Commodity Corner: Oil Follows Stocks' Lead

- Commodity Corner: Oil Follows Stocks' Lead

Wednesday, September 07, 2011
Rigzone Staff
by Matthew V. Veazey

Thanks to a German court ruling supporting bailouts in the euro-zone, world equities markets posted healthy gains Wednesday. The WTI and Brent crude oil benchmarks followed suit.

Light sweet crude oil for October delivery gained nearly four percent to end the day at $89.34 a barrel. Brent, meanwhile, climbed 2.7 percent to settle at $115.80 a barrel. Buoying stock markets on both sides of the Atlantic as well as Asia was the German Constitutional Court's rejection of an attempt to block German involvement in bailouts of other euro-zone countries.

The Dow Jones Industrial Averaged gained nearly 2.5 percent while the S&P 500 and Nasdaq rose by 2.86 percent and 3.04 percent, respectively. In Europe, the London-based FTSE 100 finished more than 3.1 percent higher and the CAC 40 in Paris gained 3.63 percent. Major exchanges in Shanghai, Tokyo, and Hong Kong posted more modest increases.

The WTI traded within a range from $86.15 to $89.74 while the Brent contract price fluctuated from $112.81 to $115.98.

Natural gas for October delivery managed to break the $4.00 mark, peaking at $4.04 per thousand cubic feet. The midweek momentum faded by the close of floor trading, however, with the front-month contract settling at $3.94 for the second straight day.

October natural gas bottomed out at $3.90 Wednesday.

The price of a gallon of gasoline gained nearly nine cents to settle at just under $2.91, also the intraday high. The price floor during Wednesday's trading was $2.82.

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Global LNG Market Grows, New Markets Emerge

- Global LNG Market Grows, New Markets Emerge

Monday, July 18, 2011
Rigzone Staff
by Karen Boman

The global liquefied natural gas (LNG) market continues to expand and transform as the volume of LNG traded globally keeps rising and new and existing players enter the market or expand LNG activity.

In 2010, the volume of LNG traded globally hit 223.8 million tones/annum (MMtpa), the International Gas Union's (IGU) World LNG Report 2010 noted, a 41 MMtpa increase from 2009 and the largest year-on-year growth experienced by the industry, thanks to newly-commissioned liquefaction trains and the ramp-up in output from trains commissioned in 2009. When compared to the 143 MMtpa of LNG traded in 2005, the market has grown by over 50 percent over the past five years.

The year 2010 started with an LNG market facing record supply growth, driven mostly by Qatar, and a weak demand environment due to the aftermath of the economic crisis and the U.S. shale gas boom, according to the IGU report. However, demand recovered impressively, as did LNG imports, with most countries importing more LNG in 2010 than in the pre-crisis year of 2008.

The structure of LNG trading is evolving from a market focused on long-term arrangements between buyers and sellers to a market with more spot LNG trading, according to the report. Spot LNG trading has grown steadily since the 1990s and has experienced more rapid growth during the last five years. Up until 2005, spot trading accounted for only 10 percent of total LNG traded; since that time, spot trading has grown to more than a fifth of the market, or 47 mmtpa last year.

In 2005, 11 countries were active spot LNG exporters and 12 countries were spot cargo importers. By end 2010, these numbers have since increased to 16 and 22 respectively. "The appetite to buy LNG on a spot basis has increased significantly as the list of spot buyers has nearly doubled, whereas the list of spot sellers has increased, albeit at a slower pace," the report said.

The LNG trade also has spread in terms of geography, In 2005, 13 countries exported LNG, including Algeria, Australia, Brunei, Egypt, Indonesia, Libya, Malaysia, Nigeria, Oman, Qatar, Trinidad & Tobago, the United Arab Emirates (UAE) and the U.S. From 2006 through 2010, Equatorial Guinea, Norway, Peru, Russia and Yemen also began exporting LNG.

During that time period, Argentina, Brazil, Canada, Chile, China, Kuwait, Mexico, and the UAE begin importing LNG, joining 15 existing importers that included Belgium, Dominican Republic, France, Greece, India, Italy, Japan, Portugal, Puerto Rico, South Korea, Spain, Taiwan, Turkey, the UK and the U.S.

The growth in the global LNG industry is being fueled by Southeast Asia's growing economies and the Japanese earthquake and tsunami, which knocked offline nuclear power facilities in the country. The role of nuclear power is now being questioned by other countries; earlier this year, Germany announced it would shut down all of its 17 nuclear power plants by 2020. A decline in nuclear power generation would likely create long-term demand for gas.

Challenges remain in getting stranded supplies to markets, including accessing resources held by nations that limit participants in the oil and gas sector. Rising LNG development costs also present a challenge, meaning that the low hanging fruit has been picked and the ladder to the next level is becoming more expensive, said Peter Cleary, VP of corporate strategy and development for Santos Ltd., at the Asian Oil and Gas Conference on June 7.

Latin America is a key growth area for LNG as gas consumption increases in cities across the region, with countries such as Brazil, Chile, Jamaica, Mexico and Uruguay planning new terminals. "The region is a key area for floating regasification vessels as they can be used to elevate season demand shortages," said Douglas-Westwood analyst Lucy Miller. LNG also is being exported from South America. In 2010, Peru commissioned its first liquefaction plant, making it the 18th country to have liquefaction capacity to export LNG and the second LNG exporter in South America, IGU noted.

Growing gas demand in the Middle East, which is expected to account for about 20 MMtpa of LNG demand by 2020, will create a new market for LNG imports. Emerging LNG markets such as Dubai and Kuwait, which recently started importing LNG, and summer demand to power air conditioning are boosting LNG imports into the Middle East. Importing LNG for consumption is allowing Kuwait to allocate more liquefied petroleum gas for export. Dubai's domestic gas consumption also creating demand for LNG in that country; so far, Dubai has imported 26 Bcf, or less than 1 Bcf/d total since November 2010.

Bahrain, Israel and Lebanon also are considering construction of LNG import facilities. Qatar remains the world's largest LNG exporter at present, though a moratorium on further development of Qatar's North Field means that no new LNG capacity is likely to come online before the end of the decade.

Indonesia is developing a series of LNG import terminals along its coast to satisfy domestic demand, said Miller. However, the country, which is a major exporter of LNG, has new LNG export terminals projects in development which target other Asia countries, such as the Donggi-Senoro and Abadi FLNG projects. Indonesia also has coalbed methane reserves which it believes can eventually be used for gas export, though this is many years ago, Miller said. Eastern Europe is another emerging LNG market, with construction underway on an import terminal in Poland, with others planned along the Baltic Coast and a few terminals planned for the Black Sea coast.

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Commodity Corner: QE3 Expectations Boost Oil

- Commodity Corner: QE3 Expectations Boost Oil

Friday, July 15, 2011
Rigzone Staff
by Matthew V. Veazey

Light sweet crude oil for August delivery rallied Friday on expectations that a third attempt by the Federal Reserve to stimulate the economy would be bullish for commodities.

After reaching $97.74 and bottoming out at $95.21, the WTI gained $1.55 for the day to settle at $97.24 a barrel. The September Brent contract traded within a range from $115.25 to $117.65 before ending the day at $117.26, representing a $1.00 gain from Thursday. The August Brent contract, which expired Thursday, had settled at $118.32.

Testifying before a congressional panel this week, Fed Chairman Ben Bernanke roused markets Wednesday by suggesting that the Federal Reserve may launch a third round of quantitative easing. The "QE3" strategy would aim to improve liquidity in the U.S. economy by printing more money to buy Treasury bonds, encouraging banks to pursue riskier investments by boosting lending to businesses and consumers. Because more money would be available to banks, the value of the U.S. dollar against other currencies would diminish. Hence crude oil would be a better buy for investors using currencies other than the greenback.

On Thursday, the dollar gained strength and oil futures plunged after Bernanke stressed that the Fed had no immediate plans to set QE3 in motion. Investors on Friday, however, appeared to assume that such a policy decision would eventually be implemented.

With temperatures expected to approach or perhaps exceed the triple digits from the Upper Midwest to the East Coast, demand for electricity to power air conditioners and fans is set to be high well into next week. As a result, August natural gas surged well over four percent before ending the day at $4.55 per thousand cubic feet.

The front-month contract price for gas traded from $4.38 to $4.56 Friday.

Gasoline for August delivery edged upward by one cent to settle at $3.13 a gallon. The intraday high and low prices for gasoline were $3.15 and $3.10, respectively.

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IEA Reports on State of Oil Markets since Emergency Stockpile Release

- IEA Reports on State of Oil Markets since Emergency Stockpile Release

Friday, July 15, 2011
Rigzone Staff
by Barbara Saunders

In an unusually strongly worded statement, the International Energy Agency (IEA) – the official energy watchdog for major consuming nations – said that its critics "can't have their cake and eat it too."

IEA made the statement in releasing its monthly oil market report on July 13, commenting on the status of oil markets since its call on June 23 for the release of 60 million barrels of oil and refined products from the emergency stockpiles of member nations, including the U.S. and Japan.

The move was made to help compensate for "a string of supply-side outage over and above" the loss of 1.5 million barrels per day (mbpd) of light sweet [i.e., easy to refine] Libyan crude oil, due to internal conflict in that nation, IEA said.

". . . [T]he market ledger this month looks slightly tighter than a month ago. Our balances for first-half 2011 [1H2011] show demand continuing to run ahead of supply, if a little less rapidly than in 2H10," IEA said.

"Major producers have recognized that demand for their oil is rising, with the seasonal uptick in 3Q11 refinery runs, and more generally as economic growth and short-term fuel substitution keep global and emerging market demand growth robust," IEA continued. “We welcome rising OPEC volumes seen in June (30.03 mbpd output), but the market needs still more oil for 3Q."

IEA continued, "This backdrop is simply a more vivid version of the one underpinning the IEA action, which commenced on 23 June. Member governments agreed to release 60 mb of strategic stocks for an initial 30 days, amid an ongoing disruption to light-sweet Libyan oil supplies, the anticipated rise in 3Q11 refiner and end-user demand and a likely hiatus before incremental OPEC barrels reach the market. Much ink has been spilt subsequently suggesting that the IEA action comes three months too late, depletes emergency stockpiles and has failed to reduce rampant crude and motor fuel prices. However, we feel compelled to point out that critics cannot have their cake and eat it too."

"Market intervention in late-February, when the Libyan crisis broke and prices surged by at least $10/bbl, would have been tempting, were price control really the prime motivation," IEA said. "But the presence of a supply disruption, and sharply higher prices is not, by itself, justification for a collective action. Market context is also important. Refiner crude demand was falling seasonally in March and April, but rising sharply in June and moving higher still in July and August, despite modest refining margins. Early-year industry stocks looked comfortable back in March, and there was a presumption then that other OPEC producers would immediately step in to boost supply to replace Libyan outages. In contrast, the absence up until June of major OPEC increases implied a real possibility that commercial stocks could fall to the bottom of their seasonal range, risking a renewed, damaging and sustained surge in international prices in 3Q11. The IEA therefore decided to act to address this supply-side issue, even though prices were then trending lower."

Marker crude prices fell by $5 per bbl immediately after the action was announced, IEA noted, adding, "Since then Brent futures have oscillated between $105-$119/bbl, and WTI between $91-$99/bbl. At writing, flat prices of $116/bbl (Brent) and $95/bbl (WTI) are close to those seen immediately prior to the action, but will doubtless fluctuate further in the weeks ahead. However, it is blinkered to focus on specific price levels, which were never the rationale for the action. Narrower sweet-sour spreads, modestly stronger refining margins and an easing of the steep backwardation evident before the release on the other hand all suggest a more benevolent market reaction. We acknowledge that the impact of the collective action will only be truly evident in hindsight. However, recognizing the flexibility and market liquidity it has already provided, we take a resolutely positive view so far."

IEA's move came in the wake of the last OPEC meeting on June 22, when three Middle Eastern nations – Saudi Arabia, Kuwait and the United Arab Emirates (UAE) – broke ranks from the other major producing member nations in wanting to increase production quotas to keep the world amply supplied. The three nations have since pledged to increase production in the absence of an all-OPEC accord, but there's a hiatus in the additional supply reaching the market.

Veteran OPEC-watcher Bhushan Bahree, senior director of global oil for IHS CERA, told Rigzone in a telephone interview: "Oil supplies are ramping up." Bahree added, "There was very little incentive for the other OPEC nations to agree to increase production. They have little or no spare capacity."

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Opec talks collapse at 'worst ever' meeting

- Opec talks collapse at 'worst ever' meeting

Jun 9, 2011
Tamsin Carlisle and April Yee

VIENNA // The price of oil soared close to US$120 a barrel yesterday as Opec failed to reach agreement on production targets during a six-hour meeting described by the Saudi delegate as "one of the worst" ever.

The 12-nation group gathered behind closed doors at Opec's headquarters in Vienna while oil traders held their breath.

Earlier in the day it had been suggested the crude producers were close to agreement on a plan to increase production targets and to exclude Libya, which has halted production in the wake of its civil war, from the Opec quota system.

The delegates emerged from their meeting an hour earlier than expected, however, stunning oil markets with their failure to agree.

"We were unable to reach an agreement … this is one of the worst meetings we have ever had," the Saudi Arabian oil minister Ali al Naimi said, adding that his country - the world's largest oil exporter - was committed to keeping the market well supplied.

The UAE, Kuwait and Qatar, he said, had joined Saudi Arabia in supporting an increase in production quotas of 1.5 million barrels per day (bpd) over Opec's 28.8 million current daily production.

Nigeria's delegation head and Chairman of the Organization of the Petroleum Exporting Countries (OPEC) Goni Musa, left, Oil Minister of Iran and OPEC President Mohammad Aliabadi, center, and OPEC Secretary General Abdalla Salem el-Badri, right, talk to each other during the OPEC meeting in Vienna, Austria, Wednesday, June 8, 2011. (AP Photo/Bela Szandelszky) - AP

Libya also sparked intrigue as Muammar Qaddafi unexpectedly sent a delegate to the meeting, stymying plans by Libyan rebels to attend. Libya then joined Algeria, Angola, Ecuador, Venezuela, Iraq and Iran to oppose lifting quotas.

"Unfortunately at this time we are unable to reach any consensus," said Abdalla el Badri, the secretary general of the organisation that controls about 40 per cent of crude oil supply.

The International Energy Agency said it was disappointed with Opec's failure and called for "a prompt increase in supply".

The Paris-based group of energy-consuming nations added that any "potential increases in prices" caused by Opec's failure "risk undermining economic recovery".

Brent crude, the European benchmark, immediately shot up by more than $1 a barrel in late trading in London, hitting $118.58.

That widened the already yawning gap between Brent and the US benchmark West Texas Intermediate crude, which had slipped below $99 this week. The US crude climbed back above $100 early in yesterday's trading session on the New York Mercantile Exchange.

In the absence of a decision to raise the group's official output ceiling, which is some 1.4 million bpd lower than actual production in recent months, Opec will again leave unchanged the target that it set in December 2008, after crude had slid by about 80 per cent from the record $147 per barrel reached the previous July.

In what some analysts see as a reprise of the situation prevailing in the first half of 2008, crude has climbed steeply over the past eight months, with Brent averaging about $109 this year.

"Certain members believed that we should have had a production increase today. Others believed we should have some time to further assess the situation and then come to a decision," said Mohammad Aliabadi, the Opec president.

"The final proposal was that at the most we can wait for about three months during which we will assess the market situation, assess the demand and decide after that." he said.

But even on that modest proposal, the group could not reach agreement yesterday.

"I hope that in the period of three months at the latest we will be able to hold an extraordinary meeting to be able to come to a decision," said Mr Aliabadi, who only last week was appointed the caretaker oil minister of Iran.

Despite the lack of consensus, Opec took the unprecedented step of emphasising yesterday the meeting was not rancorous.

"The ministers are friends. The atmosphere was good. We had no conflict whatsoever," Mr el Badri said. "The reason we were unable to reach a decision was that everyone had their own information and data … so we were unable to agree. But the atmosphere was really friendly.

"As of today we're not in crisis. We have enough stocks; there is no shortage whatsoever."

Mr Aliabadi called for markets to "remain calm", while acknowledging that Opec ministers had failed to achieve their prime objective at yesterday's meeting, which was to reach a decision on the group's output target.

But analysts predicted a choppy market reaction with further oil price volatility virtually assured. "It's going to go up and then it's going to go down to where we are again, because we have demand destruction in the US, southern Europe," said Olivia Meyer, the chief executive of the MRL consultancy in London.

Mr el Badri said the Opec ministers specifically debated whether to raise crude production in the third and fourth quarters of this year.

Mr el Badri said the Opec ministers did not address the situation of Libya. There was no discussion of whether the North African country should be exempted from complying with an output quota when production and exports from its oilfields resume.

tcarlisle@thenational.ae
ayee@thenational.ae


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Indian Offshore Companies Set Signt on Emerging Markets

- Indian Offshore Companies Set Signt on Emerging Markets

Tuesday, June 07, 2011
Knight Ridder/Tribune Business News
by Manu Balachandran, The Economic Times, India

Indian offshore companies are making substantial investments to acquire vessels to tap the oil exploration and drilling services market in emerging markets, led by Brazil, to scale up revenues in the coming years.

Domestic offshore companies led by Greatship India, Great Offshore, Essar Shipping and Global Offshore compete for contracts to be awarded by Petrobras, the world's largest deep-water and ultra-deep water oil producer. "The demand for vessels in Brazil is as much as 500 in the coming years and there is a market in excess of $30 billion, which can be tapped by Indian companies," said the MD of a leading domestic offshore player.

While 50% of the vessels deployed in Brazil are non-Brazil flag vessels, European and Asian companies have been actively pursuing the market for bigger tonnage and larger supply vessels.

Greatship India is awaiting the delivery of seven of its vessels, while Global Offshore has already planned to acquire two platform supply vessels by the next year at a cost of Rs. 500 crore. Bharati Shipyard-owned Great offshore will also look to raise its total fleet from the current 47. "While I cannot divulge the details of our further expansion plans, Great Offshore is targeting Brazil. We currently do not have any fleet in Brazil, but we are looking to enter the market in a big way, especially in the larger supply vehicles and anchor handling vessels," said PC Kapoor, MD of Great Offshore.

While parallels can be drawn between India and Brazil in terms of oil reserves in offshore, India has been lagging behind in exploration. "India's scale of operation in the offshore sector is about [th of what Brazil has and on a relative basis, this is inadequate," said Anjan Brahma, analyst at i-maritime consultancy. Sheth family-controlled Greatship India currently has a fleet size of 19 and is expected to scale up to 28 in the next two years, which is likely to be deployed in emerging markets such as Brazil and Australasia.

"We are looking at emerging markets such as Brazil and Australasia in terms of oil exploration and drilling services and subsea market. We were awarded a contract with Petrobras in collaboration with Fugro, which is estimated at a value of more than 450 crore for a five-year period," said Greatship India MD Ravi K Sheth. Smaller companies such as Global Offshore and Varun Shipping have also been in the race.

Varun Shipping recently signed a contract with Petrobras for three anchor handling towing and supply vessels. The deal was valued at Rs. 690 crore for the first four years, with another Rs. 690 crore to be paid in case of an extension.

Copyright (c) 2011, The Economic Times, India

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Commodity Corner: Crude Climbs on Equities, Mideast

Commodity Corner: Crude Climbs on Equities, Mideast

Tuesday, March 29, 2011
Rigzone Staff
by  Saaniya Bangee

Crude futures advanced 0.8 percent Tuesday on stronger equities and doubts on whether Libyan rebels can resume crude exports within a week.

Tuesday's stock market rally helped oil prices snap out of a 3-day slump, settling at $104.79 a barrel. The 81-cent gain came in anticipation of increased oil demand in the U.S. As the first quarter for 2011 nears close, the Dow Jones Industrial Average and the Standard & Poor's 500 Index both gained 0.7 percent in afternoon trading.

Earlier Tuesday, prices fell to $102.70 a barrel on Libyan rebels' promise to swiftly return crude exports to markets. Traders remain weary as to how quickly and capable Libya will be in resuming exports, along with the remaining uncertainty in the Middle East.

Meanwhile, natural gas futures for April delivery fell by 3.1 percent to settle at $4.24 per thousand cubic feet. The April contract expired at Tuesday's settlement, which traders seized as an opportunity to cash out previous profits.

The Energy Information Administration reported 66.67 billion cubic feet a day, 0.5 percent lower, for U.S. natural gas production in the lower 48 states. The drop was still 6.8 percent higher from year-earlier levels.

Natural gas prices fluctuated between $4.195 and $4.37 Tuesday.
Front-month gasoline ended up Tuesday, settling at a session high of $3.05 a gallon. The session bottomed out at $3.01 a gallon.

Barclays Anticipates $185 Oil in 2020

Barclays Anticipates $185 Oil in 2020

Friday, March 25, 2011

Fort Worth Star-Telegram, Texas

by  Jack Z. Smith

If you believe oil prices are going to soar in coming years, you're very much in sync with the thinking of the brain trust at Barclays Capital, a prominent international investment banking firm based in London.

Barclays, in its Oil Market Update released Thursday, forecasts that a barrel of West Texas Intermediate (WTI) crude oil, the benchmark U.S. grade, will sell for an average price of $185 in 2020. That's $38 higher than the current all-time record high reached in the summer of 2008, when oil topped $147 a barrel.

Meanwhile, Barclays is dramatically revising its 2011 oil price forecast upward in light of tensions in the Middle East, curtailed production in Libya, rising global oil demand and a shrinkage in spare production capacity.

Barclays is now forecasting an average price of $106 a barrel for WTI this year, a $15 jump from its prior estimate of $91. And it is predicting that even pricier North Sea Brent crude will average $112 rather than the $91 it previously forecast for that grade also.

WTI crude for May delivery settled at $105.60 Thursday, down 15 cents, in futures contracts for May delivery on the New York Mercantile Exchange. But the price went as high as $106.69 in intraday trading.

Brent crude gained 17 cents to settle at $115.72 a barrel on the London-based ICE Futures Europe exchange.

ConocoPhillips Plans to Sell Additional $5-$10B of Assets

ConocoPhillips Plans to Sell Additional $5-$10B of Assets

March 23, 2011

by  Isabel Ordonez

 

ConocoPhillips unveiled plans to sell an additional $5 billion to $10 billion in non-core assets over the next two years and said it will use the proceeds to fund its share buyback and capital expenditure programs.

The move, announced at the company's analyst meeting in New York, had been expected by some analysts. Chief Executive Jim Mulva told analysts the company plans to sell a total of $12 billion to $17 billion in assets in a three-year period, including at least $1 billion in refining and marketing properties this year. Mulva, who announced he will retire from his post some time next year, said potential new dispositions include non-strategic assets in the North Sea and additional mature assets in the U.S. and Canada. The plan also includes a 15% stake in the Australia-Pacific liquefied natural gas project it agreed to sell last month to Sinopec.

"We are executing the plan set out last year to improve returns and create value through disciplined capital spending, non-core asset sales and growing production per share," Mulva said.

Mulva told analysts that the additional asset sale target is expected to come on top of the $7 billion the company already sold in assets last year and excludes the $8.3 billion from the sale of its 20% stake in Russian oil giant Lukoil.

Conoco is in the midst of a restructuring plan started in 2010 to shore up its finances by selling assets. It initially said it didn't plan to sell refining properties until next year, aiming to avoid selling assets at deep discounts, but in October it said it would ramp up its sale of assets in 2011 amid a rebound in the industry.

The asset sales mark a shift from Conoco's debt-fueled acquisition spree when commodity prices were soaring. It also underscores the company's confidence that its "shrink-to-grow" strategy is yielding positive results among investors. Oil and gas producers have traditionally been judged primarily on how quickly they can grow reserves and production. But adding enough oil reserves to please investors is becoming tougher each year as state-controlled oil companies restrict access to the most promising new resources. For investor-owned oil companies, improving the profitability of what they do own has become the next best option.

ConocoPhillips, the third-largest U.S. oil company by market value after ExxonMobil and Chevron, said it expects its oil-and-gas production to be between 1.6 million and 1.7 million barrels of oil equivalent per day in 2013, down from 1.75 million barrels of oil equivalent per day it produced last year due to the impact of the asset sale program. The oil giant, however, said it expects output to grow 2% to 3% per year in the long term, driven mainly by the startup of projects in Asia, the North Sea and the U.S.

The company expects to use proceeds from the asset sales announced Wednesday to fund a $10 billion share repurchase program it had previously unveiled, and for capital investment. In a slide presentation, the company said it expects share buybacks to total $11 billion through 2012.

Conoco plans $13.5 billion of capital spending this year, with the vast majority targeted for exploration and development. It said it plans to invest $14 billion to $15 billion per year from 2012 to 2015.

Mulva, who has run the company since 1999, said Conoco's spending plans are unlikely to change with his expected retirement next year.

"The company is in great shape. It makes a lot of sense to do it at that point in time," Mulva said.

Conoco said it plans to invest 50% more this year in projects in North America mainly aimed at increasing drilling activity in oil-rich shale areas such as the Eagle Ford in Texas and the Bakken Shale in North Dakota.

Mulva said it is unlikely Conoco will make any large-scale acquisitions but he added it could expand its presence in some areas such as the deepwater of the Gulf of Mexico through small scale deals.
ConocoPhillips said it sees oil prices remaining strong in the long term, driven by increased global demand, but added that natural gas prices in the U.S. are likely to remain depressed due the shale gas production boom.

The company said it plans to invest $1.4 billion in the APLNG project, which will be sanctioned by mid-year and have its first liquid natural gas delivery in 2015. Conoco is also planning to ramp up exploratory drilling in the Caspian Sea, with a new well planned for its Kazakhstan N Block offshore for late this year or early 2012. The company is also negotiating a production sharing agreement for Block 19 in Turkmenistan.

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Today's Trends: Natural Gas Funnelling

Tuesday, March 22, 2011

Rigzone Staff

by  Trey Cowan

The cylinder sections in the graph above represent a range of, plus-to-minus one, standard deviation surrounding the average annual natural gas prices for the corresponding years. Trading patterns over the last three years indicate that the price volatility of natural gas has diminished significantly. Specifically, the range has narrowed from $4.28 in 2008 to just $0.58 at present.

If the cylinders were to be placed concentrically side by side, the resulting effect would be a funnel. Proceeding from the wide-end of the funnel to present day prices, it appears that natural gas has reached a period of price stability.

While much has been written about oversupply issues, the normal corrective mechanisms (i.e. participants leaving) appear to be taking root in the natural gas markets. Specifically, since October 2010, the US land gas rig count has fallen from 950 to 856 rigs, a 10% decline. Taking the conservative assumption that each rig could drill 10 wells per year implies that 940 (10 wells x 94 rigs) fewer natural gas wells will be drilled over the next twelve months.

Given the dramatic decline curves associated with shale gas, such as the depleting 70% during the first year in the Marcellus; the downward trend in rig count implies that future reserve replacement will not likely keep pace with existing production. Such a scenario points to a rebalancing of supply and demand in the U.S.
The discipline we are seeing with regards to a lower natural gas rig count is not occurring in a vacuum. These rigs that were drilling for natural gas are now drilling for oil. In fact, the US land oil rig count has increased by 153 rigs over the same time frame (i.e. from last October until now). E&P firms have made it clear that the incremental return per unit of $11, favoring oil, is a strong incentive to continue shifting resources. Thus, additional drilling to reinvigorate gas production will not resume quickly once prices begin to improve because the equipment will likely not be available.

With prices stabilizing and production normalizing, we can now envision a point in the future months where price improvement rather than price destruction can be seen as the ensuing trend. Other factors that are starting to play to the natural gas market's hand are strengthening industrial demand and a trend towards more electricity generation using natural gas as the fuel. Given the recent nuclear crisis in Japan, the backlash on nuclear energy will only make burning natural gas even more desirable.

So, even with the +7% recent surge in natural gas prices last week, we still see reasons to get more bullish on the commodity in the near future.

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Foster Wheeler Clinches Detail Design Contract in GOM

Tuesday, March 22, 2011

Foster Wheeler's Global Engineering and Construction Group has been awarded a detail design contract by Enbridge Offshore for the deepwater Walker Ridge Gathering System (WRGS) export gas pipelines and the deepwater Big Foot (BGF) export oil pipeline located in the Walker Ridge (WR) area of the Gulf of Mexico.

The contract value, which was not disclosed, will be included in the company's first-quarter 2011 bookings. Foster Wheeler's work on the design contract is expected to be completed during the second quarter of 2011.

"We are delighted that Enbridge Offshore Facilities, LLC has selected Foster Wheeler Upstream's Houston-based team for this project and we look forward to delivering a high quality service which fully satisfies our client," said Clive Vaughan, chief executive officer, Foster Wheeler Upstream. "We have performed the detail design of essentially all of the deepwater pipelines in the Gulf of Mexico. Upstream remains a top growth priority for Foster Wheeler, and the award of the three deepwater gas and oil pipelines contained in this WRGS and BGF project confirms our strategy and commitment to the upstream oil and gas market sector."

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Marex Group Reaches Agreement to Acquire Spectron Group

Tuesday, 22 March 2011 02:35 PR Newswire

Marex Group Limited ("Marex"), the international broker of commodity derivatives, financial futures and foreign exchange, which is majority-owned..

NEW YORK, March 22, 2011 /PRNewswire/ -- Marex Group Limited ("Marex"), the international broker of commodity derivatives, financial futures and foreign exchange, which is majority-owned by JRJ Group ("JRJ") and its partners, Trilantic Capital Partners and BXR Group, today announces that it has reached agreement with Imarex ASA to acquire its 100% holding of Spectron Group Limited ("Spectron") for approximately $154.1 million.

Operating from offices in London, Continental Europe, Asia and the US, Spectron is a leading global broker of wholesale energy and other commodity products. Spectron provides electronic and voice brokerage services for a diverse range of mainly Over-the-Counter ("OTC") markets, including gas, power, environmental products, freight, crude oil and related products, coal, weather and metals. Spectron's broad client base includes traders and risk managers within large oil and gas corporations, energy utilities, commodities firms, financial institutions and charterers. The transaction is subject to FSA approval in the UK and expected to close in the second quarter of 2011.

The combination of the two companies is highly complementary, with each firm a leader in its respective markets. As a leading intermediary in European power and gas markets, Spectron is well positioned for a continuation of the secular growth trend in energy-related financial market activity, with transaction levels expected to continue to respond positively to the processes of liberalisation and integration necessary to realize key EU objectives for competitive, secure and sustainable European energy markets. Marex is a leading broker of metals, agricultural, energy and financial products. Together, the companies will comprise the world's largest independent, privately-owned broker in power, gas, fuel oil, metals, agriculture and other high growth asset classes, able to service clients across both OTC and exchange-traded arenas.

Roger Nagioff, CEO of Marex and Co-Founding Partner of JRJ Group, said: "The partnership with Spectron is transformational for shareholders, clients and employees of both firms. It's a highly complementary combination given Marex's longstanding expertise in exchange-traded commodity derivatives, and Spectron's market-leading execution capabilities in a broad range of energy-related OTC derivatives. This transaction is entirely consistent with, and supportive of, Marex's strategy of growing the firm to become the preeminent independent global broker across the commodities and financial asset classes."

Gordon Bennett, Managing Director of Spectron, said: "The partnership with Marex provides new opportunities for the clients and employees of the combined group. Marex has a successful track record in growing its business and providing top quality service for its clients. I am excited about working with the Marex team to develop the enlarged group into a world-leader across the energy and commodities sectors."

About Spectron

Spectron operates one of the largest global marketplaces for energy, commodity, freight and environmental products from its offices in London, Frankfurt, Oslo, Singapore and several cities across the US. Spectron Group is regulated by the Financial Services Authority in the UK and the National Futures Association in the US. Its screen-based trading system, combined with specialist voice brokers, serves users who trade physical and financial products in a number of wholesale markets, including natural gas, electricity, emissions, coal, metals and weather. About $500bn worth of products and contracts are transacted via the Spectron Group annually. For further information, please visit http://www.spectrongroup.com/.

About Marex

Marex is amongst the world's largest independent, privately-owned, brokers, providing execution, direct market access and clearing services in the metals, energy, agriculture, financial futures and foreign exchange markets. Marex's client base includes commodity producers and consumers, banks, brokers, CTAs, hedge funds and professional traders. Marex is a member of the London Metal Exchange, the CME Group exchanges, ICE US, NYSE Liffe, ICE Futures and Eurex and offers access to all major exchanges in the US and Asia. Marex is headquartered in London with offices in New York, Hong Kong and Geneva. Marex subsidiaries are regulated by the Financial Services Authority in the UK, the National Futures Association in the US and the Securities and Futures Commission in Hong Kong. For further information, please visit http://www.marex.com/.

J.P. Morgan plc acted as financial adviser to Marex on the acquisition and Reynolds Porter Chamberlain LLP and The Dontzin Law Firm LLP acted as legal counsel. PricewaterhouseCoopers LLP provided additional advice.

About JRJ Group

JRJ is a private investment firm established in January 2009. JRJ focuses exclusively on the financial services sector, providing capital, operational expertise and strategic guidance to enhance the value of its investments. For further information, please visit http://www.jrjgroup.com/.

Enquiries

London
Gavin Prentice, Marex

Tel: +44 (0)20 7650 4004

Ethan Levner, JRJ Group

Tel: +44 (0)20 7290 7050

Carole Cable, Brunswick Group

Tel: +44 (0)20 7404 5959

Jeremy Capstick, J.P. Morgan

Tel: +44 (0)20 7742 4000

Hong Kong
Ekaterina Alferova, Brunswick Group

Tel:  +852 3512 5093

New York
Michelle Lee, Brunswick Group

Tel:  +1 212 333 3810

SOURCE Marex

Link

Shell and Showa Shell Sekiyu supporting relief efforts in Japan

Shell and Showa Shell Sekiyu supporting relief efforts in Japan

Tuesday, 22 March 2011 16:30 Ordons.com

Tokyo. Showa Shell Sekiyu K.K. and Shell said today they would make a combined donation of US $2 million to the Japanese Red Cross Society to provide disaster relief assistance in response to the catastrophic earthquake and tsunami in Japan. The Shell Group, in addition to this, has implemented a worldwide employee donation program to further support Japan's disaster relief efforts.

Shell's Country Chairman for Japan, Chris Gunner, said "Our hearts are heavy as we reflect on the thousands of lives lost and the enormous damage due to the earthquakes and the tsunami. Shell has been part of the Japanese community for more than 100 years. Financial support will not dull the pain of this tragedy, but it is important in helping to rebuild lives."

"Given the scale of this catastrophe and resulting human suffering, we want to do our part to assist with the relief and reconstruction efforts," said Shigeya Kato, Chairman of Showa Shell Sekiyu K.K.
All Showa Shell Sekiyu and Shell employees in Japan are safely accounted for and Showa Shell's refineries, marketing and distribution businesses are operational, apart from numerous retail service stations and a small number depots which were impacted in the Tohoku area. However, as a result of the earthquake and tsunami, and the nuclear power plant issues, Japan has suffered significant power generation loss, and refinery and depot shutdowns.

The shutdown of power plants in Japan and rolling power blackouts in the northern half of the main island, including around Tokyo, has seen an increase demand for imports of Liquefied Natural Gas (LNG) and other fuels. Shell and its LNG joint ventures are working with their Japanese customers to help ensure continuing and additional supplies of LNG into the country to meet these critical requirements. Since the time of the earthquake, six shipments of LNG from Brunei, two from Sakhalin and one diverted cargo from Nigeria have unloaded in Tokyo Bay, as well as cargoes to other locations in Japan, providing much needed gas supply. Further cargoes are expected to follow in the coming days.

In addition to the financial donation, Showa Shell Sekiyu has an emergency task force working with the Japanese government in prioritizing supply of petroleum products to the affected areas and maintaining the energy supply 'lifeline'. Its actions include:

In addition to the financial donation, Showa Shell Sekiyu has an emergency task force working with the Japanese government in prioritizing supply of petroleum products to the affected areas and maintaining the energy supply 'lifeline'. Its actions include:

* Terminating the export of refined petroleum products, including gasoline and diesel, this month to strengthen supply to the domestic market;

* Working around the clock to supply petroleum products to its service stations, and supplying other petroleum companies and government agencies in response to their requests;

* Expanding its distribution capabilities in Tokyo by strengthening the deployment of lorries;

* Providing food relief to the disaster area.

Link
http://www.ordons.com/

Northern Oil and Gas, Inc. Announces Upcoming Conference Presentations

Northern Oil and Gas, Inc. Announces Upcoming Conference Presentations

Tuesday, 22 March 2011 06:50 PR Newswire

Northern Oil and Gas, Inc. (NYSE/AMEX: NOG) ("Northern Oil") today announced that it has been selected to present at two forthcoming energy...

WAYZATA, Minn., March 22, 2011 /PRNewswire/ -- Northern Oil and Gas, Inc. (NYSE/AMEX: NOG) ("Northern Oil") today announced that it has been selected to present at two forthcoming energy conferences.  Management of Northern Oil will present at the Howard Weil Energy Conference March 27th - 31st, 2011, in New Orleans, LA and at the Independent Petroleum Association of America's Oil and Gas Investment Symposium in New York, NY April 11th – 13th, 2011.

Michael Reger, Chief Executive Officer, is scheduled to present at the Howard Weil Energy Conference in New Orleans, LA on Tuesday, March 29th at 11:35 AM Eastern.

Ryan Gilbertson, President, is scheduled to present at the Independent Petroleum Association of America's Oil and Gas Investment Symposium in New York, NY on Tuesday, April 12th at 4:35 PM Eastern.

ABOUT NORTHERN OIL AND GAS, INC.

Northern Oil and Gas, Inc. is an exploration and production company based in Wayzata, Minnesota. Northern Oil's core area of focus is the Williston Basin Bakken and Three Forks trend in North Dakota and Montana.

More information about Northern Oil and Gas, Inc. can be found at http://www.northernoil.com/ or by calling investor relations at 952-476-9800.

SAFE HARBOR

This press release contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act").  All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance are forward-looking statements.  When used in this report, forward-looking statements are generally accompanied by terms or phrases such as "estimate," "project," "predict," "believe," "expect," "anticipate," "target," "plan," "intend," "seek," "goal," "will," "should," "may" or other words and similar expressions that convey the uncertainty of future events or outcomes.  Items contemplating or making assumptions about actual or potential future sales, capital expenditures, market size, collaborations, and trends or operating results also constitute such forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: oil and gas prices, our ability to raise capital, general economic or industry conditions nationally and/or in the communities in which our Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our Company's operations, products, services and prices. 

We have based these forward-looking statements on our current expectations and assumptions about future events.  While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control.

CONTACT:

Investor Relations

Erik Nerhus

952-476-9800

Link

http://www.ordons.com/

Allies Expand Libya Air Campaign, Debate Chain of Command

Allies Expand Libya Air Campaign, Debate Chain of Command

March 22, 2011, 8:34 AM EDT

(Updates with oil prices in fifth paragraph, Erdogan in seventh, Turkish offer in 13th. For more on Middle East turmoil, see EXTRA and MET.)

March 22 (Bloomberg) -- Allied forces expanded their air campaign over Libya to thwart Muammar Qaddafi’s fighters and enable rebels to regain control of cities, as leaders debated who should be in overall control of the operation.
Aerial strikes enabled rebel forces to push out from their eastern stronghold of Benghazi as the United States Africa Command indicated that an F-15E jet crashed because of technical difficulties. At the same time, Norway is keeping its fighters grounded until there is clarity on the chain of command as France, the U.K. and allies including Turkey and the Arab states struggle to agree on whether NATO should guide the operation.
“The biggest obstacle to the Libyan intervention right now isn’t the Arab world but rather differences among France, the U.K. and the U.S. about who’s in charge,” Jan Techau, director of the Carnegie Endowment for International Peace in Brussels and former NATO defense analyst, said by telephone.

The conflict, which began in February in Benghazi, is the bloodiest in a series of uprisings that have spread across the Middle East this year and ousted the leaders of Egypt and Tunisia. Five members of the UN Security Council abstained from last week’s resolution that authorized the military operation, which is intended to limit civilian casualties.

Oil Markets

Oil traded near the highest price in more than a week as the airstrikes threatened to prolong a supply disruption. Crude for April delivery on the New York Mercantile Exchange was at $102 a barrel, down 33 cents, at 11 a.m. London time, after rising as high as $102.67. Yesterday, it gained $1.26 to $102.33, the highest settlement since March 10. Tension in the region is adding a risk premium of $15 to $20 a barrel to Brent oil prices, according to Societe Generale SA.

Libyan rebels in Benghazi said they have created a new national oil company to replace the corporation controlled by Qaddafi. Its assets were frozen by the United Nations Security Council. Libya has the largest oil reserves of any country in Africa, according to the BP Statistical Review of World Energy.

The option of the North Atlantic Treaty Organization taking charge of military operations may hinge in part on the extent of reservations expressed by Turkish Prime Minister Recep Tayyip Erdogan. Dialogue with the Libyan regime must continue, the premier said today in a speech to his party in parliament. Turkey has doubts over whether military intervention is justified, he said.

NATO Debate

Both Britain and Italy supported giving leadership to NATO, which requires unanimous approval from its member countries, including Turkey. The Italian Foreign Ministry said in a statement yesterday that NATO should “take on the command and control” of military operations.

Complicating matters, Arab League countries, who called for the no-fly zone, may not want to operate under NATO’s leadership, U.S. Defense Secretary Robert Gates said at a news conference March 20.
U.S. Vice Admiral Bill Gortney said Spain, Belgium, Denmark and Qatar have joined the coalition. The U.S., the U.K., France, Italy and Canada have at least 25 ships off the coast of Libya, including the French aircraft carrier Charles de Gaulle and the Italian carrier Giuseppe Garibaldi
The U.K. and U.S. were angered by France’s decision to launch the first attack March 20 without fully consulting its allies, the London-based Financial Times reported today, citing unidentified diplomats.

India's State Oil Companies Lose $90 Million a Day

MARCH 22, 2011, 8:20 A.M. ET

By RAKESH SHARMA

NEW DELHI – India's state-run oil marketing companies are suffering a revenue loss of 4.08 billion rupees ($90.7 million) each day due to discounted fuel sales, Hindustan Petroleum Corp.Finance Director Bhaswar Mukherjee said Tuesday.

India's state-run fuel retailers, Hindustan Petroleum, Bharat Petroleum Corp. and Indian Oil Corp. sell some fuels at government-mandated below-market rates to help control inflation. Due to high global crude oil prices, revenue losses are mounting.

Hindustan Petroleum is currently losing 14.03 rupees for each liter of diesel sold and 23.55 rupees on each liter of kerosene, Mr. Mukherjee told reporters.

The state-run company is also losing 289.36 rupees for each liter of cooking gas, or liquefied petroleum gas, Mr. Mukherjee added.

Write to Rakesh Sharma at rakesh.sharma@dowjones.com
Link
http://online.wsj.com/

[Oil and Gas] - Libya oil faces steep hurdles before return to global markets

Libya oil faces steep hurdles before return to global markets

March 21, 2011, 8:17 p.m. EDT

By Claudia Assis, MarketWatch

Reuters - Rebels walk past a burning Al-Sedr Oil Terminal after it was hit by pro-Gaddafi forces during clashes between Ras Lanuf and Bin Jawad March 9, 2011.

 The Iraq invasion was a major conflict in which much of the oil infrastructure suffered not only damage through warfare but also through looting.

SAN FRANCISCO (MarketWatch) — Caught between Libyan rebels, outside forces and Moammar Gadhafi, it could take years before much of Libya’s oil flows to world markets, energy analysts cautioned Monday.

The crisis, which deepened after western forces began bombing Libyan defenses Saturday, bears a resemblance to the situation in fellow OPEC-member Iraq, where output was severely disrupted by two Gulf wars and a diplomatic battle over who controlled the revenue from its sale.

Some of the Libyan oil fields could avoid major damage because they are far away from cities and towns, the target of much of the past weeks’ fighting.

“However, there are no guarantees Gadhafi and his motley crew of fellow believers ... will not follow a scorched earth policy,” said Leo Drollas, chief economist at the Centre for Global Energy Studies in London.

That’s one danger facing Libyan oil fields. As Iraqi forces under Saddam Hussein withdrew from Kuwait during the first Gulf war, they burned oil wells, Drollas noted.

The United Nations on Friday authorized military action in Libya to protect civilians amid fighting between forces loyal to Gadhafi and rebels seeking an end to his rule. Fighting is mostly concentrated in eastern Libya -- where most of the country’s oil’s production is located. Even the most optimistic analysts don’t expect Libyan oil back on line until after the first half of the year.

Output has already been severely curtailed. Most estimates point to production down by about 1 million barrels a day, J.P. Morgan said in a note to clients Monday. Production before the uprising was estimated around 1.6 million to 1.8 million barrels a day, mostly exported to Europe and, to a lesser degree, to Asia.

“U.N. sanctions have effectively imposed an embargo on Libyan exports. Based on the experience in Iraq, we continue to emphasize Libyan production will remain low and volatile for many years,” they said.

Support for crude-oil prices is likely to rise as demand ramps up ahead of the Northern hemisphere summer, although experts say most of Libya’s strife has been factored into the recent high prices for oil futures.

Oil futures for April delivery /quotes/comstock/21n!f:cl\j11 (CLJ11 102.21, -0.12, -0.12%)   rose 1.3% to $103.33 a barrel on the New York Mercantile Exchange Monday, extending the year’s gains to roughly 13%. Oil topped the $100 mark as some pro-democracy protests in North Africa and the Middle East turned to violent conflicts with the ruling regimes, particularly in Libya. Brent crude, the European benchmark, has shot even higher.

Iraq comparisons

Iraq’s oil output following the wars is serving as a model for energy analysts trying to determine how long Libyan oil could be unavailable to European and other refiners.

Production in Iraq was around 2.5 million barrels a day right before the invasion in March 2003
It was back at such levels only in 2007, Drollas said. Recent estimates put Iraq’s current production at 2.8 million barrels a day, Drollas added.


In Libya, much hinges on how the oil installations fare as the battles rage on, and how soon foreign workers will be able to return to the country, said Samuel Ciszuk, a senior Middle East energy analyst at IHS Global Insight in London.

Oil installations near the town of Ras Lanuf have been damaged as the conflict escalated, but experts say most infrastructure has been spared.

As for replacements for Libya’s light, sweet crude, the world has available oil from Nigeria and Angola, which are similar to Libyan oil. Unlike 2008, when Nigerian oil disruptions contributed to the record high oil price, these and other African countries have been able to keep their production, he said.

Some of the heavier Saudi Arabian oil, although not a perfect substitute, is also appropriate for refineries previously using Libyan oil with the addition of natural gas liquids and other liquid hydrocarbons.

But the full price impact of the conflict in Libya may yet to be seen, said Sarah Emerson, managing director of Energy Security Analysis Inc. in Massachusetts.

“We’re in the shoulder season,” she said. Heading to peak season, there may not be enough light, sweet oil to go around, she added. “We may not have the right quality at the right time of the year.”

More sophisticated refineries in Europe and elsewhere are able to process heavier crude but there’s only so much tweaking refiners will be able to do, Emerson said.

Switching grades “is more than a little throw off. We lost a very specific light sweet crude and it is not that easy to replace it.”

The spectrum of another conflict elsewhere in the world also haunts markets.

“The extra capacity (from Saudi Arabia) is there but it tights up the world capacity,” Drollas said. If oil suffers another shock somewhere, “then we are back at 2008.”

Oil hit a record high in the summer of 2008, when it soared to $147 a barrel only to fall to below $50 before the year was out.

Oil around $150 a barrel this year would mean “a slip back into the recession next year,” Drollas said. Prices are at a level they may be already hurting global growth, he added.

The only possible resolution for the conflict is a Libya without Gadhafi, Drollas said. “A wounded Gadhafi is worse, metaphorically speaking,” he said.

Claudia Assis is a San Francisco-based reporter for MarketWatch

Link
http://www.marketwatch.com/

[Oil and Gas Post] - Gasoline Shipping Profit Seen Rising 24% After Earthquake: Freight Markets

Gasoline Shipping Profit Seen Rising 24% After Earthquake: Freight Markets

By Alaric Nightingale and Ann Koh - Mar 22, 2011 4:28 PM GMT+0700

Profit from shipping gasoline to the U.S. from Europe in the second quarter will rise 24 percent as disruptions to Japanese imports divert cargoes across the Atlantic, increasing demand for vessels.

Forward freight agreements, traded by brokers and used to hedge or bet on future transport rates, will rise to $14,000 a day on the route, from $11,252 yesterday, said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo. His recommendations on stocks of shipping lines returned 24 percent in the past six months, data compiled by Bloomberg show.

The March 11 earthquake and tsunami that battered Japan closed petrochemical plants that buy European naphtha, an oil product than can be converted into gasoline or used to make plastics. European refiners will need to find alternative markets while those plants remain shut, increasing demand and profit for vessels in the Atlantic Ocean at a time when earnings in most shipping markets are slumping.

“It’s highly likely that a surplus of gasoline or naphtha or both will develop in Europe,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by e-mail March 18. “Refiners will want to export as much of that as possible to the U.S. to support domestic margins.”

Japanese petrochemical plants use naphtha to make ethylene, a material for plastics, and about 22 percent of capacity was curbed by the March 11 disaster, according to Purvin & Gertz Inc., an energy consultant based in Houston. Japan is the second-biggest ethylene producer in Asia after China, data compiled by Bloomberg show. European naphtha shipments to Asia will probably slump by 78 percent to 100,000 metric tons this month, a Bloomberg survey of five traders showed.

Energy Consultant

“The outlook for naphtha is very bearish as six petchem plants are offline and much of the manufacturing activity at Sony, Toyota, Toshiba, etc., has been halted,” Richard Gorry, a director at Vienna-based JBC Energy GmbH, a consultant and researcher, said by phone March 18.

For European refineries, that means a glut of naphtha and one way of dealing with the surplus is to blend it into gasoline and then ship it to the U.S., the largest fuel market, according to Tchilinguirian.

Gasoline at New York Harbor cost as much as 6 percent more than in Europe yesterday, according to data compiled by Bloomberg. The spread is wide enough to allow traders to ship the fuel profitably across the Atlantic Ocean, according to RS Platou Markets AS and Pareto Securities AS, both Norwegian investment banks.

More Cargoes

More cargoes means more demand for the 590-foot tankers used on the route, operated by companies including Copenhagen- based Torm A/S, Europe’s biggest publicly traded oil-products shipping line. Mitsui O.S.K. Lines Ltd., based in Tokyo, and A.P. Moeller-Maersk A/S, headquartered in Copenhagen, also own the vessels, known as medium-range tankers.

Traders of freight forwards are already anticipating the surge in demand in the Atlantic, with second-quarter contracts jumping 8.8 percent on March 18, according to Imarex ASA, an Oslo-based broker of the derivatives.

Rental income on the route jumped 79 percent this year as demand strengthened, according to the Baltic Exchange in London, which publishes rates for more than 50 maritime routes. That beat the 6.6 percent advance in the Baltic Clean Tanker Index, a gauge of six different routes. Returns in the spot, or single voyage, market rose 1.1 percent to $14,607 a day yesterday, Baltic Exchange data show.

Volatile Rates

Rates are volatile, moving 10 percent or more in all but six of the last 31 months. They doubled in four of those months.
The improving returns on medium-range tankers contrasts with a decline for other parts of the merchant fleet. Income on capesizes, used to haul coal and iron ore, slumped 54 percent this year while returns for supertankers carrying crude fell 18 percent, Baltic Exchange data show. Container shipping costs climbed 26 percent, according to a gauge from the Hamburg Shipbrokers’ Association.
Naphtha and gasoline are part of the so-called light-end products derived from crude, accounting for about 35 percent of the total depending on the type of crude and the refinery used to process it, according to data compiled by Bloomberg.
Refineries produce naphtha when they process crude oil. This in turn is split into heavy and light naphtha. While the light variety is more commonly used by the petrochemicals industry, it can be blended into gasoline, said Mike Lazer, vice president of KBC Market Services, an adviser to the energy industry based in Walton-on-Thames, England. Heavy naphtha can be made into gasoline with the addition of high octane components that make it more combustible, he said.

Premium Demanded

As refineries and factories in Japan shut down this month, the premium demanded for naphtha in Asia relative to Europe fell to $13.97 a barrel so far this month from $15.21 last month, according to data from PVM Oil Associates Ltd., a London-based broker. The premium allows traders in Europe to pay for shipping costs and profit from sending cargoes to Asian customers.
European refiners are losing about $8 for each barrel of naphtha they make and earn about $5 for every barrel of gasoline, according to data compiled by Bloomberg.
More gasoline cargoes to the U.S. may mean more business for Torm, a company founded in 1889 that now operates a fleet of about 130 product tankers of various sizes, carrying everything from jet fuel to diesel. The shares slumped 21 percent this year and the company said March 10 it would probably report a third consecutive annual loss in 2011. Just three of the 12 analysts covering the company and tracked by Bloomberg rate it a “buy.”

Head of Tankers

Tina Revsbech, head of tankers at Torm, said it was too soon to say whether transatlantic cargoes would increase as a result of the events in Japan.
Global shipments of oil products, including naphtha, will advance 3 percent this year, according to data from Clarkson Research Services Ltd., part of the world’s largest shipbroker. The fleet will expand 9 percent to 114.9 million deadweight tons, a measure of carrying capacity, Clarkson estimates.
The prospects for earnings on at least one route may be better than that ratio suggests.
“The product tanker market is expected to move higher in the wake of the Japanese earthquake,” said Stavseth of Arctic Securities. “When Japan stops importing there’s an excess and it really shifts the trade volumes.”
To contact the reporters on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

Link
http://www.bloomberg.com/