Global Ports Forum

February 14, 2012

Govt mulls expansion of LNG terminal
By RONNIE LIM

(SINGAPORE) Following strong user interest from numerous industry players, Singapore is considering expanding the $1.7 billion Singapore liquefied natural gas (SLNG) terminal – adding two more storage tanks to the three being built there – even before the Jurong Island facility starts up in the second quarter of 2013. Going by industry estimates, the two additional tanks could cost US$400 million.

Added storage: Two more tanks could be added at an additional cost of US$400m
A decision on the expansion could be made in the coming 12 months, S Iswaran, Minister in the Prime Minister’s office and Second Minister for Trade & Industry and Home Affairs disclosed yesterday.

The move comes as the appointed LNG aggregator, BG Group, has sold 2.65 million tonnes per annum (tpa) to power plants and industries here, or close to 90 per cent of its franchised volume of three million tpa – which it is expected to hit by 2013.

With growing domestic gas demand, plus the entry of numerous LNG producers and trading houses in anticipation of a regional LNG trading hub emerging here, Singapore is studying how it can best secure LNG supplies beyond that.

McKinsey & Co are working on a possible future LNG import framework for Singapore and Mr Iswaran said the Energy Market Authority will issue a consultation paper next month to gather industry and public feedback on the findings.

‘The consultation exercise involving industry players, stakeholders, and the general public has to take into account various factors including technical limitations here and interests from diverse parties. Most importantly, it has to ensure a competitive market, so that LNG can be competitively priced.’

Mr Iswaran who was visiting the SLNG terminal stressed that the project was a key part of Singapore’s energy diversification effort as it ‘will allow us access to gas supplies around the world, not just geographically, but also to tap unconventional gas, like shale gas that is being discovered’.

He said, ‘SLNG is well on track to start operations in Q2 next year, taking us to 3.5 million tpa processing capacity, which in itself will fully accommodate the BG franchise. Beyond that, additional jetties as well as a third storage tank by Q1 2014 will take us to six million tpa.’

This will allow for some additional spot cargoes into the Singapore terminal by that stage, industry officials said. But given the strong demand, SLNG will have to start looking beyond having just a third tank soon. Its masterplan provides for up to seven tanks.

Groundbreaking of the SLNG terminal first took place in March 2010, which means that the first phase of the terminal, including the first two tanks, will take three years in all to build.

Noting this, Mr Iswaran said that ‘as the lead time is quite significant, we really need to make a decision (to expand) beyond the first three tanks in short order’.

Asked by BT whether this could be made in the coming year, he said: ‘Quite possibly. But it also depends on what the consultation exercise yields and EMA’s own assessment of demand patterns and how things are evolving.’

Oil Grab in Falkland Islands Seen Tripling U.K. Reserves

Jan. 19 (Bloomberg) — Thirty years after Margaret Thatcher fought a 74-day war with Argentina over the Falkland Islands, the prospect of an oil boom is reviving tensions.

Oil explorers are targeting 8.3 billion barrels in the waters around the islands this year, three times the U.K.’s reserves. Borders & Southern Petroleum Plc will drill the Stebbing prospect next month, one of three Falkland wells that Morgan Stanley ranks among the world’s top 15 offshore prospects this year. Meanwhile, Rockhopper Exploration Plc is seeking $2 billion from a larger oil company to develop the Sea Lion field, the islands’ first economically viable oil find.

“The area is underexplored and highly prospective,” said New York-based Morgan Stanley analyst Evan Calio. “These could be like the high-impact wells in Ghana and Brazil a few years ago that opened up a whole host of basins.”

A major drilling success will further raise the political temperature as Argentina maintains its claim over the U.K’s South Atlantic territory, 300 miles (483 kilometers) from the Latin American coast. President Cristina Fernandez de Kirchner said Britain is taking her country’s resources, while Thatcher’s successor David Cameron yesterday accused Argentina of a “colonialist” attitude that didn’t account for islanders’ rights.

Cameron has approved contingency plans to bolster U.K. troops on the islands, and Prince William, a search and rescue pilot and the second in line to the British throne, may spend six weeks there this year, the Times reported today in London.

Not Negotiable

“We want to have a full and productive relationship with Argentina,” said Foreign Office spokeswoman Sophie Benger in an e-mailed response to questions. “Whilst the sovereignty of the Falklands is not up for negotiation, there is still much we can do together.”

The world’s largest oil companies like Exxon Mobil Corp. and Royal Dutch Shell Plc face a dilemma: whether the potential of a virgin basin outweighs the risk of a worsening international dispute. While producers with interests in Argentina, such as BP Plc, may be put off, others will want to participate, said Tim Bushell, chief executive officer of Falkland Oil & Gas Ltd., who’s looking for drilling partners.

“Big oil companies are used to dealing with political risks, and bigger ones than some saber rattling by Argentina,” Bushell said in a telephone interview, declining to name the companies he’s talking to. “For every BP, there are other major companies that don’t have an interest in Argentina.”

Shares Rise

Falkland Oil & Gas rose 5.8 percent in London to 50 pence as of the close. Rockhopper climbed 3.4 percent to 327.25 pence.

The Falkland Island government, which manages the territory’s mineral rights for the 2,955 islanders, says the big producers are interested and talking to the companies already active in the region. Of the five U.K.-based explorers that have drilled or plan wells, the largest, Rockhopper, has a market value of 899 million pounds ($1.4 billion).

“The Falklands is at a stage where a big company can take a large share in what could be a big oil province,” said Stephen Luxton, the Falkland Islands’ director of mineral resources. “There is an active program of marketing by the companies here. There are discussions going on, though we can’t name names.”

Falkland Oil & Gas plans to drill the Loligo prospect later this year, a well targeting 4.7 billion barrels of oil. Named after a Patagonian squid, it’s the second-most prospective well planned worldwide this year after one in Namibia, according to Morgan Stanley. The company’s Darwin prospect will follow and ranks sixth on the U.S. bank’s list.

Darwin, Stebbing

Borders & Southern will start drilling the Darwin prospect by the end of January, which seismic surveys suggest may hold as much as 760 million barrels of oil and 3 trillion cubic feet of gas. Stebbing, the target of the company’s second well, may hold as much as 1.2 billion barrels.

Together, the four wells planned for the Falklands this year are searching for about 8.3 billion barrels of oil. The Jubilee field, which was discovered in 2007, propelled Ghana into one of the world’s top 50 oil states. Brazil’s Lula field, drilled in 2006, holds an estimated 6.5 billion barrels of oil equivalent.

“There could be significant volumes down there and it would open up a new hydrocarbon province,” Borders & Southern CEO Howard Obee said in an interview. If the first two wells are successful, “we’d like to do a big drilling program, not only to appraise what we’d find but also drill up additional prospects. To do that, we’d need quite a bit of money.”

Selling Stakes

While the company will probably be able to sell more shares to determine the size of a discovery in this campaign, it may have to sell stakes in prospects to develop them, said Tracy Mackenzie, an analyst at broker Brewin Dolphin in Edinburgh. Borders & Southern holds a 100 percent interest in its fields.

Rockhopper says its Sea Lion discovery, made in 2010 and which may have more than 400 million barrels of recoverable oil, is commercial and will be developed. Chairman Pierre Jungels said last month that the company is showing drilling data to potential partners. The company this month ended a 10-well campaign that lasted two years. It has $100 million in cash after raising 46.5 million pounds ($72 million) in a share placing in October.

That’s just a fraction of the $2 billion the company reckons it will need to get the oil to market. Developers will have to build a floating production and storage unit to load the crude onto tankers. Cairn Energy Plc, Premier Oil Plc and Noble Corp. may be interested in investing, Bank of America Corp. analyst Alejandro Demichelis wrote in a Jan. 16 note.

Colorful Penguins

Spokesmen for BP, Shell, Premier and Cairn declined to comment on whether they’re interested in investing in the Falklands. Exxon and Noble Energy didn’t respond to e-mailed requests for comment.

All the supplies will probably have to come from Europe, about 8,000 miles away. The Falklands consist of two large islands and more than 700 smaller ones, home to the colorful penguins that give Rockhopper its name.

Argentina maintains that its sovereignty over the islands was interrupted in 1833, when British forces occupied the Malvinas Islands, expelling the Argentine population, an act to which the people and government of Argentina never consented. Thatcher sent a task force to retake the islands after Argentina’s military dictatorship invaded the territory on April 2, 1982.

Risk of Failure

Earlier drilling campaigns show the risk of failure in unproven oil provinces. Shell drilled on the northern side of the islands in the 1990s and found traces of oil before abandoning the prospect in 1998 as crude prices fell to around $10 a barrel. Interest in the region revived as oil prices rose higher than $100 a barrel, though Shell had disposed of its acreage.

Desire Petroleum Plc, which has licenses adjacent to Rockhopper’s, drilled six dry wells in a failed campaign that ended in April. Argos Resources Ltd., which also holds licenses in the region, decided not to use a rig after Rockhopper because it couldn’t raise enough money.

The global financial crisis has made it harder for oil explorers to borrow from banks and kept a lid on the amount companies can raise on the market. The oil and gas index of London’s Alternative Investment Market, where all five Falkland explorers are listed, fell 35 percent last year.

That leaves larger companies as the most likely sponsors in the region, and the government said some of them are already involved in talks.

“The majors are always going to be interested when a new basin comes on the map,” Morgan Stanley’s Calio said.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

Tankers Poised for Worst Year in Decade as U.S. Refineries Close
By Isaac Arnsdorf
January 16, 2012 7:01 PM EST
Suezmaxes, hauling about 1 million barrels of oil, are poised for their worst year in more than a decade as the biggest contraction in U.S. East Coast refining in at least 20 years means less cargo on their largest trade route.
The ships, about 50 percent of the size of supertankers, will earn $15,188 a day this year, 12 percent less than in 2011 and the lowest since at least 1997, according to the median of 10 analyst estimates compiled by Bloomberg. Investors may profit from that prediction by selling forward freight agreements, traded by brokers and used to bet on future transport costs, which are anticipating an average of $17,088, according to data from London-based Marex Spectron Group Ltd., which handles the contracts.
Rates are dropping for a second year as a capacity glut is compounded by declining demand on the industry’s busiest route. East Coast refineries, which rely on West African oil, are closing at the fastest pace since at least 1992 because they can’t compete with Midwest rivals using cheaper domestic crude, data compiled by Bloomberg Industries show. The West Africa-to- U.S. route accounts for about 14 percent of suezmax cargoes, Clarkson Plc (CKN), the world’s biggest shipbroker, estimates.
“For suezmaxes, the story is going to be the disappearance of demand on the U.S. East Coast,” said Olivier Jakob, the managing director of Zug, Switzerland-based research company Petromatrix GmbH, who has worked in oil for more than 17 years. “West African production is more likely to find a home in Asia and get shipped there on larger vessels designed for the trade.”
American Tankers
Suezmax rates fell 42 percent last year to an average $17,227, according to Clarkson. Sandefjord, Norway-based Nordic American Tankers Ltd. (NAT), which operates 20 of the vessels, had a $47 million net loss last year and will report a loss of $33.6 million for 2012, according to the average of four analyst estimates compiled by Bloomberg.
ConocoPhillips (COP), the third-largest U.S. oil company, and Sunoco Inc. said last year they would sell three refineries in Pennsylvania, accounting for about 50 percent of capacity in the Northeast. Two are already shut and the third may be closed if a buyer can’t be found. West Africa supplied 77 percent of the three plants’ crude imports, according to Energy Department data.
West African supply is priced off Europe’s Brent crude, which traded last year at an average premium of 17 percent to West Texas Intermediate, the U.S. benchmark. The premium widened from 0.9 percent in 2010 as U.S. production rose to an eight- year high, Energy Department data show.
North American Consumption
The slump in cargoes to the U.S. is exacerbating a capacity glut in shipping. The suezmax fleet will expand 11 percent this year, London-based Clarkson estimates. That compares with a 1.4 percent gain in global oil demand predicted by the Paris-based International Energy Agency.
North American consumption will slide 0.6 percent. The region accounted for 34 percent of suezmax cargoes in 2011, according to Clarkson.
While West African oil exports will rise 6.5 percent to 4.43 million barrels a day this year, a higher proportion will go to Asia on very large crude carriers, which carry about 2 million barrels, according to David Wech, an analyst at JBC Energy GmbH, a Vienna-based research company. In addition to declining U.S. demand, European processors are resuming imports from Libya, where former leader Muammar Qaddafi was ousted in October, he said.
Libyan cargoes typically move on smaller aframax vessels, Jakob of Petromatrix said. Aframaxes accounted for 76 percent of the 49 tankers booked to load crude in Libya since in September, according to data from Poten & Partners, a New York-based shipbroker.
Nuclear Program
Demand for suezmaxes may exceed analysts’ expectations should tensions in the Persian Gulf worsen. Iran has threatened to close the Strait of Hormuz, the transit point for about 20 percent of the world’s oil, should Western nations embargo its crude over the country’s nuclear program. Consumers would have to buy supply from further away, tying up tankers for longer and reducing available fleet capacity.
Frontline Ltd. (FRO), whose fleet includes 16 suezmaxes, said oil companies and traders are already seeking to ship more supply from northern Europe, the Caribbean and Libya in response to the Iranian threats, according to an e-mail from Jens Martin Jensen, the Singapore-based chief executive officer of the company’s management unit, on Jan. 12. About 17 million barrels of oil pass through the Strait of Hormuz each day.
Northbound Traffic
Suezmax rates in the single-voyage market rose 18 percent to $34,367 this year, in part because of delays caused by bad weather in Turkey’s Bosporus and Dardanelles straits, transit points for crude moving from the Black Sea region to the Mediterranean. Waiting times northbound through the lanes averaged 10 days this month, from six in December, according to GAC Shipping Turkey, a maritime agent.
Rates could also beat analyst forecasts should owners respond to the slump in rates by scrapping or idling more vessels or canceling orders for new ones, according to New York- based Dahlman Rose & Co. An average 102 suezmaxes were anchored last year, compared with 56 in 2008, ship-tracking data compiled by Bloomberg show.
Ship owners are also slowing vessels to use less fuel, their biggest cost. The average suezmax sailed at about 9.1 knots in December, compared with 10.4 knots two years earlier, data compiled by Bloomberg show. Reduced speeds means journeys take more time, effectively cutting the fleet’s capacity.
Owners will still face a glut. The suezmax fleet expanded 22 percent since the start of 2008, a year in which charter costs averaged $73,863 a day, according to data from Redhill, England-based IHS Fairplay and Clarkson. Outstanding orders at yards are equal to 23 percent of existing capacity, IHS data show.
Iron Ore
The glut extends to other merchant ships, which carry about 90 percent of world trade, according to the Round Table of Shipping Associations. Rates for VLCCs (TNNGSD) averaged 73 percent less last year while those for capesizes, carrying mostly iron ore and coal, dropped 53 percent, according to data from the London- based Baltic Exchange, which publishes freight costs along more than 50 maritime routes.
Shares of Nordic American Tankers plunged 54 percent last year before rallying 23 percent this year in New York trading. The company can withstand the slump because its ships need $11,000 a day to break even, Chairman Herbjorn Hansson said in an e-mailed response to questions. It trades in the single- voyage market rather than on longer-term contracts at fixed rates, which are typically less volatile, because that has been a more profitable strategy in the past three decades, he said.
“The underlying fundamental problem for suezmaxes is too many vessels and weak demand,” said Axel Styrman, an analyst at Carnegie ASA in Oslo whose recommendations on the shares of shipping companies returned 6.5 percent in the past three months. “It’s no party in the tanker market for anyone.”
To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

Biggest Shipping Hedge Fund Sees Frozen Gas Beating Crude in 2012
By Alaric Nightingale
January 02, 2012 7:00 PM EST

Tankers hauling liquefied natural gas at sea will earn record rates in 2012 as demand reaches an all- time high, beating returns from vessels carrying oil and coal, according to the world’s biggest shipping hedge fund.
The tankers, each holding enough gas to meet about 25 percent of peak daily winter demand in the U.K., will earn as much as $200,000 a day this year, from $140,000 at the end of 2011, said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic (OCEHEDU) Ltd. That means the most profit ever for Golar LNG Ltd. and Teekay LNG Partners LP, which operate 33 of the vessels, analyst estimates compiled by Bloomberg show.
Demand for LNG, liquefied by cooling the gas to minus 260 degrees Fahrenheit, is rising as nations from the U.K. to South Korea increase pollution curbs. Gas emits about half the carbon dioxide of coal. Japan, the biggest importer, is buying more after closing 89 percent of its nuclear capacity following March’s Fukushima disaster, eliminating a glut of tankers. Ship shortages may worsen, with the 372-strong fleet projected to expand just 0.8 percent this year, Morgan Stanley estimates.
“LNG is a high-growth, high-profit industry,” said Vergottis, whose research is used by the $1.45 billion Oceanic Hedge Fund, which gained 6.8 percent in the first 11 months of the year as the Lloyd’s List/Bloomberg Index of the 50 largest shipping companies (LLSIVAL) slumped 39 percent. “Next year looks even more hot. There’s not a single cloud for two years.”
The cost of hiring an LNG tanker for a year or more averaged $97,630 a day in 2011, from $43,663 in 2010, according to Fearnley LNG, an Oslo-based consultant and brokerage that’s a unit of the Astrup Fearnley Group.
Maritime Routes
That compares with last year’s 90 percent decline in rates for the largest oil tankers to $1,214 a day as the biggest fleet in about three decades overwhelmed demand, data from the London- based Baltic Exchange show. Capesizes hauling coal and iron ore averaged $15,639 a day last year, from $33,298 in 2010, according to the bourse, which publishes freight costs for more than 50 maritime routes.
Global LNG demand may expand 7.5 percent this year to 258 million metric tons, led by Japan, China and India, according to Sanford C. Bernstein & Co., a New York-based researcher. World capacity to produce the fuel will rise 61 percent in the decade to 2020, Morgan Stanley estimates.
Shipping companies will struggle to keep up. There are 60 tankers on order at yards, mostly in South Korea and China, equal to about 17 percent of the existing fleet, data from Redhill, England-based IHS Fairplay show.
Trade and Development
Construction is lagging behind the surge in demand, partly because of costs. A new gas carrier sold for $210 million in 2010, compared with $99 million for the largest oil tankers and $57 million for capesizes, according to the United Nations Conference on Trade and Development. They need equipment to hold about 155,000 cubic meters (5.5 million cubic feet) of frozen liquid that expands to 95 million cubic meters in gas form.
The vessel shortage may ease as rates increase. Returns are high enough to cover building costs in about three years, said Vergottis. The tankers may account for as much as 20 percent of the merchant fleet within a quarter century, from about 5 percent now, said the 50-year-old research director, who is working on a project to collate shipping rates for all major vessel classes going back to 1850.
The anticipated surge in LNG demand may be curbed should growth slow. The global economy will expand 2.3 percent this year, compared with 2.7 percent in 2011 and 4 percent in 2010, according to a composite of economists’ regional forecasts compiled by Bloomberg. About 90 percent of world trade moves by sea, the Round Table of Shipping Associations estimates.
Four Decades
Natural-gas consumption fell 2.6 percent in 2009, the most since at least 1965, as economies contended with the worst global recession since World War II, according to data from London-based BP Plc. Demand in Japan, which accounts for about 32 percent of all LNG imports, retreated 6.7 percent, also the biggest decline in more than four decades.
Not all owners may benefit from higher rates. Companies typically lease out tankers on long-term charters at fixed prices. Of the total fleet of 372 vessels, 44 were available for hire as of the middle of last month, according to Morgan Stanley. Awilco LNG AS, based in Oslo, has its three vessels chartered out until at least August, and Hamilton, Bermuda-based Hoegh LNG Holdings Ltd. has all of its fleet leased on longer duration charters, according to their websites.
Analyst Estimates
Golar controls more than 25 percent of the available vessel supply over the next three years, according to Morgan Stanley. The Hamilton, Bermuda-based company will report net income of $168.1 million for this year, compared with a predicted $70.7 million for 2011, the mean of 12 analyst estimates shows. Its shares almost tripled to 263.8 kroner last year in Oslo trading and will reach 283.05 kroner in the next 12 months, according to the average of 10 analyst estimates.
Teekay LNG Partners (TGP) will report profit of $107.9 million for 2012, compared with a projected $83.9 million last year, the mean of four estimates shows. Shares of the Nassau, Bahamas- based company fell 13 percent to $33.17 in New York trading in 2011 and will reach $38.20 in 12 months, the average of five estimates shows.
Natural gas’s share of global energy demand will climb to 23 percent by 2035 from 21 percent now as oil’s contribution declines to 27 percent from 33 percent, according to the Paris- based International Energy Agency. LNG is contributing to the gain because it links consumers with producers that may be too far apart to connect by pipeline. Qatar, the biggest LNG supplier, is about 5,000 miles from Japan.
Biggest Shipbroker
The first LNG shipment went from Lake Charles in Louisiana to the U.K. in 1959 and the industry has now expanded to import facilities in 23 countries, according to London-based Clarkson Plc, the world’s biggest shipbroker.
For shipping companies (GOL), stronger LNG demand echoes what happened when oil started displacing coal as an energy source in the first half of the 20th century, said Vergottis, whose family has owned ships for four centuries. That shift took oil tankers from a niche vessel class to the dominant type in energy transportation by the 1970s, he said.
“The same is happening with LNG,” Vergottis said. “LNG is earning a 25 percent return on capital. A tanker is earning minus three. LNG is the growth part of the market.”
To contact the reporter on this story: Alaric Nightingale in London at anightingal1@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net

Putin’s Goal of Benchmark Urals Seen in Rotterdam Terminal Tanks
By Jake Rudnitsky
December 29, 2011 6:14 AM EST

Prime Minister Vladimir Putin has been calling for Russia, the world’s largest oil producer, to narrow the price gap (EUCSURNW) between its Urals export crude and the Brent benchmark since 2005. A $1 billion terminal in Rotterdam may help achieve that goal.
Summa Group, a shareholder in Russia’s biggest oil-export terminals, in Novorossiysk and Primorsk, is investing in a 3 million-cubic-meter facility. It will expand liquids capacity at Europe’s largest port by about 10 percent, said Summa First Vice President Alexander Vinokurov. Vitol Group, the world’s biggest independent oil trader, is a partner in the project.
The Rotterdam terminal will create a European trading hub for Urals crude, providing deliveries directly to the port and contributing supply stability. Vinokurov said that will be a key step for Urals in becoming an international benchmark, at a time when the world’s most prominent benchmark, Dated Brent (EUCRBRDT), faces declining output and supply disruptions.
“The physical market for Brent is narrowing and risks are becoming too volatile,” Mikhail Temnichenko, a vice president for the St. Petersburg International Mercantile Exchange, said Dec. 26. “Urals is the most obvious alternative benchmark, offering large, stable volumes from a variety of market participants.”
The Rotterdam terminal is evidence that competition is “heating up” as crude oil benchmarks evolve, Platts, the energy-pricing division of New York-based McGraw Hill Cos. (MHP), said in a November presentation. On Jan. 6 Platts will broaden the base for Brent pricing by extending the length of time over which cargoes are measured.
Joint Ownership
The terminal could help develop a futures market for Urals, which is necessary to become a benchmark, said Olivier Jakob, managing director at Petromatrix GmbH, a Zug, Switzerland-based oil-market researcher.
“It makes sense to create a hub in Rotterdam for Russian crude,” Jakob said by telephone yesterday. “We need to see who has access to the barrels. If it’s like Cushing with lots of participants, a market could develop in time,” he said, referring to the delivery point for New York Mercantile Exchange oil futures in Oklahoma.
The terminal’s 3 million cubic-meter capacity is nine times larger than that of an average supertanker, which would normally haul more than 2 million barrels of cargo, according to data from Redhill, England-based IHS Fairplay. Two thirds of the volume will be for crude and the rest will hold oil products, Vinokurov said.
Export Volumes
The hub may also help ensure export volumes from the Primorsk terminal, owned by Novorossiysk Commercial Sea Port (NMTP), as Russian oil pipeline operator OAO Transneft (TRNFP) works to open a new facility on the Baltic Sea, said Denis Vorchik, an analyst at UralSib Financial Corp. in Moscow. Transneft and Summa jointly own 50.1 percent of Novorossiysk, which rose 0.4 percent to 3 rubles at yesterday’s close, the highest level in a week.
“There are not many opportunities to enter the European market and given Russia is a major crude exporter to that market, it makes sense,” Mikhail Ganelin, an analyst at Troika Dialog in Moscow, said Dec. 26.
Under an “ambitious” schedule, the terminal may be commissioned by 2013 or 2014, earlier than the initially planned 2015 deadline, Vinokurov said in a Dec. 16 interview.
Russia is the biggest supplier of oil to the European Union. Urals, a blend of crudes from the Volga region and western Siberia, accounts for about 80 percent of Russia’s 5.6 million barrels a day of exports (RUCUCRUD).
Output of the crudes used to price Dated Brent, the benchmark for more than half of the world’s oil including Urals, has fallen from 1.5 million barrels a day in December 2007 to 1.1 million barrels this month, according to a Bloomberg assessment of loading schedules (LOSDBFOT).
Longer Period
Platts is considering lengthening the cargo-measuring period even further in 2015 or 2016 and may include more grades of crude into its Brent assessment, according to a Sept. 16 statement. The assessment is based on a blend of several types of crude pumped in the North Sea, including Brent, Forties, Oseberg and Ekofisk.
The Brent benchmark has required regular adjustments since production went into decline in the 1990s. Forties and Oseberg crude were added to the benchmark (EUCRBRDT) in 2002 and Ekofisk in 2007.
Very Unfair
Urals in northwest Europe has had an average discount (EUCSURNW) to Brent of $1.79 over the past two decades. Putin called the gap “very unfair” in an address when he was president in 2005. In response, the government introduced a national oil exchange and brand, calling it Russian export-blend crude oil, or Rebco.
The Russian crude traded at a 40-cent premium to Brent, its biggest ever, on Dec. 1 to Dec. 6 as the EU weighed tougher sanctions against Iran. It was at a $1.10 discount today.
Summa expects the Rotterdam facility to add stability to Urals supplies by creating accessible volumes outside Russia. This may help create a market for the Urals forward market and futures contracts, Temnichenko said by phone in Moscow.
“Urals will be more visible to traders and this could contribute to it becoming a price indicator,” Temnichenko said.
Futures contracts for Urals have been sold on the Nymex, the world’s largest energy futures marketplace, since October 2006 under Rebco name. Allan Schoenberg, a spokesman for Nymex parent CME Group Inc. (CME), said no Rebco contracts have traded in the past two years.
Reduced Deliveries
Transneft and state-controlled gas export monopoly OAO Gazprom (GAZP) have cut energy deliveries to neighboring transit countries during supply and transportation pricing disputes, disrupting shipments to Europe.
Gazprom has twice in the past six years cut gas deliveries to Ukraine on New Year’s Day. Transneft halted oil deliveries to Belarus for almost a month on Jan. 1, rerouting about 650,000 metric tons.
Transneft built the Baltic Pipeline System-2 oil link to the Gulf of Finland as Russia expands transportation capacity away from transit countries.
“This Rotterdam terminal could ensure volumes from Primorsk” in the face of competition from the new Ust-Luga crude terminal, UralSib’s Vorchik said by phone Dec. 26. Ust- Luga has been delayed for as much as three months from its expected Dec. 1 start because of engineering difficulties, Transneft said in last month.
Ust-Luga is being built by Vitol’s competitor, Gunvor Group Ltd., at the end of Transneft’s Baltic Pipeline System-2 oil link. The pipeline has a capacity of 38 million metric tons a year, or 451,000 barrels a day, while Primorsk handles about 70 million metric tons of crude a year.
Floating Pipeline
Buyers will be able to purchase Urals to be loaded in Rotterdam using a “floating pipeline” that relies on icebreaking shuttle tankers shipping crude from Primorsk on the Baltic Sea, Vinokurov said.
Urals in Rotterdam could become a benchmark with the development of forward and futures markets, Summa said in an Oct. 20 presentation.
“A case could be made for it to be a benchmark if there was a stable supply in the heart of Europe,” Vinokurov said. “We have an aggressive schedule.”
To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

China’s Yanzhou Coal to buy Australia’s Gloucester

KELVIN CHAN
Published: Dec 23, 2011 4:15 PM
HONG KONG (AP) – Yanzhou Coal Mining Co. is buying Australia’s Gloucester Coal Ltd. in a $2.2 billion deal that will create one of Australia’s biggest listed coal miners and give the Chinese state-owned company access to more mines and ports.

Gloucester said Friday that it will become part of a Yanzhou unit, Yancoal Australia Ltd., which will be listed on the Australian Securities Exchange. Yanzhou will own 77 percent of the new company. The rest will be owned by Gloucester shareholders, who will get one share in the new company for each of their Gloucester shares.

Yanzhou will also pay Gloucester shareholders 700 million Australian dollars ($711 million) in cash, or A$3.20 a share.

The Chinese company will also compensate shareholders up to AU$3 a share if Yancoal Australia’s share price falls below A$6.96 in the 18 months after the deal closes. The deal values the company at AU$10.16 a share, or AU$2.2 billion ($2.2 billion) based on the number of shares involved.

Gloucester will bring most of its coal mines in Queensland and New South Wales states to Yancoal, doubling the Chinese company’s coal mines in Australia.

Yanzhou said the deal would help speed development of its Moolarben mine in New South Wales by using Gloucester’s spare port capacity.

The deal is the latest by Chinese state-owned resource companies investing in Australia to secure access to commodities that help fuel China’s strong economic growth.

The deal is subject to a raft of approvals, including due diligence reports from both companies and an independent expert’s opinion on whether it’s in the best interests of Gloucester shareholders. The Chinese and Australian governments and stock exchanges in Australia and Hong Kong, where Yanzhou shares are listed, also need to give their blessing.

Gloucester said its biggest shareholder, Singapore commodity trader Noble Group Ltd., which owns a 64.5 percent stake, would vote in favor of the transaction.

In 2009, Yanzhou bought another Australian miner, Felix Resources Ltd., in a $3.2 billion deal that was China’s biggest investment in the Australian minerals industry at the time.

__________

Kristen Gelineau in Sydney contributed to this report.p

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Chevron, Conoco Entrapped in Post-BP Crackdown on Oil Slicks

Dec. 23 (Bloomberg) — Brazil’s threatened indictment of Chevron Corp. and Transocean Ltd. executives after offshore oil leaks shows that regulators from the North Sea to the Indian Ocean are stepping up scrutiny after BP Plc’s 2010 disaster.

Brazilian authorities have said they may prosecute employees, shut operations and exact more than $10 billion in fines after the leaks at the Frade field 230 miles (370 kilometers) off the coast of Rio de Janeiro. The spill occurred 19 months after an explosion in the Gulf of Mexico killed 11 workers and triggered the biggest offshore U.S. oil spill.

Governments around the world are paying closer attention to how energy explorers drill into high-pressure deposits of crude and natural gas as much as 8 miles beneath the sea surface. Chevron’s Brazil incident took place after a ConocoPhillips leak in China and prior to what may be Nigeria’s biggest spill in a decade at a Royal Dutch Shell Plc facility.

“There’s been just such a rash of them that governments have got to act tough” with oil companies, Allen Brooks, a managing director at energy-investment bank PPHB LP in Houston and Chevron shareholder, said in a phone interview. Since the BP accident “every spill after that is heightened in terms of media attention and obviously government concern.”

ConocoPhillips was criticized by the People’s Daily, China’s Communist Party newspaper, for “negligence, cover-ups and cheating” in its handling of a June leak in Bohai Bay. Premier Wen Jiabao ordered a “thorough” investigation in September.

In Nigeria, Royal Dutch Shell shut its 200,000 barrel-a-day Bonga field this week after a tanker-loading accident caused less than 40,000 barrels of crude to leak.

Olympic Hosts

Brazilian prosecutors are suing Chevron for 20 billion reais ($10.8 billion) in environmental damages for the Nov. 7 leaks that the San Ramon, California-based company has estimated at 3,000 barrels.

The furor in a nation keen to protect beaches from floating globs of crude ahead of the 2014 World Cup and 2016 Olympic Games may lead to new drilling rules so tough that oil exploration becomes unprofitable, said Adriano Pires, an economist and former adviser to Brazil’s state oil ministry.

“What I fear is now we have a circus created around the Chevron problem, a real circus, and to show the people they are doing something they may create norms, legislation and proceedings that make it impracticable to get environmental licenses for offshore exploring,” Pires, head of the Brazilian Center for Infrastructure, a Rio-based energy-industry consultant, said in a telephone interview.

Making Exploration Expensive

“Depending on the measures that the government may take, it would make oil exploration in Brazil much more expensive,” Pires said.

Brazil’s federal police have said they intend to indict employees involved in the drilling that led to leaks from sea floor fissures near the $3.6 billion development, Kurt Glaubitz, a spokesman for Chevron, said in a Dec. 21 e-mail. In a separate statement, Transocean, owner of the drilling rig leased for the Frade field, said it will defend the company.

Chevron underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, George Buck, president of Chevron’s Brazilian subsidiary, said on Nov. 20. Buck is among 17 Chevron and Transocean employees targeted for indictments, according to a copy of the federal police document obtained by Bloomberg News.

Foreign Investment ‘Chill’

“I’m a little surprised by the stance that you’re seeing in Brazil, largely because it’s so excessive, potentially, that you could put a very big chill on foreign investment in the deep water,” Ted Harper, who helps manage about $6.8 billion in assets at Frost Investment Advisors in Houston, including about $50 million of Chevron shares, said in a phone interview.

The response so far in Brazil is an “overreaction,” he said.

Chevron has lagged its peers since the leaks were disclosed on Nov. 10, gaining 1.9 percent through today’s close, compared with increases of 8.3 percent and 7.1 percent, respectively, for Exxon Mobil Corp. and Shell, the biggest Western energy companies by market value.

Chevron rose 1.1 percent to $107.50 at the close in New York. Transocean gained 0.7 percent to $40.31.

ConocoPhillips, the third-largest U.S. oil company, said on Dec. 21 that it’s taking responsibility for the Bohai Bay spill and is setting up compensation funds to support environmental research and affected communities.

Worst Since 1998

Royal Dutch Shell, Europe’s largest oil company, said yesterday as much as half of the crude that leaked from the Bonga installation has dissipated through natural dispersion and evaporation. Bonga, located 75 miles off Nigeria’s coastline, pumps about 10 percent of the West African nation’s oil.

The leak may have been the country’s worst since a January 1998 spill dumped an estimated 40,000 barrels into the sea from the Idoho platform on the southeastern coast, with slicks reported as far west as Lagos. Shell, the largest foreign oil producer in Nigeria, has been criticized by some local residents and foreign groups for onshore spills.

An “independent verification” of the Bonga platform incident is needed to ensure the spill wasn’t more, Nnimmo Bassey, executive director of Environmental Rights Action, said in a phone interview from Lagos. “Shell has never been forthcoming about incidents of oil spills in the past.”

‘More Awareness’

BP has booked more than $40 billion in losses related to last year’s Gulf disaster that sank Transocean’s Deepwater Horizon rig and spilled an estimated 4.9 million barrels of crude. The London-based oil producer also faces hundreds of lawsuits by fishermen, hoteliers and property owners in coastal areas where crude washed ashore.

Unlike the BP incident in the Gulf, this year’s Brazilian and Chinese spills are within the normal range of oil industry accidents, Nansen Saleri, chief executive officer of Quantum Reservoir Impact LLC in Houston, said in a telephone interview.

“What’s different right now, post-Macondo, is that there’s far more awareness globally at all levels,” he said. In the long run, the industry will develop better and more stringent procedures to help prevent small incidents, he said, and oil and gas development will continue.

“Those countries who choose to go on a very punitive path at the end will suffer the negative consequences themselves,” said Saleri, who is a former reservoir-management chief at Saudi Arabia’s state oil company.

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net Edward Klump in Houston at eklump@bloomberg.net

To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net Dale Crofts at dcrofts@bloomberg.net

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China Petrochemical Corp. Completes Purchase of Daylight Energy

Dec. 24 (Bloomberg) — China Petrochemical Corp., the nation’s biggest oil refiner, completed the purchase of Canada’s Daylight Energy Ltd. for about C$2.2 billion ($2.16 billion), the company said in an e-mailed statement yesterday.

Sinopec, as the Chinese company is known, said it paid C$10.08 a share in cash for Calgary-based Daylight.

Cong Peixin, a spokesman for the China Petrochemical unit that carried out the transaction, declined to elaborate on the statement. Daylight confirmed the completed sale in a statement released yesterday.

The purchase gives the Beijing-based company access to more than 300,000 acres of land in areas rich with oil and natural gas, after falling crude prices made valuations attractive.

Sinopec Group, China National Petroleum Corp. and Cnooc Ltd. are seeking to gain technology through partnerships in order to develop China’s shale-gas reserves, estimated to be larger than those in the U.S.

China, the world’s biggest energy consumer, has partnered with Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp. to explore possible shale wells.

Chinese companies have announced $18.3 billion worth of bids this year for overseas oil and gas exploration and production companies, according to data compiled by Bloomberg. Cnooc bought Canada’s Opti Canada Inc. in November for $34 million in cash, agreeing to take on $2.4 billion in debt.

Daylight’s proven and probable reserves rose 46 percent to the equivalent of 174 million barrels of oil at the end of 2010, the company said March 1. The company’s production was 35 million barrels in the third quarter, according to data compiled by Bloomberg.

To contact the reporters on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net Benjamin Haas in New York at bhaas7@bloomberg.net

To contact the editor responsible for this story: Joshua Fellman at jfellman@bloomberg.net

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Crude Oil-Tanker Rents Fall as Ship Supply Exceeds Cargo Demand
By Rob Sheridan
December 16, 2011 3:47 AM EST

Dec. 15 (Bloomberg) — Returns for the largest oil tankers hauling 2 million-barrel crude shipments on the industry’s benchmark route fell for a third day, to the lowest level in a month, as the supply of vessels exceeded cargo demand.
Daily income for very large crude carriers, or VLCCs, on the Saudi Arabia-to-Japan voyage declined 2.4 percent to $11,810, the lowest price since Nov. 11, according to the London-based Baltic Exchange. Costs measured in industry- standard Worldscale points fell 0.1 percent to 56.81.
Global demand to ship crude on VLCCs will rise 5.3 percent to 148.2 million deadweight tons this year, according to Clarkson Research Services Ltd., a unit of the top global shipbroker. Fleet growth will exceed demand, expanding 8 percent to 172.9 million tons, its figures show.
“Oversupply will keep a clammy hand over the market,” Erik Nikolai Stavseth, an analyst at Oslo-based Arctic Securities ASA, said by e-mail. There are 81 of the ships available for loading in the Persian Gulf over the next four weeks, three more than yesterday, according to a e-mailed report from broker Marex Spectron Group Ltd.
Ship fuel, an owner’s single-biggest expense, slid 0.1 percent to $651.53 a metric ton, data compiled by Bloomberg from 25 ports worldwide showed. It’s still up 28 percent this year. Owners can boost returns by reducing a ship’s speed on a return journey after unloading a cargo, saving on fuel costs. The exchange’s earnings estimates don’t reflect speed cuts.
Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.
The Baltic Dirty Tanker Index, a measure of shipping crude that includes vessels smaller than VLCCs, fell 0.3 percent to 856 points, the exchange said.
–Editors: John Deane, Claudia Carpenter
To contact the reporter on this story: Rob Sheridan in London at rsheridan6@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

Petrobras Oil Seen Abundant From Brazil With Gigantic Helicopters
By Rodrigo Orihuela
December 07, 2011 9:01 PM EST

Petroleo Brasilero SA (PETR4), Latin America’s largest company by market value, plans to boost oil production by more than 50 percent over the next four years. To do so, it needs helicopters bigger than houses and floating platforms longer than two football fields.
The state-controlled oil company’s demand for heavy helicopters, used to move equipment and workers to platforms as far as 300 kilometers (186 miles) from the coast, will double in 2012 from 2011 and rise 350 percent over the next nine years, according to Barclay’s Capital. U.S. helicopter lessors Bristow Group Inc. (BRS) and Seacor Holdings (CKH) Inc. may benefit the most.
Petrobras, which produces 90 percent of Brazil’s crude, is spending more than any other oil company as it seeks to develop offshore fields located in the pre-salt area, so called because the deposits lie below a layer of salt two kilometers thick. The company has a $224.7 billion, five-year investment plan through 2015 to do so. Repsol YPF SA (REP), BG Group Plc and OGX Petroleo e Gas Participacoes SA (OGXP3) also are seeking to develop the fields.
“Nowhere in the world looks like Brazil” for helicopter and vessel companies offering support to off-shore drillers, said James C. West, an analyst with Barclay’s Capital. “Winning lease contracts from tenders announced recently by Petrobras, and others expected early next year, would be a positive” for Bristow and Seacor shares, he said in a Nov. 28 phone interview from New York.
Ocean Depths
Petrobras’s demand for rigs capable of drilling in ocean depths of more than 2,000 meters is expected to grow by 147 percent between 2010 and 2015, to 37, according to a Sept. 25 presentation by Mauro Yuji Hayashi, the company’s exploration and production pre-salt planning manager. The company’s heavy helicopter needs will climb to more than 40 in 2012 from the current 20, according to Barclay’s West.
A Sikorsky S-92 heavy helicopter costs $17.7 million, according to the website Aircraftcompare.com.
Bristow’s global helicopter fleet numbers more than 550 worldwide, according to Senior Vice-President Mark Duncan, who oversees new business. The Houston-based company has six leased helicopters in Brazil, all operated by Belo Horizonte-based Lider Aviacao Holding SA, 42.5 percent owned by Bristow and the country’s largest provider of helicopter services, Duncan said.
“We entered into Lider in 2009 when we saw the increased demand in Brazil,” Duncan said in an e-mailed response to questions. “We saw it as having growth potential similar to the North Sea in the mid-1970s. The pre-salt will be a new dimension.”
Recent Contract
Five more Bristow medium-size helicopters will start operating in Brazil next year under a recent contract, Duncan said. Petrobras has a bid in progress for six to eight heavy helicopters. Such choppers generate average revenue of $1.5 million to $2 million per month, while prices in local markets may vary widely, he said.
The total global fleet of helicopters servicing offshore oil and gas companies is about 1600, Duncan said, estimating annual revenue at about $4 billion.
Medium-size helicopters are used to fly 10 to 12 passengers as far as 120 miles. To reach the pre-salt fields requires heavy choppers than can handle 19 passengers. The Sikorsky S-92, which Lider leases out, is about 18 meters (60 feet) long and 5.5 meters high.
Rio de Janeiro-based Petrobras declined to confirm how many helicopters it will need in 2012 to “avoid influencing prices offered in tenders,” the company’s press office said in an e- mailed response to questions. The company currently has 91 choppers for off-shore activities, the statement said. It did not address a question about the contract mentioned by Duncan.
Deepwater Support
Fort Lauderdale, Florida-based Seacor, which Barclay’s West flagged as another company likely to benefit from the Brazil oil boom, declined to comment in an e-mail message.
Seacor has a fleet of 177 helicopters, according to a Sept. 30, 2011, presentation for investors on the company’s website. Heavy helicopters account for four percent of the fleet. Among choppers used for deepwater support services, the company has seven heavy and 34 medium-size, according to the presentation. Seacor’s aviation unit had $235.4 million in revenue in 2010.
West has a positive rating on both Bristow and Seacor stocks, which are down 1.7 percent and 13.7 percent this year, respectively. The Standard & Poor’s 600 Smallcap Index (SML) has fallen 0.3 percent. David Wilson, an analyst with energy investment firm Howard Weil Inc. in Houston, rates Bristow “market perform.”
Floating Platform
At least one company is concerned about a possible shortage of heavy helicopters in Brazil. OSX Brasil SA (OSXB3), the shipyard controlled by billionaire Eike Batista, is building two large platforms for offshore drilling and plans to lease and operate them.
The first platform, known as a floating, production, storage and offloading unit, or FPSO, arrived in Rio de Janeiro last month and is 271.5 meters long. Crews of 45 will have to be shuttled on and off the platform every 15 days, said CEO Roberto Monteiro.
“Right now we don’t see a bottleneck for platforms operating near the coast, but for the pre-salt there’s huge bottlenecks because the helicopters must be able to come and go 300 kilometers each way, and there’s very few heavy helicopters with that kind of range,” Monteiro said in a Dec. 1 phone interview.
Madrid-based Repsol and Berkshire, U.K.-based BG are among the foreign oil producers holding concessions for some of the largest pre-salt reserves. OGX is the biggest Brazilian oil company by market value (IBOV) after Petrobras, though it still has to start producing oil.
Vessel Demand
Petrobras also projects a 67 percent increase in vessel demand between 2010 and 2015 and the company is receiving tenders for ships to renew its fleet, according to Barclay’s West. Vessel support companies, including Hornbeck Offshore Services Inc. (HOS), Gulfmark Offshore Inc. (GLF) and Tidewater Inc. (TDW), may benefit from the higher rig count in the next five years, according to West.
The ships the company needs are so-called supply and special vessels, used to support offshore oil platforms.
Wilson Sons Ltd. (WSON11), South America’s biggest tugboat operator, plans to increase its number of oil service vessels almost three times to 30 by 2017, the company’s press office said in a response to questions Nov. 30. Rio de Janeiro-based Wilson is targeting orders from Petrobras, Chief Financial Officer Felipe Gutterres has said.
Prospects for Brazil’s offshore support industry make it “one of the best in the world because of its sheer size, and the willingness to get out there, put capital to work, and drill,” said Howard Weil’s Wilson in a telephone interview.
To contact the reporter on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net
To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net