Crude Oil Market Updates 26032017

Venezuela, Shell, Keystone XL, Libyan Oil, and Saudi Arabia

• Venezuela Suffering Through Gasoline Shortage
• Shell Oil Spills Led to 'Astonishingly High' Pollution in Nigeria
• More Hurdles Ahead for Keystone XL, TransCanada Head Tells Trump
• Libyan Oil Output Rises To 700,000 Barrels Per Day After Port Fighting Ends: NOC
• Saudi Arabia May Insist On Iran Oil Output Cuts To Continue OPEC Deal

Venezuela Suffering Through Gasoline Shortage

Venezuela suffering through gasoline shortage. Gasoline lines are growing in Caracas as Venezuela’s state-owned PDVSA is rumored to be struggling to pay for imported fuel. “They’re not importing enough because they are saving up to pay the debt,” Jose Brito, an opposition lawmaker in Venezuela told Bloomberg. “It’s unbelievable that this is happening in an oil producing country.” The economic crisis in Venezuela is worsening and there are growing fears of a default this year.
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Venezuela’s state oil company was rushing to replenish gasoline supplies in various neighborhoods of Caracas on Thursday as drivers lined up at filling stations amid a worsening shortage of fuel.

While Petroleos de Venezuela SA says the situation is normalizing and blamed the lines on transport delays, the opposition says the company has had to reduce costly fuel imports as it tries to preserve cash to pay its foreign debt. Tanker trucks were seen in several neighborhoods of the capital city resupplying filling stations after local newspaper El Nacional reported widespread shortages across the country.

“Yesterday, I went to three filling stations and I couldn’t fill my tank,” Freddy Bautista, a 26-year-old student, said in an interview while waiting outside of a gas station in the Las Mercedes area of eastern Caracas on Thursday. “I’ve been waiting 30 minutes here, and it seems like I’ll be able to fill up today.”

As the company’s crumbling refineries fail to meet domestic demand, imports have become a financial burden because the country buys fuel abroad at market prices only to sell it for pennies per gallon at home. PDVSA, as the state-run producer is known, has been reducing the money-losing imports as it prepares for $2 billion in bond payments due next month, said Jose Brito, an opposition lawmaker on the National Assembly’s oil commission.

“They’re not importing enough because they are saving up to pay the debt,” he said in a telephone interview. “It’s unbelievable that this is happening in an oil producing country.”

Call for Calm

Ysmel Serrano, commercial and supply vice president at PDVSA, said on Twitter late Wednesday that the company has sufficient supply from its refineries and is working to increase shipments to stabilize distribution after transportation delays led to lines at gasoline stations in four states.

“We call for calm and to resist false rumors from sectors trying to create chaos in the country!” Serrano said.

The comments came just hours after the company said it had controlled a “minor” fire at the Amuay refinery in Falcon state, the largest refining complex in the country where a 2012 explosion killed dozens of people.

PDVSA’s press department on Thursday declined to make additional comments when contacted by Bloomberg News, but said it may release more information later in the day.

Shortages of Everything

The hunt for gasoline is just the latest headache for consumers after years of severe economic contraction and triple-digit inflation have produced shortages of everything from bread to antibiotics. Long accustomed to the world’s cheapest gasoline in the country with the world’s largest oil reserves, now Venezuelans are worried they’ll lack fuel, too.

Venezuela has been forced to increase imports of finished gasoline and components over the past years as its refinery utilization rates declined because of deteriorating infrastructure and under-investment. The country imported about 75,000 barrels a day of refined products from the U.S. in 2016, according to the U.S. Energy Information Administration.

In Caracas’ eastern Sucre municipality, around 20 cars were lined up outside of a PDVSA gas station trying to fill up. National police in the Las Mercedes part of the city, meanwhile, were trying to prevent lines from forming outside of filling stations there.
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Outside of Caracas, El Carabobeno, a newspaper based in the central city of Valencia, reported widespread line there.

Shell Oil Spills Led to 'Astonishingly High' Pollution in Nigeria

Shell admitted liability for two large oil spills from a broken pipeline in 2008 in Bodo, a Niger Delta fishing community that, according to U.K. court claims, was inundated with over 500,000 barrels of oil -- roughly twice the amount when the Exxon Valdez ran aground in Alaska in 1989

Royal Dutch Shell PLC oil spills that haven't been cleaned up for over eight years have contributed to "astonishingly high" levels of pollution in a Nigerian community, according to a consultant who helped produce a confidential damage assessment for Shell and its partners in the cleanup.

Shell admitted liability for two large oil spills from a broken pipeline in 2008 in Bodo, a Niger Delta fishing community that, according to U.K. court claims, was inundated with over 500,000 barrels of oil -- roughly twice the amount when the Exxon Valdez ran aground in Alaska in 1989. Shell disputed the volume of the spills but reached an out-of-court settlement with the community for GBP55 million in 2015 -- or around $80 million at the time -- after facing a lawsuit in London.

An environmental damage study was also conducted that year as part of efforts to clean up the area under the Bodo Mediation Initiative, which included Shell's Nigerian subsidiary, civil society groups, and members of the local community and government.

The study found that "astonishingly high" levels of pollution remained in Bodo's mangroves and creeks years after the spill, endangering the community, wrote Kay Holtzmann, the former director of the cleanup project, in a Jan. 26 letter to the Bodo Mediation Initiative, which was seen by The Wall Street Journal.

"The soil in the mangroves is literally soaked with hydrocarbons," wrote Mr. Holtzmann, who oversaw the study but no longer works for the initiative. "Whoever is walking in the creeks cannot avoid contact with toxic substances."

Mr. Holtzmann wrote that the study dictated a need for health screenings and should be widely publicized. He wrote that Shell has denied him permission to publish the study's results in a scientific journal and exposed Bodo, an expanse of Niger Delta swamp and mangroves, to dangerous levels of toxins.

"SPDC has no right to conceal data important for the public although they might be unpleasant," the letter said, referring to Shell Petroleum Development Co. of Nigeria, the Anglo-Dutch company's Nigerian subsidiary.

Shell said the analysis didn't reveal any information that hadn't been previously established by a United Nations Environment Program report on pollution levels in Ogoniland, the part of the Niger Delta where Bodo is located.

The 2011 report revealed high levels of contamination that could take as long as 30 years to fully clean up. In an interview, UNEP's executive director Erik Solheim described the current situation in Ogoniland as "one of the biggest environmental scandals and catastrophes anywhere in the world."
According to people familiar with the matter, complex disputes between the company and the local community have stalled cleanup efforts in Bodo and attempts to communicate findings from the assessment, though they were shared with local representatives and government agencies. The environmental damage caused by the 2008 spills has also been compounded by illegal refining in the area, the people said.

The oil-rich Niger Delta has been a center for Shell's oil production for decades, but aging infrastructure and widespread sabotage and theft have resulted in regular oil spills that ravaged the local environment. Shell maintains that the bulk of the oil spills in the Niger Delta are caused by sabotage, theft and illegal refining.

Efforts to improve the situation in Bodo have been plagued by mistrust, local power struggles, and disputes over how money for the work would be distributed, according to Inemo Samiama, chairman of the Bodo Mediation Initiative. In late 2015, the camp where cleanup contractors were staying was attacked, effectively halting work until now, the people said.

In response to the concerns raised in Mr. Holtzmann's letter, Mr. Samiama said: "The number one solution to dealing with the health consequences is to start the cleanup."

Leigh Day, the law firm that represented the Bodo community, wrote to Shell in January to request clarification after receiving a copy of Mr. Holtzmann's letter. The law firm said it had yet to receive a response.
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"We're extremely concerned," said Daniel Leader, a partner at Leigh Day who worked on the Bodo case. "We have been asking for health testing and to check the water supply for many years and they have simply not done it."
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More Hurdles Ahead for Keystone XL, TransCanada Head Tells Trump

Trump Says Keystone XL Approval Is a 'Great Day for Jobs'

TransCanada Corp. said there’s more "work to do” before it can start construction of the $8 billion Keystone XL pipeline.

The controversial project, which would help bring crude from Canada’s oil-sands to the U.S. Gulf Coast, was approved by the Trump administration Friday. Other permissions, including from states along the way and the U.S. Interior Department, are still required.

Foes including environmentalists and local landowners have vowed to continue fighting the pipeline, first proposed more than 8 years ago. President Donald Trump, in an appearance with TransCanada CEO Russ Girling at the White House, said the decision represented the start of a new era in energy policy.

The policy is designed “to lower costs for American families and very significantly reduce our dependence on foreign oil and create thousands of jobs," Trump said. Pipelines are the safest way to transport oil, the president said, adding that Keystone XL was just one of many energy projects he’s planning to approve.

Once built, Keystone XL will run from Canada through Montana, South Dakota and Nebraska, where it connects to pipes traveling to Gulf Coast refineries. Asked by Trump when construction would begin, TransCanada Chief Executive Officer Russ Girling said there remains "work to do in Nebraska” first.
Energized landowners in that state have already forced changes to the project in regulatory reviews. Trump said he would contact Nebraska officials to help TransCanada get the necessary approvals.

Job Creation

Both Girling and Trump in their comments said the project would create thousands of U.S. jobs, though foes say many will be temporary construction positions and that falling oil prices since the project was planned undercut its usefulness. Under President Barack Obama, the U.S. State Department estimated Keystone XL would create about 42,100 jobs for the two-year construction period, including direct and in-direct spending.

Once operational, though, the pipeline would only require about 50 employees in the U.S., including 35 permanent workers and 15 temporary contractors, according to the estimate.
With a nod to Trump’s buy-American drive, TransCanada also said it will acquire 200 miles of pipe made with U.S. steel. The company previously estimated that about half of the 660,000 tons of steel used in the U.S. portion of the pipeline would come from domestic producers, specifically a pipe mill in Little Rock, Arkansas. The remaining 50 percent was to be supplied by pipe mills in Canada, Italy and India.

The new 200 miles of pipe will increase the use of American steel for the project to more than 50 percent, according to Terry Cunha, a company spokesman. The company also said it will end legal claims taken against U.S. after then-President Barack Obama declined to approve it in 2015.
"It’s a great day for our company, and the workers that are going to be put to work," Girling said at the White House. The company’s shares rose 1 percent in trading in New York.
 
The federal thumbs-up was expected, but the challenges remaining for the TransCanada project are significant, said Christi Tezak, managing director of research at ClearView Energy Partners LLC in Washington.

"We expect environmental groups and landowners to try to slow down or halt necessary proceedings for TransCanada to begin construction in each state," she said. While lawsuits arguing the project violated the National Environmental Policy Act are unlikely to be successful, "it’s certainly their prerogative to fight it," Tezak said by telephone.
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Fossil fuel opponents have said Keystone XL will encourage the development of Canadian oil sands crude, which generally requires more energy to extract and process, and that it endangers drinking water resources in America’s heartland. More recently, they’ve pointed to the changing economic backdrop for the project.

Price Drop

West Texas Intermediate crude oil, the U.S. benchmark, traded near $100 a barrel when the State Department’s final environmental study was issued in January 2014 but has slumped by roughly half, now hovering near $50 a barrel. Meanwhile, the Canadian government has approved other projects carrying crude from its oil sands.

“The Trump administration may be furiously propping up an obsolete energy system at the behest of his fossil fuel cronies, but the majority of people in this country want action on climate change," said Annie Leonard, Greenpeace USA’s executive director, in a statement. The group urged bankers to refuse to provide financial services to TransCanada that could be used to help construct the pipeline.

The approval comes as another controversial project stalled by the Obama administration, the Dakota Access pipeline, nears completion after legal actions by protesters fell short. Energy Transfer Partners LP, the majority owner, is now filling the pipeline, and has said it will begin shipping oil in the first half.
Both Keystone XL, designed to carry 830,000 barrels of oil a day, and Dakota Access, with a capacity of 470,000 barrels, have been political flash points in Washington.

Differing Views

Former President Obama supported environmental and economic arguments against the projects, rejecting the project after a State Department review found Keystone didn’t serve the national interest. During his campaign, Trump vowed to support energy companies and advocate for new infrastructure, though he specified the work should be done using materials produced in the U.S.

Earlier this month, Secretary of State Rex Tillerson, who formerly served as Exxon Mobil Corp.’s chairman and CEO, recused himself from the agency’s deliberations. Tillerson was a vocal advocate for Keystone while at Exxon, saying it would improve U.S. energy security and competitiveness.

The permit formally approving Keystone XL was signed by Under Secretary of State for Political Affairs Thomas Shannon, according to a statement from the agency.

TransCanada also reapplied for approval in Nebraska, a state that created legal hurdles for the company during the initial project review. Keystone generated heated opposition from landowners in the pipeline’s path who challenged state laws that helped determine the route. TransCanada eventually surrendered to a review by the state Public Service Commission before the project was rejected in its entirety by Obama.
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Libyan Oil Output Rises To 700,000 Barrels Per Day After Port Fighting Ends: NOC
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Libya's oil production has reached 700,000 barrels per day (bpd), the National Oil Corporation (NOC) said on Wednesday, recovering from a drop earlier this month caused by fighting at two key oil ports.
"We are working very hard to reach 800,000 barrels by the end of April 2017, and, God willing, we will reach 1.1 million barrels next August," NOC Chairman Mustafa Sanalla was quoted as saying in a statement.

The NOC said in a separate statement it hoped to produce 55,000 bpd in the coming weeks from the Abu Attifel and Rimal fields, which are currently closed for maintenance.

The fields are operated by Mellitah Oil and Gas, a joint venture between the NOC and Italy's ENI. The NOC said Mellitah is currently producing 41,000 bpd from onshore and offshore fields, as well as 43,000 bpd of condensate.

Libya's output fell to around 600,000 bpd after eastern security forces lost control on March 3 of the major oil terminals of Es Sider and Ras Lanuf, before regaining them 11 days later.

Sanalla has said he expects to retain control over operations at the ports, despite some officials in eastern Libya appearing to cast doubt over continuing cooperation with the NOC in Tripoli.
Workers at the ports have been gradually returning to their posts, and a tanker is expected to load of crude at Es Sider on Saturday or Sunday, according to shipping sources.

Production at Waha oilfield, which was halted this month, has risen to 35,000 bpd, a field engineer said. Waha Oil Co, which operates the field, is hoping to raise production from all its fields to 80,000 bpd by the end of March and to more than 100,000 bpd by mid April.

The NOC said on Monday some output gains could also come from the southwestern Sharara field, where it hopes to boost production by 70,000 bpd, from 221,000 bpd now.

Libya's output remains well below the 1.6 million bpd the North African country had been pumping before a 2011 uprising.

Libya along with Nigeria is exempt from recent production cuts agreed by the Organization of the Petroleum Exporting Countries (OPEC).

The NOC has warned its production targets are dependent on the corporation receiving funds for operating costs and repairs to infrastructure, an issue that was discussed in a meeting on Wednesday between NOC board members and the heads of NOC affiliated companies.

"There is a delay in paying salaries and the different budgets by the ministry of finance, which is considered essential to increase production, implement the necessary maintenance for many oilfields and ports that were badly affected as a result of the conflicts," the NOC said.
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Saudi Arabia May Insist On Iran Oil Output Cuts To Continue OPEC Deal
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• Saudi-Iran tension may be sticking point in deal talks
  
• Iran unlikely to agree to any cuts, experts say
  
• Iran production currently near maximum capacity 

​Geopolitical rivals Saudi Arabia and Iran may be headed for another OPEC showdown, as the producer group enters negotiations over extending oil production cuts in force since January.

Saudi Arabia may demand that Iran, which is allowed a slight rise in output under the deal, commit to an output reduction as a condition of continuing the cuts, people familiar with the kingdom's thinking told S&P Global Platts.

The provision is among several that Saudi Arabia, tired of seeing its market share eroded as it bears most of the burden of OPEC's agreed cuts, is likely to come to the table with, sources say. These include stipulations on members who have exceeded their quotas and exempt members nearing full production capacity, notably Nigeria.

But it is Iran that is likely to be the biggest sticking point given historic distrust between the two countries, as talks among OPEC members ramp up amid signs that the global inventory glut remains stubbornly high.

"We do expect that the Saudis will have demands on both poorly complying deal participants and those exempted like Iran for the second half," said Bob McNally, president of energy consultancy Rapidan Group.

"We expect some tension ahead of the May 25, 2017 meeting, but as we have seen ministers will temper disgruntlement with supportive public comments so as not to spook investors," he added.

Saudi energy officials declined to comment on their plans, with one telling Platts on condition of anonymity that "it is too early" to discuss the particulars of negotiations that have yet to start. Iranian energy officials did not respond to requests for comment.

Any move to rein in Iran's production is likely to be met with significant resistance, experts say.

Oil minister Bijan Zanganeh last week, in remarks viewed as conciliatory towards a deal extension, said Iran would be willing to hold production at 3.8 million b/d for the remainder of the year.

That is right around its quota under the deal of 3.797 million b/d and ahead of its February production level of 3.75 million b/d, according to the latest S&P Global Platts OPEC survey.

Cutting below that "would be a non-starter especially since the Iranian leadership is unlikely to be in a compromising mood in advance of their May presidential elections," said Helima Croft, head of commodity strategy with RBC Capital.

The deal, which called for OPEC to cut 1.2 million b/d and freeze output at 32.5 million b/d, will be up for review at the organization's May 25 meeting in Vienna. The participation of 11 non-OPEC producers, who pledged cuts of 558,000 b/d in concert, may also be decided then.

SAUDI DISPLEASURE

An OPEC/non-OPEC monitoring committee meeting this weekend in Kuwait may provide the first signs of whether the pact will survive past its June expiry.

The committee is chaired by Kuwait and also includes OPEC members Algeria and Venezuela, along with non-OPEC Russia and Oman. Saudi Arabia, which holds the rotating OPEC presidency, will also attend Sunday's meeting.

Saudi Arabia has cut its production by 140,000 b/d below its requirement under the agreement with a January-February average output of 9.92 million b/d, according to the Platts survey. That has helped cover for its less compliant counterparts.

The kingdom has made its displeasure with non-compliant participants known, warning against "free riders." It is likely to demand stricter adherence for the deal to continue, sources said.

Matthew Reed, senior vice president of Middle East consulting company Foreign Reports, said given how Iran is pumping near its maximum capacity, the Saudis may feel Iran should participate in an "all hands on deck" effort to reduce global inventories, as OPEC has said is the goal of the cuts.

"These days Iranian officials are bragging about producing more oil than at any time since the shah, so a conversation about what Iran can contribute is obligatory," Reed said.

IRAN CAPACITY CEILING

Diplomatic sparring between Iran and Saudi Arabia scuttled OPEC's first attempt last April in Doha to forge a production cut deal, as Iran's insistence on an exemption while it recovered from sanctions prompted Saudi Arabia to withdraw from negotiations.

At a September extraordinary OPEC meeting in Algiers, with Saudi Arabia more eager for a deal and despite Iran having ramped up its production in the intervening months, Iran came away from the talks with a political victory -- an allowance to increase output by 90,000 b/d to 3.797 million b/d.

From Iran's viewpoint, the country is already in compliance with its quota, making it unlikely to acquiesce to any demands to cut production, said Sara Vakhshouri, president of consultancy SVB Energy International.

Vakhshouri estimates that Iran may be able to raise its production capacity by the end of 2017 to a total of 3.78 million b/d, but no further due to financial constraints.

Keeping the current ceiling on Iranian oil output may be all Saudi Arabia can hope for, she said.

"Iran's production capacity by the end of 2017 is very close to what they agreed to produce in the first half of the year," said Vakhshouri, who is also a senior fellow at the Atlantic Council. "Hence, even if there are political disagreements, Iran can't technically produce much higher."
 

​Sources:  Bloomberg, MorningStar, S&P Global Platts

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