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Energy

HOUSTON (Bloomberg) — The developer of a liquefied natural gas export terminal in Oregon that has already twice been denied permits by U.S. regulators is giving it another shot.

Veresen Inc. said late Thursday that it filed another application with the Federal Energy Regulatory Commission for the $10 billion Jordan Cove LNG terminal that would ship gas to Asia. The agency said the project wasn’t needed in March 2016, and rejected Veresen’s appeal in December. In its latest request, the Calgary-based company proposed route changes for a pipeline to feed the terminal and eliminated plans for a power plant.

Veresen is making a third attempt just as the Trump administration promotes LNG exports as a means of establishing America’s dominance in global energy markets and creating jobs. Gary Cohn, the director of the White House’s National Economic Council, referenced an unidentified Northwest terminal during a talk in April, saying the government would step up approvals for such projects. It’s among dozens proposed along the coasts of the U.S. to send shale gas overseas.

“There’s a good chance that the FERC will take a different stance under this administration,” Chris Cox, equity analyst at Raymond James Ltd. in Calgary, said by phone Friday.

Veresen said the project would create more than 200 permanent jobs and has said it would lower the U.S. current account deficit with Japan, which President Donald Trump has complained about. In February, the company said it was in “advanced” negotiations with a third LNG buyer in Japan and that preliminary agreements with Jera Co., a joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co., and Itochu Corp. were being finalized.

The application for Jordan Cove comes just weeks after Trump filled seats on the Federal Energy Regulatory Commission, restoring the quorum the agency needs to approve LNG projects and major gas pipelines.

Veresen wasn’t immediately available for a comment. Shares dropped 0.75% to C$18.14 at 9:50 a.m. in Toronto.

Multiple projects in Canada have been killed in recent months by plummeting LNG prices, most notably Petroliam Nasional Bhd’s $27 billion Pacific Northwest, a potential new source of investment for Veresen, Cox said.

“You’ll see some migration of those offtakers moving toward Jordan Cove,” Cox said. “I wouldn’t be surprised to see Petronas get involved in that project.”

 

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Energy

KIEV, Ukraine — Burisma Group, an international energy group with assets in Ukraine, purchased a U.S. drilling rig SK 3000 with load capacity of 680 tonnes. The 3,000-hp drilling rig, produced by Service King Manufacturing, Inc., was brought into operation in May 2017 at the well No. 6 of the Vodyanovske field (Kharkiv region). Burisma Group is the first company to introduce such a powerful rig in Ukraine and Eastern Europe, able to drill 10,000-m deep wells. The SK 3000 was fully-equipped in the U.S. and adjusted to operate in Ukrainian conditions.

The purchase price of SK 3000 was around UAH 1 billion ($40 million) and the relevant customs duties transferred by Burisma Group to the state budget amounted to UAH 200 million ($7.64 millon) . According to Burisma’s corporate “Billion Strategy”, in 2017, the Group intends to invest more than UAH 3 billion ($110 million) with an aim to further develop and enhance the effectiveness of hydrocarbons production.

“For the current year, Burisma Group set an ambitious goal, to drill 20 new wells. This will allow Burisma to increase domestic gas output and strengthen Ukraine’s energy security. Burisma provides the country with new technology and innovative oil gas equipment. Such equipment is serviced by foreign specialists that share their valuable experience with Ukrainian gas producers”, noted CEO for Ukrainian operations at Burisma Group, Taras Burdeinyi.

Service King Manufacturing, Inc. is a manufacturer of mobile drilling rigs in the U.S. The company owns seven factories that produce the whole range of components for drilling equipment, including brake bands and pads, masts, drawworks and carriage parts. Service King holds the largest machine shop for maintenance and repair of drilling rigs in the US. Burisma Group is the exclusive representative of Service King Manufacturing, Inc. in Ukraine.

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Energy

LONDON (Bloomberg) — Oil was heading for a third weekly gain as OPEC ministers meeting in Vienna urged a continued commitment to supply cuts they said are making good progress in draining a global glut.

Front-month oil futures were little changed in New York, leaving them 1.3% higher this week. It’s critical for OPEC to maintain focus and fully implement their agreed curbs, Secretary General Mohammad Barkindo said Friday. The oil market is well on its way to rebalancing and the pace of the drop in inventories in developed economies has accelerated, Kuwait’s Oil Minister Issam Almarzooq said.

Oil has advanced this month on forecasts for rising crude demand and as U.S. Gulf Coast plants recover from Hurricane Harvey, which halted almost a quarter of the nation’s refining capacity. Nine months into the OPEC-led supply agreement, implementation of the pledged production cuts remains high. Nigeria, which is currently exempt from making cuts, reiterated that it would accept a cap once output stabilizes around 1.8 MMbpd.

“Today’s meeting of the Joint Ministerial Monitoring Committee is lending buoyancy,” Commerzbank said in a note. “Although no binding promises to extend or expand the agreement can be expected, Nigeria – which like Libya had not signed up to the production cuts – is at least showing a willingness to come on board.”

WTI for November delivery was at $50.50/bbl on the New York Mercantile Exchange, down $0.05. Total volume traded was about 48% below the 100-day average. Prices advanced 5.1% last week, the biggest weekly gain since July.

Too Soon

Brent for November settlement was at $56.48/bbl on the ICE Futures Europe exchange, $0.05 higher. Prices are up 1.6% this week. Brent crude traded at a premium of $5.97 to WTI.

Oil inventories in developed economies have dropped by 170 MMbbl since January and backwardation in prices shows stockpiles are shrinking and demand rising, Kuwait’s Almarzooq said. “We are on the right track and there is now more light at the end of the tunnel,” he said. “This is not the time to take our foot off the accelerator.”

Oil Market News

OPEC and its allies are evaluating all parameters including exports to gauge effectiveness of cuts, Venezuelan Oil Minister Eulogio del Pino said in Vienna. OPEC/non-OPEC supply deal is vital to helping stable energy future, Russian Energy Minister Alexander Novak said in Vienna. He said countries participating in the cuts need to work out a future strategy. Global petroleum stockpiles will rise 300,000 bpd in 2018 after not growing at all this year, Societe Generale analysts including Mike Wittner said in a presentation.

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Energy

LONDON and HONG KONG (Bloomberg) — Oil held above $50 a barrel as a decline in U.S. fuel inventories countered a bigger-than-forecast increase in crude stockpiles.

November futures dropped 0.5% in New York after climbing 1.6% Wednesday. Gasoline supplies dropped a third week to the lowest level since November 2015, while distillate stockpiles fell by the biggest amount since 2011, according to government data. Crude inventories expanded by 4.59 MMbbl last week, more than the 3.9 MMbbl gain projected in a Bloomberg survey. U.S. oil production also rose a second week.

While crude has rebounded this month, prices have struggled to hold above $50/bbl this year as rising U.S. output stifles supply curbs by OPEC. An OPEC ministerial meeting in Vienna Friday will discuss the possibility of extending the cuts beyond March, Algeria Press Service cited Algeria’s Energy Minister Mustapha Guitouni as saying, while Saudi Arabia and others have mooted a possible extension. Meanwhile in the U.S., Secretary of State Rex Tillerson has highlighted flaws in the 2015 international nuclear deal with Iran.

“The market focused on the sharp recovery in crude demand implied” by the decline in fuel inventories on Wednesday, said Jens Naervig Pedersen, a senior analyst at Danske Bank in Copenhagen. “It adds to the bullish sentiment buoyed by concerns about the Iran nuclear deal and headlines about OPEC looking at a possible extension of output cuts.”

WTI for November delivery was at $50.42/bbl on the New York Mercantile Exchange, down $0.27. Total volume traded was about 36% below the 100-day average. The October contract expired Wednesday after gaining 1.9% to close at $50.41.

Brent for November settlement lost $0.27 to $56.02/bbl on the ICE Futures Europe exchange, after advancing $1.15 on Wednesday. Brent traded at a premium of $5.63 to WTI.

U.S. gasoline stockpiles fell by 2.13 MMbbl last week to 216.2 million, the EIA reported Wednesday. Distillate inventories, a category that includes diesel, dropped by 5.69 MMbbl. Crude output expanded by 157,000 bpd to 9.51 MMbpd.

Tillerson this week laid out the case to European allies about flaws in the 2015 Iranian nuclear accord, hours after President Donald Trump said he’s made his decision about whether to walk away from the pact, without revealing what it was. Trump called the deal “an embarrassment to the United States” in his speech to the United Nations General Assembly on Tuesday.

“We could see some payback in oil prices in the short term,” Pedersen said. “But concerns about a pullback of the Iran nuclear deal will make it difficult for the market to sell oil, even at these levels.”

Oil Market News

The OPEC/non-OPEC Joint Technical Committee meeting in Vienna concluded that the average compliance with agreed production cuts in August was 116%, according to two delegates. Gulf Coast refiners that spent billions over the last two decades on plants designed specifically to process Venezuela’s cheap, tar-like crude are starting to come home to American light oil. Global gasoline market “is set up for a tight autumn, at least until demand ebbs seasonally” and refineries return from both planned and unplanned maintenance, Energy Aspects said in research note.

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Energy

LONDON (Bloomberg) — Iraq’s Kurdish provinces plan to vote in a referendum on independence on Sept. 25, a poll that regional and Western powers, not to mention the central government in Baghdad, have decried as a catalyst for greater instability in a region gutted by war. At stake are the petrodollars that have helped sustain the Kurdish Regional Government’s semi-autonomous rule after a budgetary deal with the federal government fell apart. Some of this oil wealth lies in disputed areas where the referendum will be held.

1. Why should the oil market care about this referendum?

The KRG says northern Iraq’s Kurdish enclave could hold 45 Bbbl of crude reserves, more than OPEC member Nigeria. The region pumped about 544,600 bopd in 2016 and is expected to boost output to 602,000 bpd, consultant Rystad Energy said in April. Last year’s production represents about 12% of Iraq’s total supply, based on data compiled by Bloomberg News. These volumes alone would put the KRG on par with OPEC’s Ecuador and Qatar. To get its oil to market, the landlocked Kurdish area relies on a pipeline to the Mediterranean port of Ceyhan, Turkey. Kurdish exports averaged 515,000 bpd last year, according to cargo tracking compiled by Bloomberg News. Shipments averaged 583,600 bopd year-to-date, the data show.

2. Does the referendum pose a threat to oil production?

The referendum will be held not only in the three governorates of the Kurdish region but also in the disputed region of Kirkuk and its oil fields, where Iraq first discovered crude in 1927. The federal government deems it illegal for the KRG to include Kirkuk in its referendum and has threatened to retaliate. 

“The reactions to the referendum were childish,” Ahmed Al-Askari, head of the energy committee at the Kirkuk provincial council, said in a phone interview. “We are peaceful people and ready to negotiate for our rights.”

Kurdish forces took control of territory around the city of Kirkuk in June 2014 after the Iraqi Army fled from Islamic State militants, but Baghdad refuses to recognize Kurdish control of the area.

“We have some differences with the minister of natural resources of the KRG over the Kirkuk field,” Iraqi Oil Minister Jabbar Al-Luaibi said on Sept. 19. The KRG’s ministry of natural resources declined to respond to a Bloomberg request for comment.

Because the poll is non-binding, the International Energy Agency doesn’t “anticipate any immediate change in the status quo at this time” and will monitor developments as they unfold, it said in an emailed statement. The IEA tracks supply from the Organization of Petroleum Exporting Countries, including Iraq, OPEC’s second-biggest producer.

3. Are oil exports at risk?

The biggest risk to exports would be for neighboring Turkey — which  opposes the referendum, given it has its own restive Kurdish minority — to shut down the pipeline that can transport as much as 700,000 bbl from Kurdish fields to Ceyhan, according to regional specialists Michael Knights of the Washington Institute and Michael Rubin of the American Enterprise Institute. 

A Turkish closure of the link would wipe out recent gains in the KRG’s energy industry, Knights said, citing the Kurds’ regular payments to international oil companies in the past two years, a resolution of overdue receivables owed to some of these businesses and a proposal by Russia’s Rosneft Oil PJSC to build a natural gas pipeline in the region. The fact that the oil pipeline has operated without interruption since the Kurds announced the referendum in June should reassure energy companies, Knights said.

4. Are there risks for oil companies?

Publicly listed international oil companies operating in the Kurdish territory include Gulf Keystone Petroleum Ltd, Genel Energy Plc and DNO ASA. Gulf Keystone operates the 36,700-bopd Shaikan field, while DNO produces at the Tawke field. Around Kirkuk, a local oil company, KAR Group, operates the Khurmala, Avanna and Bai Hassan fields.

Risks to operating in the region have eased amid the progress cited by Knights of the Washington Institute and recent military advances against Islamic State in northern Iraq.

“Our industry is the most important industry in the region, and it’s in everyone’s interest to protect” it, Jon Ferrier, Gulf Keystone chief executive officer, said in an interview on Sept. 19. Officials at Genel declined to comment. DNO couldn’t immediately be reached for comment.

5. Why does Kirkuk matter?

Kurds, Arabs and Turkmens are all competing to control Kirkuk, making the city and its oil-rich area a potential flashpoint for conflict. Tensions are threatening to escalate after clashes this week between Kurds and Turkmen during an event to promote the referendum. Iraq’s parliament voted to dismiss the province’s Kurdish governor, a move KRG President Massoud Barzani said would end the partnership with Baghdad. Kirkuk fields under Kurdish control are pumping 350,000 to 400,000 bopd, according to Iraqi Deputy Oil Minister Fayyad Al-Nima.

“If the Kurds include Kirkuk by force in the referendum process, it will be considered then an occupied province by non-Iraqi forces, and then the prime minister will be obliged to take measures to take back these lands,” Khalid Al-Miferji, who represents Kirkuk in Iraq’s federal parliament, said in a phone interview.

 

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