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MARKETS: Analyst predicts Brent-WTI spread to experience “dramatic swings” from -US$10 to US$25 a barrel

Mon, 27 Feb 2012 01:27:32 GMT

(EnergyAsia, February 27 2012, Monday) --- BENTEK Energy, a Colorado, US energy information and analytics company, said the Brent-WTI crude oil price differential will range between minus US$10 to US$25 a barrel or an average of US$14 over the next five years.

For now, the average Brent-WTI spread for April 2012 to 2016 stands at roughly US$6.20.

((Adsense)) According to its “Crude Awakening: Shale Boom Hits Oil” report, BENTEK expects WTI tumbling to a discount of nearly minus US$18 this year before rebounding in 2013 and 2014 in response to the construction of several pipeline expansions between Cushing and the US Gulf Coast including Seaway and Keystone XL.

Despite these capacity additions, BENTEK said supply growth is expected to substantially outpace pipeline and refinery increases and lead to the return of deep WTI price discounts to Brent in 2015 and 2016.

BENTEK said crude oil production from the Utica and Bakken production areas in the US in addition to increasing oil supply from Canada are expected to add significant supply to the US Midwest market and contribute to frequent periods of regional oversupply and distressed prices at Cushing relative to the Brent international benchmark.

Adam Bedard, BENTEK senior director for energy analysis, said:

“Increasing Midwest supply and downward pressure on regional prices have led to a growing incentive to move more oil from the Midwest to the Gulf Coast. As traditional flow patterns are altered and the value of crude transportation capacity is realigned, WTI-Brent and regional price differentials will feel the effect.

“The rollercoaster ride that the WTI-Brent price spread will experience over the next five years is due to transportation and refining constraints, not the quality of the crude.

“Increasing Midwest supply and downward pressure on regional prices have led to a growing incentive to move more oil from the Midwest to the Gulf Coast. As traditional flow patterns are altered and the value of crude transportation capacity is realigned, WTI-Brent and regional price differentials will feel the effect.”

BENTEK’s Market Alert expects US Midwest crude oil supply to double during the 2011-16 period, growing nearly 808,000 b/d by 2016. It predicts that crude oil production growth will include increases of 547,000 b/d in the Williston-ND, 97,000 b/d in the Anadarko and 131,000 b/d in the Utica (Appalachia-OH).

Despite these massive supply gains and six currently announced Midwest refinery expansions, crude oil demand from regional refineries is projected to grow only 3% or 108,000 b/d during this time. Consequently, regional oil prices are projected to remain deeply depressed.

PAPUA NEW GUINEA: Japan’s Mitsubishi Corp to pay US$280 million for licence stakes held by Canada’s Talisman Energy

Mon, 27 Feb 2012 01:25:27 GMT

(EnergyAsia, February 27 2012, Monday) --- Canadian upstream company Talisman Energy Inc said it has sold stakes in nine of its exploration licences in Papua New Guinea’s onshore Western Province to Japan’s Mitsubishi Corporation (MC) for US$280 million.

Talisman said the farmout deal is effective January 1 2012, subject to approvals by government and joint venture partners, and will be paid in the form of a capital carry.

Upon approval, Talisman said it will reduce its average stake in the nine licences to 40% while MC will own an average of 20%.

((Adsense)) The partners will work towards aggregating natural gas from the province with a view to developing it into liquefied natural gas (LNG) for export at the rate of three million metric tonnes per year.

Paul Blakeley, Talisman’s executive vice-president for International Operations East, said:

“MC brings extensive experience in LNG development and marketing and I am confident they will be a key success factor in helping us unlock the value of our Papua New Guinea assets.”

With a presence in PNG since 2001, Talisman secured onshore licences of the Papuan Foreland in 2009 and now has a portfolio comprising interests in nine petroleum prospecting licences (PPLs) and five petroleum retention licences (PRLs), covering 13.7 million acres.

As one of the most active explorers in PNG over the past two years, Talisman said it has participated in a gas discovery at Ubuntu in PRL 28 and the successful appraisal of the Stanley and Elevala gas discoveries in PRL 4 and PRL 21, respectively. Talisman intends to commence a four-well drilling program on PPLs 235 and 261 during 2012, as well as ongoing appraisal in PRL 21.

MC has held interests in LNG operations since 1969 and currently participates in nine major LNG projects in addition to its extensive exposure to downstream marketing and LNG tanker activities. Most recently, it started construction of the Donggi-Senoro LNG project in Indonesia as project lead in planning and operation.

SINGAPORE: JOIL expects to triple jatropha productivity over next eight years

Fri, 24 Feb 2012 01:28:00 GMT

(EnergyAsia, February 24 2012, Friday) --- JOil (S) Pte Ltd, a Singapore-based developer of the jatropha biofuel crop, said latest biotechnology processes could boost its oil yield from less than one ton of oil per hectare now to three tons.

The company said it could achieve this by using breeding, tissue culture and genetic engineering processes, as uncovered and explained by Hong Yan, JOIL’s chief scientific officer, at the INSULA/RSB conference on jatropha held at the UNESCO Headquarters in Paris, France last December.

((Adsense)) Dr Hong demonstrated in his presentation that biotechnology is the core science required to address jatropha’s present low yield.

“There was initially great excitement surrounding the use and commercial potential of jatropha in the early 2000s but this was followed by a wave of disappointment in India, Central America and Africa with poor yields as early plants were from seeds collected from wild accessions and had greater vulnerability to pests than anticipated,” he said.

“The yield and better pest resistance of jatropha can be realised with biotechnology over time. At JOil, we are applying breeding, tissue culture and genetic engineering to develop a continuous pipeline of improved jatropha varieties. We are also seeing very good field trial data for our new varieties with traits like better uniformity, improved self-branching, early flowering and higher productivity.

“More than two tons of seeds per ha was achieved for the first year in field trials on marginal land plots in southern India. Such continuous efforts on jatropha improvement will move the average productivity of jatropha from one ton of oil per hectare to about three tons of oil per hectare over the next seven to eight years.”

Sriram Srinivasan, JOIL’s chief financial officer, said:

“The demand for jatropha-derived biodiesel already exists among airlines and motor fleet operators. It is the supply-side of the equation that is holding up the adoption rate of biofuels. We believe the turning point will come when jatropha plantation becomes commercially viable with the adoption of improved jatropha varieties and better agronomic practices.”

In his paper, Mr Srinivasan presented several scenarios for jatropha’s viability with the right mix of genetics and practices to improve its economics as a fuel crop.

If low quality planting material and low care is taken, he said the Internal Rate of Return (IRR) could be less than 10%, whereas with good quality planting material and good care, the IRR will be more than 25%. He also mentioned that with revenue from by-products from Jatropha for high end uses like animal feed, the IRR can significantly improve.

MARKETS: Brent price in Euro at all time, WTI at nine-month high

Fri, 24 Feb 2012 01:25:18 GMT

(EnergyAsia, February 24 2012, Friday) --- The embattled Eurozone economy is facing the additional threat of record-high oil prices as Brent crude surged to a new all-time high after breaking 93.46 euro, its previous record set on July 3 2008.

A combination of a weaker Euro, Iran’s threats to expand its oil embargo on Europe beyond UK and France, and rising threat of a war between Iran and the West all helped Brent crude reach its new peak of nearly 94 euro in US trade on February 23.

((Adsense)) In US dollar terms, the global benchmark climbed to a nine-month high of US$124.50 a barrel, still far below record of over US$147 a barrel reached in July 2008.

Bogged down by infrastructure constraints and insufficient storage capacity in Oklahoma, US benchmark WTI has been held back and is still a long way from approaching US$147 last seen on July 23 2008. WTI has been trading at a nine-month above US$107 a barrel.

Despite the weakness in the world economy, some traders believe oil could climb higher on geo-political tensions and supply disruptions in the Middle East and Africa.

Vitol, the world’s largest oil trader, believes Brent could exceed US$150 if tensions between the West and Iran escalates further.

CHINA: Sinopec, Germany’s BASF to expand Nanjing plant after completing US$1.4 billion investment

Fri, 24 Feb 2012 01:18:50 GMT

(EnergyAsia, February 24 2012, Friday) --- German chemicals giant BASF and China’s Sinopec have started work on expanding their joint venture petrochemical plant in Nanjing city after completing its second phase expansion at a cost of US$1.4 billion.

The second phase, inaugurated last month, includes expansions of existing plants and construction of new facilities.

((Adsense)) The partners expanded the steam cracker’s ethylene capacity to 740,000 metric tons per year (mt/y), the ethylene oxide (EO) plant to 330,000 mt/y, and the oxo-C4 capacity to 305,000 mt/y.

They also built a new 150,000 mt/y EO purification unit, a 60,000 mt/y non-ionic surfactants plant; a 130,000 mt/y amines complex to produce ethanolamines, ethyleneamines, and dimethylethanolamine, and a 25,000 mt/y DMA3 plant.

The site now has an integrated C4 complex comprising a new 130,000 mt/y butadiene extraction plant, a 60,000 mt/y isobutene extraction plant, a 50,000 mt/y highly reactive polyisobutene plant, and a 80,000 mt/y 2-propyl-heptanol plant.

The partners expects to start complete the construction of a 60,000 mt/y superabsorbent polymer (SAP) plant by mid-2012, with commercial start-up due for early 2014.

They will be strengthening the plant’s C3 and C4 value chains with the construction of a 160,000 mt/y acrylic acid plant and a butyl acrylate plant, and expansion of the existing 2-propyl-heptanol plant.

Martin Brudermüller, BASF’s vice chairman with responsibility for the Asia Pacific region, said:

“Through this successful partnership, we are able to bring vital chemical products and solutions to China that will directly support local industries as they strive to meet the needs of a rapidly developing population.

“At the same time we are also investing in advanced production technologies that themselves use less water, save energy and reduce emissions. The Nanjing site is a flagship example of our Verbund system, which achieves extremely efficient production and safety by clustering plants and re-using by-products.”

Dai Houliang, a Sinopec board member and vice president, said:

“With the smooth completion of the second phase of Nanjing investment, BASF-YPC has once again set an excellent example of Sinopec’s international partnerships and paved ways for further prosperous developments between BASF and Sinopec. We are confident BASF-YPC will continue expanding its product portfolio and providing crucial chemicals to the growing demands in China while contributing to a sustainable future.”

In December 2010, BASF and Sinopec signed a memorandum of understanding (MOU) to explore the expansion of BASF-YPC at a cost of U$1 billion.

MARKETS: EIA sees “one-in-50” chance of WTI exceeding US$140 a barrel in 2012

Thu, 23 Feb 2012 02:19:08 GMT

(EnergyAsia, February 23 2012, Thursday) --- The US Energy Information Administration (EIA) thinks there is a 1-in50 chance that benchmark crude WTI could exceed US$140 a barrel in June 2012.

Based on recent futures and options data, the official energy statistics arm of the US government said the market believes there is a 1-in-15 chance the average WTI price could exceed US$125 a barrel.

((Adsense)) For the full year, it sees WTI averaging US$100, almost US$6 per barrel above 2011’s price. The agency sees oil prices continuing to rise to reach US$106 per barrel in the fourth quarter of 2013.

It expects the Henry Hub natural gas spot price to average US$3.35 per million British thermal units (MMBtu), a decline of about US$0.65 per MMBtu from 2011, before recovering to US$4.07 in 2013.

The EIA said its price forecasts assume that US real gross domestic product (GDP) will grow by 2% in 2012 and 2.4% in 2013, while world real GDP (weighted by oil consumption) will rise by 2.9% and 3.7%.

The forecasts do not take into account geopolitical developments including the escalating tensions between the West and Iran over its controversial nuclear energy programme.

Oil prices surged to a nine-month high on Feb 22, with WTI climbing above US$106 and global benchmark Brent exceeding US$121 a barrel as crude supply problems in South Sudan, Yemen, Syria and Libya added to rising tensions between the West and Iran.

Vitol, the world’s largest independent oil trader, said oil prices could surge to a new record high of US$150 a barrel while RMG Wealth Management sees Brent at US$200 if the West’s confrontation with Iran escalates.

AUSTRALIA: White Paper focuses on energy security, reforms, gas and clean energy

Wed, 22 Feb 2012 01:50:27 GMT

(EnergyAsia, February 22 2012, Wednesday) --- The Australian government is focused on enhancing energy security, market reforms, developing the country’s vast natural gas resources, and encouraging the development of clean energy use.

The goals were spelt out in the recently released draft Energy White Paper for public consultation, alongside the 2011 National Energy Security Assessment and the Strategic Framework for Alternative Transport Fuels. The papers are part of a series of latest government initiatives to address challenges confronting Australia’s energy sector.

((Adsense)) The draft Energy White Paper calls for strengthening the resilience of Australia’s energy-policy framework, re-invigorating market reform, developing the country’s energy resources (particularly gas), and accelerating clean energy outcomes.

The Department of Resources, Energy and Tourism has begun a period of consultation on the draft Energy White Paper, including information sessions to be held in every state and territory capital city with deadline for written submissions set on March 16 2012.

The government said it plans to release the final Energy White Paper around mid-2012.

The Minister for Resources and Energy, Martin Ferguson, said:

“Over the next two decades, Australia will require massive investment in the gas and electricity sectors – around $240 billion in generation, transmission and distribution.

“We need sound regulatory frameworks and confidence from investors to ensure that the necessary investment is delivered, and the White Paper seeks to deliver this stable framework.

“The 2011 National Energy Security Assessment shows that overall Australia has a positive energy security assessment but we must remain vigilant, and the White Paper seeks to establish a more robust policy framework to increase our responsiveness to emerging challenges.

“In a period of significant change, improving the resilience of energy policy is critical. The government therefore proposes that a strategic review of national energy policy be undertaken every four years, supported by a review every two years of national energy security. This will allow us to assess, and respond as required to emerging strategic market or policy developments in a timely and predictable way.

“The White Paper also focuses on the next round of energy market reform including further privatisation of energy assets and the removal of retail price regulation to increase efficiencies and remove distortions in markets that deter private sector investment and are harmful to consumers’ interests.

“Further work should also be undertaken to extend energy market governance arrangements and principles to all Australian energy markets.

“In terms of consumers, the government recognises that the community has experienced a period of rising energy prices. The White Paper recognises the need for greater consumer engagement to improve community understanding of investment and price drivers, which can lead to greater empowerment in terms of making informed decisions around managing energy use and associated costs.

“In a period of significant change, improving the resilience of energy policy is critical. The government therefore proposes that a strategic review of national energy policy be undertaken every four years, supported by a review every two years of national energy security. This will allow us to assess, and respond as required to emerging strategic market or policy developments in a timely and predictable way.”

Alongside the release of the draft Energy White Paper, and following the passage of legislation giving effect to the carbon price, the government also announced it would no longer proceed with the introduction of emissions standards or ‘carbon capture and storage ready’ requirements for new coal fired power stations.

“With the legislation of a carbon price, the government has a position that it is best to let the market determine the most efficient investment outcomes within the energy market, carbon price and Renewable Energy Target framework.”

ASIA: ToughStuff aims to help up to 33 million people in region and Africa access low-cost solar energy

Wed, 22 Feb 2012 01:44:52 GMT

(EnergyAsia, February 22 2012, Wednesday) --- Up to 33 million people living in poverty in Africa and Asia will gain access to low-cost solar energy by 2016, said solar power provider ToughStuff in response to a call from the Business Call to Action (BCtA).

From its headquarters in Mauritius and offices in East, West and Southern Africa, ToughStuff seeks to expand access to low-cost, durable solar panels and solar battery packs to low-income communities in 10 African countries— Burundi, Cote d’Ivoire, Democratic Republic of Congo, Ethiopia, Malawi, Mali, Mozambique, South Sudan, Zambia and Zimbabwe— and four Asian countries—Bangladesh, India, Pakistan and Nepal in the next four years.

((Adsense)) The company expects to help consumers who previously relied on kerosene or biomass fuel to save a combined total of US$520 million on lower energy costs while reducing carbon emissions by up to 1.2 million tonnes by 2016.

The BCtA is a global initiative that encourages private sector efforts to fight poverty, supported by several international organisations including the UN Development Programme (UNDP).

Susan Chaffin, Programme Manager for the BCtA, said:

“Companies like ToughStuff invest in communities by providing cleaner, healthier energy options through core business operations. This commitment will help to boost development and improve social equity in a sustainable way that is good for the environment and good for business.”

According to Toughstuff, nearly half the world’s population lacks reliable access to modern energy services, with more than 20% of the global population, or 1.4 billion people, remain without access to electricity.

Most are in Sub-Saharan Africa and Asia, depending on wood, charcoal, animal waste or biofuels such as kerosene for energy. By 2030, household air pollution from the use of biomass fuel is expected to cause more than 1.5 million deaths a year, according to a recent UNDP report.

ToughStuff said it aims to reduce the impact of lack of energy access for millions of people by bringing its solar-powered products directly to low-income communities through commercial and alternative trade channels including its “Business in a Box” model, which relies on a network of village-level entrepreneurs that are provided with training on how to sell, rent or provide access to affordable solar energy services and products.

Since its launch in 2009, ToughStuff has helped to create thousands of new business opportunities for rural entrepreneurs. Its products have reached over one million people in Madagascar, helping customers save over US$5.85 million in energy costs.

“Today’s ambitious goal underlines ToughStuff’s commitment to produce quality and affordable products that will change the lives of millions of people living off-grid globally,” said Andrew Tanswell, CEO of ToughStuff.

“To make this happen, and at the scale we intend, we are actively building commercial partnerships with large distributors, telecommunications companies, retailers and others with an interest in bringing energy, along with all of its benefits, to those who don’t yet have it.”

COMPANY: US Koch Industries ventures into global LNG trading

Wed, 22 Feb 2012 01:41:24 GMT

(EnergyAsia, February 22 2012, Wednesday) --- US conglomerate Koch Industries has started up a liquefied natural gas (LNG) business with an eye to meeting surging demand in Asia.

Koch Supply & Trading Sárl, the company’s Geneva-headquartered energy trading division, recently hired Stephen Cornish to complement existing North American activities in Houston and optimise its global portfolio by building a Europe-wide natural gas business from Geneva and an LNG trading business from Geneva, London and Singapore.

((Adsense)) Origination and marketing support locations are also planned for the near future in other cities in East Asia, the Middle East and Latin America.

Mr Cornish said: “This venture into the international gas markets is a way to link its global portfolio to benefit its suppliers and customers. We believe this step into the international gas markets provides a strong counterparty for producers and customers alike.

“We will build out our operations in Asia, Europe and the Americas to the high standard that Koch Supply & Trading has set and look forward to working with our counterparts. This is a very exciting venture for us.”

ASIA: Ernst & Young survey found most oil and gas deals targeted at securing energy supplies

Tue, 21 Feb 2012 01:23:55 GMT

(EnergyAsya, February 21 2012, Tuesday) --- The vibrant oil and gas sector reported 1,322 oil and gas transactions last year for an increase of more than 5% compared to 1,258 in 2010, according to a survey by consultant Ernst & Young.

But in value terms, the global aggregate of these transactions was down 7% to US$317 billion from US$341 billion in 2010 as a result of a lack of mega deals. Last year, the sector reported 71 transactions each valued in excess of US$1 billion, compared to 76 the year before.

((Adsense)) Sanjeev Gupta, Asia-Pacific Oil & Gas Leader and a Transaction Advisory Services specialist partner at Ernst & Young, said:

“The oil and gas market has proved that it can adapt to higher levels of uncertainty and keep transacting. The key questions now are how it will cope with the combination of commodity price volatility and structural contraction in global debt capacity.”

The upstream segment reported represented 75% of total Asian deal volumes and 72% globally. Of the US$66 billion shale related transactions, unconventional hydrocarbons are rapidly emerging as the new conventional.

While most of the deal activity has been in North America, the survey found that China is the largest shale gas resource holder in the world, with 19% of global resources. If the potential in this asset base can be unlocked, this could transform the oil and gas landscape in years to come.

Activity in the downstream segment declined modestly during 2011, although overall values were comparable to 2010 levels. Ownership change in refining and retail in mature markets continued, stemming from ongoing portfolio rebalance and capital allocation reviews amongst the majors.

“Downstream activity will continue but may be more concentrated in storage and midstream rather than refining,” said Mr Gupta.

The survey said oilfield services companies, like their customer base, are also globalising and consolidating. Many of the larger players are well-capitalised and opportunistic, and financial players also remain active.

As a result, the segment saw an increase in deal activity in 2011 and a positive outlook for 2012 underpinned by those seeking new geographies, new customers or new technologies.

Outlook for the Asia-Pacific in 2012

M&A activities will continue into 2012 but will be affected by wider economic volatility, said Ernst & Young.

Mr Gupta said winners will have to manage risk, volatility and capital across a global political landscape.

He said: “Despite substantial economic worries in the US and Europe, we expect to see more outbound acquisitions – especially for upstream assets – by the Asian players, notably Chinese and other broader Asian national oil companies (NOCs), and for unconventional gas assets.

“We also expect to see increasing supplies from Iraq and Libya in 2012 to meet the increasing energy demand from Asia-Pacific. We expect continuing portfolio rationalising and optimisation across subsectors, i.e., upstream, downstream and oilfield services and among a mixed set of players (NOCs, oil majors, independents, private equity and service companies).

“We also expect to see declining focus towards the renewable sector, as the industry will continue to see a rise in shale gas and oil sands production.”

Asia-Pacific oil and gas M&A in 2011

Australia’s deal-hungry junior oil and gas companies were starved of opportunity due to tough conditions in equity markets and as a result, the number of deals declined from 73 in 2010 to 58 in 2011, while their value plunged by 37% to US$7.2 billion. About 81% of last year’s transactions came from the upstream sector.

The major transaction focus of 2011 was the de–risking of upcoming LNG developments.

The largest deal involved China Petroleum & Chemical Corporation (Sinopec) taking a 15% stake in the Conoco Phillips/Origin Energy LNG venture (APLNG) for US$1.8 billion. In addition to the 15% equity interest, Sinopec secured off–take rights for 4.3 million tonnes/year of LNG from the proposed CSG-to-LNG project for 20 years.

The Fukushima nuclear disaster in March 2011 boosted gas demand, especially with respect to unconventional gas assets. The higher demand was evidenced in Japan, as well as in China and other Asian economies.

Most of Asia’s major transactions last year were focused on outbound investments as a means to secure energy supplies. These transactions were mainly driven by the Chinese NOCs, with focus on upstream assets in the Americas, especially unconventional Canadian and US shale gas plays, and South American conventional assets (such as in Brazil).

A notable trend emerged in this group to balance and optimise portfolios based on resources, expected economic returns and associated risks.

Other Asian countries also showed momentum for outbound investments in their attempt to provide security of energy supplies in lieu of increasing domestic energy demand.

Oilfield services sector transactions continued their momentum in this highly fragmented subsector, although the magnitude of deals was relatively smaller. Selective sovereign wealth funds and private equity remained focused on further building up their service portfolios, said Ernst & Young.