 million barrels last week to end at 26.7 million. The largest build in stocks occurred in the Midwest region, with 1.2 million barrels of new inventory. The East Coast region added 0.2 million barrels and the Rocky Mountain/West Coast regional stocks grew slightly. The Gulf Coast regional inventories decreased by 0.5 million barrels. Propylene non-fuel use inventories represented 5.7 percent of total propane inventories.

Sunday, April 17, 2011

The impact of japan disaster and libya war on the oil market

Up until recently, crude oil prices had been trading in a higher but relatively narrow range, with the OPEC Reference Basket fluctuating between $106-$112/b (Graph 1). However, at the beginning of April, prices havemoved sharply higher to currently stand at $120/b. In light of the recent upswing in prices, it is worth taking a moment to review the factors driving recent oil price movements.

Prices initially spiked in February with the onset of the supply disruption in Libya and concerns that supply outages could spread to other producers in the Mideast and North Africa. Indeed, Libyan unrest has cut output by almost 80% from normal levels of 1.6 mb/d to around 250-300 tb/d, all of which is said to be consumed domestically. Given the quality of Libyan crude, this has widened the premium of light sweet grades. The bulk of these losses has been compensated by higher output from some Member Countries. As a result, estimated OPEC production in March stood at 29.3 mb/d, down slightly from the levels seen in December prior to the onset of unrest in the MENA region.

Supply concerns, and the associated risk premium, were later dampened to some degree by the triple catastrophe in Japan of the earthquake, tsunami and nuclear problems, which has led to a persistent disruption in the Japanese energy complex. The overall impact of the tragic events in Japan on oil consumption is far from clear. While the devastating earthquake caused a sudden decline in the country’s use of oil, this is likely to be broadly offset by the need to substitute some of its shut-in nuclear power capacity with oil-based generation.Moreover, with the start of reconstruction efforts — currently estimated at $300 billion — this is expected to require even higher energy use.

In the immediate aftermath of the earthquake, Japan has responded to product shortages by maximizing refinery runs at unaffected plants to deliver more products. At the same time, Japan has released around 66 mb from its strategic petroleum reserve (SPR) to ease fuel shortages. The country is also seeking a large inflow of crude oil to meet refinery demand and its need for crude-burning power generation. Even before, the disaster, Japan’s oil consumption was estimated to shrink by 1.5%. With the exception of 2010, this decline is a continuation of the trend of the past few years (Graph 2). Japan’s efficiency efforts along with the reduced consumption needs of its aging population are the main factors behind this trend.

The recent tragic events in Japan are having a strong impact on the country’s economic growth. The projection for Japan’s growth for this year has been lowered to minus 0.1% from a previous 1.5%. The heavily affected areas in Japan produce around 6% of GDP and another 1% might be impacted due to associated factors, such as power shortages. While this 7% shortfall is expected to have some impact on the first quarter, the major effects will be seen in the second quarter of this year. However, countermeasures by the administration and catch-up effects in the second half of 2011 should partially compensate some of the earlier decline. The negative impact on Japan’s trade partners in the Asian region is expected to be low and the shortfall for global economic growth is currently forecast at only 0.1%. As a result, the forecast for global growth in 2011 now stands at 3.9%.

While events in the MENA region and Japan continue to set the background for the market, more recently, crude oil prices have moved higher on concerns about potential unrest in some West African producing countries. Although global inventories have gradually been declining, they still remain above the historical trend, especially in terms of days of forward cover. Moreover, the current supply/demand balance shows that demand for OPEC crude is expected to average 29.0 mb/d in the second quarter, still below estimated OPEC production for March, indicating sufficient supply in the market. Despite this, crude oil prices still remain at high levels – out of step with the realities of supply and demand.

In terms of fundamentals, the recent events alone do not justify the current high price levels. Instead, these represent a sharp increase in the risk premium, reflecting fears of a shortage in the market in the coming quarters.Since the supply disruption in Libya, OPEC Members have accommodated most of the shortfall in production,ensuring that the market is well supplied.