Crude thoughts, an event, few articles & a lecture!

Brent’s decline continues with the forward month futures contract now well and truly below the US$110 per barrel level. In fact, when the Oilholic last checked, a price of US$108.41 was flashing on the ticker. Given that over the past seven days – OPEC, EIA and IEA – have all come out with bearish reports, the current price level should hardly be a surprise.

 

Additionally, both OPEC and IEA appear to be in broad agreement that overall concerns about economic growth in the US and the Eurozone will continue to persist over the short term at the very least. As if that wasn’t enough, the US dollar has reached a seven-month high against a basket of currencies, not least the pound sterling!

 

At such points in recent trading history, geopolitics always lends support to the oil price. Yet further evidence is emerging about the oil & gas community largely regarding the risk premium to be neutral, a theme which this blogger has consistently stressed on since September last year. Many delegates at the recently concluded International Petroleum Week (IP Week) in London, a signature European event, expressed pretty much the same sentiments.

 

Rather than relying on the Oilholic’s anecdotal evidence, here’s an observation from Société Générale analyst Michael Wittner who wrote in an investment note that, “On the geopolitical front, there seemed to be a sort of fatigue (at the IP Week), if not boredom, with the various issues and countries. In addition to Syria and Iran, there was talk about risks in Iraq and Nigeria, and even Chinese-Japanese tensions. Given recent events in Algeria, Egypt, and Mali, we were surprised at how little concern there was about North Africa.”

 

“All agreed that the geopolitical elephant in the room was still Iran, but even here, the fatigue was evident. People were well aware of Israel’s late spring/early summer “deadline”, but they were not excited about it. Some pointed to higher Saudi spare capacity (after recent cuts) and much higher pipeline capacity that could be used to avoid the Straits of Hormuz. Others simply thought that, posturing aside, there was little real appetite for a war against Iran, and that an Iranian bomb was inevitable,” he wrote further. Need we say more?

 

So in summation – tepid crude demand plus fatigued risk premium equals to no short term hope for the bulls! But at least there’s hope for the Brent-WTI spread to narrow, with the former falling and the latter rising on the back of the supply glut at Cushing, Oklahoma showing signs of abating.

 

Away from pricing matters, given that yours truly has been travelling a lot within good old England these past few weeks, there has also been plenty of time to do some reading up on trains! Four interesting articles came up while the Oilholic was experiencing the joys (or otherwise) of British railways.

 

First off, the Wall Street Journal’s Jerry A. Dicolo screams: “Brent barrels to prominence: European oil benchmark poised to overtake WTI as a global gauge.” The Oilholic has some news for the WSJ – Er…Brent is not ‘poised’ to overtake WTI as a global gauge, it has already overtaken it in terms of market sentiment! This blog first mulled the subject as far back as May 2010! Since then, even the EIA has decided to adopt Brent as a benchmark that’s more reflective of global conditions.

 

The second interesting piece of reading material yours truly encountered was a republished Bloomberg wire copy that carried feedback from an Indian refiner. In it, he suggested that the country’s refiners may be forced to halt purchases of Iranian crude as local insurers refuse to cover the risks for any Indian refinery using the Islamic Republic’s oil.

 

Bloomberg cites a certain P.P. Upadhya, Managing Director of the Mangalore Refinery in Southern India as having said, “There’s a problem with getting insurance for refineries processing Iranian oil. If there’s no clarity very soon, we all have to stop buying from Iran or risk operating the refineries without insurance.” Looks like the squeeze on Iran is going into overdrive!

 

Moving on to the third article, here is The Economist's sound take on the late Hugo Chavez’s rotten economic legacy. And finally, a Reuters’ exclusive would have you believe we Brits are planning to bid for US gas to be imported to our shores.

 

An abundance of gas, courtesy of the country’s shale bonanza has certainly lent credence to the US’ gas exporting potential. One would think if the US were to export gas, it would one fine day make its way to the UK. However, a “source” spoken to by Reuters seems to suggest that day is not that far away.

 

Speaking of shale, the Oilholic had the pleasure of listening to a brilliant lecture on the subject from Prof. Paul Stevens, the veteran energy economist and Chatham House fellow. Delivering the Institution of Engineering and Technology’s Clerk Maxwell Lecture for 2013, Prof. Stevens set about exploding the myth of a shale gas revolution taking place in Europe anytime soon.

 

He joked that North Dakota might become the next member of OPEC, but one thing is for certain Poland and other European shale enthusiasts are not getting there any time soon. Apart from the usual concerns, often mulled over by the Oilholic, such as jurisdictional prospection moratoriums and population density, pipeline access, environmental regulations etc. being very different between the US and Europe, the good professor pointed out a very crucial point.

 

“Shale rock formation in Europe is very different from what it is in North America. When ExxonMobil was disappointed in Poland, it was not for want of trying. Rather US technology was found lacking when it came to Polish geology. There is no one size fits all! The American shale revolution got where it is today through massive investment and commitment towards research and development (and over two decades of perseverance). I don’t see that level of commitment in Europe,” he said.

 

Speaking to the Oilholic, following his lecture, Prof. Stevens said the export of US gas to the UK was plausible, but that Asia was a much more natural export market for the Americans. “Plus, let’s not forget that the moment US exports start to rise meaningfully, there is always a chance the likes of Congressman Ed Markey might take a nationalistic tone and try to stunt them,” he added.

 

Quite true, after all we got a glimpse of Markey’s intellect via his ‘Bolshoi’ Petroleum remark! That’s all for the moment folks! Keep reading, keep it ‘crude’!

 

To follow The Oilholic on Twitter click here.
 

To email: gaurav.sharma@oilholicssynonymous.com
 

© Gaurav Sharma 2013. Sullom Voe Terminal, UK © BP Plc

The oil market in 2013: thoughts & riddles aplenty

Over a fortnight into 2013 and a mere day away from the Brent forward month futures contract for February expiring, the price is above a Nelson at US$111.88 per barrel. That’s after having gone to and fro between US$110 and US$112 intra-day.

As far as the early January market sentiment goes, ICE Future Europe said hedge funds and other money managers raised bullish positions on Brent crude by 10,925 contracts for the week ended January 8; the highest in nine months. Net long positions in futures and options combined, outnumbered short positions by 150,036 lots in the week ended January 8, the highest level since March 27 and the fourth consecutive weekly advance.

On the other hand, bearish positions by producers, merchants, processors and users of Brent outnumbered bullish positions by 175,478, down from 151,548 last week. It’s the biggest net-short position among this category of market participants since August 14. So where are we now and where will we be on December 31, 2013?

Despite many market suggestions to the contrary, Barclays continues to maintain a 2013 Brent forecast of US$125. The readers of this blog asked the Oilholic why and well the Oilholic asked Barclays why. To quote the chap yours truly spoke to, the reason for this is that Barclays’ analysts still see the Middle East as “most likely” geopolitical catalyst.

“While there are other likely areas of interest for the oil market in 2013, in our view the main nexus for the transmission into oil prices is likely to be the Middle East, with the spiralling situations in Syria and Iraq layered in on top of the core issue of Iran’s external relations,” a Barclays report adds.

Macroeconomic discontinuities will continue to persist, but Barclays’ analysts reckon that the catalyst they refer to will arrive at some point in 2013. Nailing their colours to mast, well above a Nelson, their analysts conclude: “We are therefore maintaining our 2013 Brent forecast of US$125 per barrel, just as we have for the past 21 months since that forecast was initiated in March 2011.”

Agreed, the Middle East will always give food for thought to the observers of geopolitical risk (or instability) premium. Though it is not as exact a science as analysts make it out to be. However, what if the Chinese economy tanks? To what extent will it act as a bearish counterweight? And what are the chances of such an event?

For starters, the Oilholic thinks the chances are 'slim-ish', but if you’d like to put a percentage figure to the element of chance then Michael Haigh, head of commodities research at Société Générale, thinks there is a 20% probability of a Chinese hard-landing in 2013. This then begs the question – are the crude bulls buggered if China tanks, risk premium or no risk premium?

Well China currently consumes around 40% of base metals, 23% major agricultural crops and 20% of ‘non-renewable’ energy resources. So in the event of a Chinese hard-landing, not only will the crude bulls be buggered, they’ll also lose their mojo as investor confidence will be battered.

Haigh thinks in the event of Chinese slowdown, the Brent price could plummet to US$75. “A 30% drop in oil prices (which equates to approximately US$30 given the current value of Brent) would ultimately boost GDP growth and thus pull oil prices higher. OPEC countries would cut production if prices fall as a result of a China shock. So we expect Brent’s decline to be limited to US$75 as a result,” he adds.

Remember India, another major consumer, is not exactly in a happy place either. However, it is prudent to point out the current market projections suggest that barring an economic upheaval, both Indian and Chinese consumption is expected to rise in 2013. Concurrently, the American separation from international crude markets will continue, with US crude oil production tipped to rise by the largest amount on record this year, according to the EIA.

The independent statistical arm of the US Department of Energy, estimates that the country’s crude oil production would grow by 900,000 barrels per day (bpd) in 2013 to 7.3 million bpd. While the rate of increase is seen slowing slightly in 2014 to 600,000 bpd, the total jump in US oil production to 7.9 million bpd would be up 23% from the 6.4 million bpd pumped domestically in 2012.

The latest forecast from the EIA is the first to include 2014 hailing shale! If the agency’s projections prove to be accurate, US crude oil production would have jumped at a mind-boggling rate of 40% between 2011 and 2014.

The EIA notes that rising output in North Dakota's Bakken formation and Texas's Eagle Ford fields has made US producers sharper and more productive. "The learning curve in the Bakken and Eagle Ford fields, which is where the biggest part of this increase is coming from, has been pretty steep," a spokesperson said.

So it sees the WTI averaging US$89 in 2013 and US$91 a barrel in 2014. Curiously enough, in line with other market forecasts, bar that of Barclays, the EIA, which recently adopted Brent as its new international benchmark, sees it fall marginally to around US$105 in 2013 and falling further to US$99 a barrel in 2014.

On a related note, Fitch Ratings sees supply and demand pressures supportive of Brent prices above US$100 in 2013. “While European demand will be weak, this will be more than offset by emerging market growth. On the supply side, the balance of risk is towards negative, rather than positive shocks, with the possibility of military intervention in Iran still the most obvious potential disruptor,” it said in a recent report.

However, the ratings agency thinks there is enough spare capacity in the world to deal with the loss of Iran's roughly 2.8 million bpd of output. Although this would leave little spare capacity in the system were there to be another supply disruption. Let’s see how it all pans out; the Oilholic sees a US$105 to US$115 circa for Brent over 2013.

Meanwhile, the spread between Brent and WTI has narrowed to a 4-month low after the restart of the Seaway pipeline last week, which has been shut since January 2 in order to complete a major expansion. The expanded pipeline will not only reduce the bottleneck at Cushing, Oklahoma but reduce imports of waterborne crude as well. According to Bloomberg, the crude flow to the Gulf of Mexico, from Cushing, the delivery point for the NYMEX oil futures contract, rose to 400,000 bpd last Friday from 150,000 bpd at the time of the temporary closure.

On a closing note, and going back to Fitch Ratings, the agency believes that cheap US shale gas is not a material threat to the Europe, Middle East and Africa’s (EMEA) oil and gas sector in 2013. It noted that a lack of US export infrastructure, a political desire for the US to be self-sufficient in gas, and the prevalence of long term oil-based gas supply contracts in Europe all suggest at worst modest downward pressure on European gas prices in the short to medium term.

Fitch’s overall expectation for oil and gas revenues in EMEA in 2013 is one of very modest growth, supported by continued, if weakened, global GDP expansion and potential supply shocks. The ratings agency anticipates that top line EMEA oil and gas revenue growth in 2013 will be in the low single digits. There remains a material – roughly 30% to 40% – chance that revenue will fall for the major EMEA oil producers, but if so this fall is unlikely to be precipitous according to a Fitch spokesperson.

That’s all for the moment folks! One doubts if oil traders are as superstitious about a Nelson or the number 111 as English cricketers and Hindu priests are, so here’s to Crude Year 2013. Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.

© Gaurav Sharma 2013. Photo: Holly Rig, Santa Barbara, California, USA © James Forte / National Geographic.

Final ‘crude’ points of 2012

As 2012 draws to a close, a few developments over the last fortnight are worth mulling over, ahead of uncorking the champagne to usher in the New Year. But first, a word on pricing - the final ICE Brent February futures contract price cut-off noted by the Oilholic came in at US$110.96 per barrel with US budget talks in the background.

 

Over the last two weeks, and as expected, the cash market trade was rather uneventful with a number of large players starting the countdown to the closure of their books for the year. However, the ICE’s weekly Commitment of Traders report published on Christmas Eve made for interesting reading.

 

It suggested that money managers raised their net long positions in Brent crude futures (and options) by 11.2% in the week that ended on December 18; a trend that has continued since November-end. Including hedge funds, money managers held a net long position of 106,138 contracts, versus 95,447 contracts the previous week.

 

Away from Brent positions, after due consideration the UK government finally announced that exploration for shale gas will resume albeit with strict safety controls. Overall, it was the right decision for British consumers and the economy. It was announced that there would be a single administrative authority to regulate and oversee shale gas and hydraulic fracking. A tax break may also apply for shale gas producers; further details are due in the New Year.

 

Close on the heels of UK Chancellor George Osborne’s autumn statement and the shale announcement, came a move by Statoil to take a 21-year old oil discovery in the British sector of the North Sea off its shelf.

 

On December 21, the Norwegian company approved a US$7 billion plan to develop its Mariner project, the biggest British offshore development in over a decade. According to Statoil, it could produce around 250 million barrels of oil or more over a 30-year period and could be brought onstream as early as 2017 with a peak output of 55,000 barrels per day.

 

Mariner, which is situated 150 km southeast of the Shetland Islands, was discovered in 1981. The Oilholic thinks Statoil’s move is very much down to the economics of a Brent oil price in excess of US$100 per barrel. Simply put, now would be a good time to develop this field in inhospitable climes and make it economically viable.

 

Being the 65.11% majority stakeholder in Mariner, Statoil would be joined by minority stakeholders JX Nippon E&P (28.89%) and Cairn Energy (via a subsidiary with a 6% stake).

 

Elsewhere, Moody's changed the outlook for Petrobras’ A3 global foreign currency and local currency debt to negative from stable. It said the negative outlook reflects the company's rising debt levels and uncertainty over the timing and delivery of production and cash flow growth in the face of a massive capital budget, rising costs and downstream profit pressures.

 

“We also see increasing linkage between Petrobras and the sovereign, with the government playing a larger role in the offshore development, the company's strategic direction, and policies such as local content requirements that will affect its future development plans,” said Thomas S. Coleman, senior vice president, Corporate Finance Group at Moody’s.

 

That’s all for 2012 folks! A round-up of crude year 2012 to follow early in the New Year; in the interim here’s wishing you all a very Happy New Year. Keep reading, keep it ‘crude’!

 

© Gaurav Sharma 2012. Photo: Vintage Shell pump, San Francisco, USA © Gaurav Sharma.

EIA’s switch to Brent is telling

A decision by the US Energy Information Administration (EIA) this month has sent a lot of analysts and industry observers, including yours truly, crudely quipping “we told you so.” That decision is ditching the WTI and adopting Brent as its benchmark for oil forecasts as the EIA feels its domestic benchmark no longer reflects accurate oil prices.

Ok it didn't say so as such; but here is an in verbatim quote of what it did say: "This change was made to better reflect the price refineries pay for imported light, sweet crude oil and takes into account the divergence of WTI prices from those of globally traded benchmark crudes such as Brent."

Brent has traded at US$20 per barrel premium to WTI futures since October, and the premium has remained in double digits for huge chunks of the last four fiscal quarters while waterborne crudes such as the Louisiana Light Sweet have tracked Brent more closely.

In fact, the EIA clearly noted that WTI futures prices have lagged behind other benchmarks, as rising oil production in North Dakota and Texas pulled it away from benchmark cousins across the pond and north of the US border. The production rise, for lack of a better word, has quite simply 'overwhelmed' the pipelines and ancillary infrastructure needed to move the crude stuff from Cushing (Oklahoma), where the WTI benchmark price is set, to the Gulf of Mexico. This is gradually changing but not fast enough for the EIA.

The Oilholic feels it is prudent to mention that Brent is not trouble free either. Production in the British sector of the North Sea has been declining since the late 1990s to be honest. However the EIA, while acknowledging that Brent has its issues too, clearly feels retail prices for petrol, diesel and other distillates follow Brent more closely than WTI.

The move is a more than tacit acknowledgement that Brent is more reflective of global supply and demand permutations than its Texan cousin. The EIA’s move, telling as it is, should please the ICE the most. Its COO said as early as May 2010 that Brent was winning the battle of the indices. In the year to November, traders have piled on ICE Brent futures volumes which are up 12% in the year to date.

Furthermore, prior to the OPEC output decision in Vienna this week, both anecdotal and empirical evidence suggests hedge funds and 17 London-based money managers have increased their bets on Brent oil prices rising for much of November and early December. Can’t say for last week as yours truly has been away from London, however, as of November 27 the net long positions had risen to 108,112 contracts; a spike of 11k-plus.

You are welcome to draw your own conclusions. No one is suggesting any connection with what may or may not take place in Vienna on December 12 or EIA opting to use Brent for its forecasts. Perhaps such moves by money managers and hedge funds are just part of a switch from WTI to Brent ahead of the January re-balancing act. However, it is worth mentioning in the scheme of things.

In other noteworthy news, Stephen Harper’s government in Canada has finally approved the acquisition of Nexen by China’s CNOOC following a review which began on July 23. Calgary, Alberta-headquartered Nexen had 900 million barrels of oil equivalent net proven reserves (92% of which is oil with nearly 50% of the assets developed) at its last update on December 31, 2011. The company has strategic holdings in the North Sea, so the decision does have implications for the UK as well.

CNOOC’s bid raised pretty fierce emotions in Canada; a country which by and large welcomes foreign direct investment. It has also been largely welcoming of Asian national oil companies from India to South Korea. The Oilholic feels the Harper administration’s decision is a win for the pragmatists in Ottawa. In light of the announcement, ratings agency Moody's has said it will review Nexen's Baa3 senior unsecured rating and Ba1 subordinated rating for a possible upgrade.

Meanwhile, minor pandemonium has broken out in Brazil’s legislative circles as president Dilma Rousseff vetoed part of a domestic law that was aimed at sharing oil royalties across the country's 26 states. Brazil’s education ministry felt 100% of the profits from new ultradeepwater oil concessions should be used to improve education throughout the country.

But Rio de Janeiro governor Sergio Cabral, who gets a windfall from offshore prospection, warned the measure to spread oil wealth across the country could bankrupt his state ahead of the 2014 soccer world cup and the 2016 summer Olympic games. So Rousseff favoured the latter and vetoed a part of the legislation which would have affected existing oil concessions. To please those advocating a more even spread of oil wealth in Brazil, she retained a clause spreading wealth from the “yet-to-be-explored oilfields” which are still to be auctioned.

Brazil's main oil-producing states have threatened legal action. It is a very complex situation and a new structure for distributing royalties has to be in place by January 2013 in order for auctions of fresh explorations blocks to go ahead. This story has some way to go before it ends and the end won’t be pretty for some. Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: Pipeline, Brooks Range, Alaska, USA © Michael S. Quinton/National Geographic.

Crude talking points of the last two weeks

In a fortnight during which the Bank of England hired a man whose signature appears on Canadian banknotes as its new governor, the oil & gas world reiterated its own cross-border nature, when an American firm sold a Kazakh asset to an Indian company. That firm being ConocoPhillips, the asset being its 8.4% stake in Kazakh oil field Kashagan and the Indian buyer being national oil company (NOC) ONGC Videsh – all signed, sealed and delivered in a deal worth around US$5.5 billion.

 

Even with an after-tax impairment of US$400 million, the deal represents a tidy packet for ConocoPhillips as it attempts to cut its debt. Having divested its stake in Russia’s Lukoil, the American oil major has already beaten its asset sale programme target of US$20 billion. So when the final announcement came, it was not much of a surprise as Kazakhstan government officials had revealed much earlier that a move was on the cards.

 

Still it is sobering to see ConocoPhillips divest from Kashagan – the world's biggest oilfield discovery by volume since 1968. It may hold an estimated 30 billion barrels of oil. Phase I of the development, set to begin next year, could yield around 8 billion barrels, a share of which ONGC is keenly eyeing.

India imports over 75% of the crude oil it craves and is in fact the world's fourth-biggest oil importer by volume. Given this dynamic, capital expenditure on asset with a slower turnaround may not be an immediate concern for an Indian NOC, but certainly is for investors in the likes of ConocoPhillips and its European peers.

On the back of a series of meetings between investors and its EMEA natural resources & commodities team in London, Fitch Ratings recently revealed that elongated upstream investment lead times and a (still) weak refining environment in Western Europe remain a cash flow concern for investors.

 

They seemed most concerned about the lead time between higher upstream capex and eventual cash flow generation and were worried about downward rating pressure if financial metrics become strained for an extended period. It is prudent to mention that Fitch Ratings views EMEA oil & gas companies' capex programmes as measured and rational despite a sector wide revised focus on upstream investment.

 

For example, the two big beasts – BP and Royal Dutch Shell – are rated 'A'/Positive and 'AA'/Stable respectively; both have increased capex by more than one-third for the first 9 months of 2012 compared to the same period last year. Elsewhere in their chats, unsurprisingly Fitch found that refining overcapacity and weak utilisation rates remain a concern for investors in the European refining sector. Geopolitical risk is also on investors' minds as they look to 2013.

 

While geopolitical events may drive oil prices up, which positively impact cash flow, interruptions to shipping volumes may more than offset gains from these price increases – negatively impacting both operating cash flow and companies' competitive market positions. Away from capex concerns, Fitch also said that shale gas production in Poland could improve the country's security of gas supplies but is unlikely to lead to large declines in gas prices before 2020.

In a report published on November 26, Arkadiusz Wicik, Fitch’s Warsaw-based director and one of the most pragmatic commentators the Oilholic has encountered, noted that shale gas production in Poland, which has one of the highest shale development potentials in Europe, would lower the country's dependence on gas imports. Most of Poland's imports currently come from Russia.

 

However, Wicik candidly noted that even substantial shale gas production by 2020, is unlikely to result in large declines in domestic gas prices.

 

"In the most likely scenario, shale gas production, which may start around 2015, will not lead to a gas oversupply in the first few years of production, especially as domestic gas demand may increase by 2020 as several gas-fired power plants are planned to be built. If there is a surplus of gas because shale gas production reaches a significant level by 2020, this surplus is likely to be exported," he added.

 

In actual fact, if the planned liberalisation of the Polish gas market takes place in the next few years, European spot gas prices may have a larger impact on gas prices in Poland than the potential shale gas output.

 

From a credit perspective, Fitch views shale gas exploration as high risk and capital intensive. Meanwhile, the UK government was forced on the defensive when a report in The Independent newspaper claimed that it was opening up 60% of the country’s cherished countryside for fracking.

 

Responding to the report, a government spokesperson said, "There is a big difference between the amount of shale gas that might exist and what can be technically and commercially extracted. It is too early to assess the potential for shale gas but the suggestion more than 60% of the UK countryside could be exploited is nonsense."

 

"We have commissioned the British Geological Survey to do an assessment of the UK's shale gas resources, which will report its findings next year," he added.

 

Barely had The Independent revealed this ‘hot’ news, around 300 people held an 'anti-fracking' protest in London. Wow, that many ‘eh!? In defence of the anti-frackers, it is rather cold these days in London to be hollering outside Parliament.

 

Moving on to the price of the crude stuff, Moody’s reckons a constrained US market will result in a US$15 per barrel difference in 2013 between the two benchmarks – Brent and WTI – with an expected premium in favour of the former. Its recently revised price assumptions state that Brent crude will sell for an average US$$100 per barrel in 2013, US$95 in 2014 and US$90 in the medium term, beyond 2014. While the price assumption for Brent beyond 2014 is unchanged, the agency has revised both the 2013 and 2014 assumptions.

 

For WTI, Moody’s has left its previous assumptions unchanged at US$85 in 2013, 2014 and thereafter. Such a sentiment ties-in to the Oilholic’s anecdotal evidence from the US and what many in City concur with. So Moody’s is not alone in saying that Brent’s premium to WTI is not going anywhere, anytime soon. Even if the Chinese economy tanks, it’ll still persist in some form as both benchmarks will plummet relative to market conditions but won’t narrow up their difference below double figures.

 

Finally, on the noteworthy corporate news front, aside from ConocoPhillips’ move, BP was in the headlines again for a number of reasons. Reuters’ resident Oilholic Tom Bergin reported in an exclusive that BP is planning a reorganisation of its exploration and production (E&P) operations. Citing sources close to the move, Bergin wrote that Lamar McKay, currently head of BP's US operations, will become head of a new E&P unit; a reinstatement of a role that was abolished in 2010 in the wake of the oil spill.

 

Current boss Bob Dudley split BP's old E&P division into three units on his elevation to CEO to replace Tony Hayward, whose gaffes in during the Gulf of Mexico oil spill led to his stepping down. BP declined to comment on Bergin’s story but few days later provided an unrelated newsworthy snippet.

 

The oil giant said it had held preliminary talks with the Russian government and stakeholders in the Nordstream pipeline about extending the line to deliver gas to the UK. BP said any potential extension to the pipeline was unlikely to be agreed before mid-2013.

 

The pipeline’s Phase I, which is onstream, runs under the Baltic Sea bringing Russian gas into Germany. A source described the move as “serious” and aimed at diversifying the UK’s pool of gas supplying nations which currently include Norway and Qatar as North Sea production continues to wane. As if that was not enough news from BP for one fortnight, the US government decided to "temporarily" ban the company from bagging any new US government contracts.

 

The country's Environmental Protection Agency (EPA) said on November 28 that the move was standard practice when a company reaches an agreement to plead guilty to criminal charges as BP did earlier in the month. New US E&P licences are made available regularly, so BP may miss out on some opportunities while the ban is in place but any impact is likely to be relatively ephemeral at worst. No panic needed!

 

On a closing note, in a move widely cheered by supply side industry observers, Shell lifted its force majeure on Nigeria's benchmark Bonny Light crude oil exports on November 21 easing supply problems for Africa’s leading oil producer. The force majeure, implying a failure to meet contractual obligations due to events outside of corporate control, on Bonny Light exports came into place on October 19 following a fire on a ship being used to steal oil. It forced the company to shut down its Bomu-Bonny pipeline and defer 150,000 barrels per day of production.

 

However, Shell said that force majeure on Nigerian Forcados crude exports remains in place. Forcados production was also stopped owing to damage caused by suspected thieves tapping into the Trans Forcados Pipeline and the Brass Creek trunkline. As they say in Nigeria - it’s all ok until the next attempted theft goes awry. That’s all for the moment folks! Keep reading, keep it 'crude'!

 

© Gaurav Sharma 2012. Photo: Oil Rig, USA © Shell