Monday, February 29, 2016

Resilience Summit in New Zealand 16-17 March 2016

Resilience in the Energy Sector is growing in importance as is demonstrated by the calibre of delegates gathering in New Zealand’s capital next month for the Asia-Pacific Energy Leaders’ Summit hosted by the BusinessNZ Energy Council our New Zealand Member Committee.
The Summit is attracting CEOs and senior executives from across the globe and major corporates and institutions such as the World Bank, Asian Infrastructure Investment Bank, Asian Development Bank, APEC Energy Working Group and the APEC Sustainable Energy Centre. Speakers and delegates will discuss the growing resilience risks and challenges presented by climate change, emerging technologies, extreme weather events, cyber security and the energy-water-food nexus. The aim is to share insights and lessons about what can be done to address these challenges.
The event will feature key insights from across the globe including presentations on the World Energy Council’s Financing Resilience Energy Infrastructure work. Christoph Frei, Secretary General World Energy Council, said:
“Bringing business and policymakers together in this unique fashion is a vital step forward in finding solutions to building resilience in the Asia-Pacific region. I look forward to being part of this leading edge discussion and discovering pathways to the future.”

Brazil Workshop attracts wide audience

The Brazilian member committee recently held a workshop looking at the future of energy in Brazil to 2060, based on the Council’s Scenarios and Trilemma. The event included presentations by Professor Karl Rose, Senior Director for Scenarios and Policies, as well as representatives from Eletrobras, Petrobras and Energy Research Company (EPE), the Ministry of Mines and Energy and academic groups from engineering and economics at the Federal University of Rio de Janeiro and the Institute for Energy and Environment at the University of Sao Paulo.
Almost 80 energy experts from the Brazilian Government, companies and academia as well as experts from Colombia, Ecuador and Venezuela attended. The workshop consolidated important messages about the challenges that Brazil should pursue for supplying energy to 2060 and to manage energy demand in a more sustainable way.
Director Ricardo Gorini, EPE, said in his presentation that “…never has he seen an event as representative of the participation of Brazil’s energy study centers.”
It showed that for an emerging country like Brazil, some variables such as GDP growth and carbon pricing will have a strong impact on the level of growth, energy efficiency and the choices of the most competitive energy for the necessary new plants”.
The work will inform the World Energy Council’s Scenarios in both the Latin American perspective report which will be presented in July in Rio de Janeiro and the full World Energy Scenario’s to 2060 report which will be presented at the 23rd World Energy Congress in October.

WTI heads for longest run of monthly losses in a year

 U.S. crude futures slipped, heading for their longest run of monthly losses in a year as a further pullback in drilling failed to allay speculation that markets will remain oversupplied.

West Texas Intermediate futures dropped 1% and are down 3.5% in February for a fourth monthly decline. While the number of active U.S. oil rigs fell to the lowest since December 2009, the nation’s stockpiles have risen to the highest in more than eight decades.

WTI is down 12% this year on speculation a worldwide surplus will be prolonged amid increased exports from Iran. A proposal to freeze output by Saudi Arabia and Russia is achievable and prices may rise to as high as $50/bbl by the end of the year, Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu told CNBC. “Fundamentals remain weak,” Miswin Mahesh, an analyst at Barclays Plc in London, said in a report. There will be a “slow grind lower in prices over the first quarter,” increasing pressure on the highest-cost producers to curtail output.

WTI for April delivery traded at $32.44/bbl, down 34 cents, on the New York Mercantile Exchange as of 9:50 a.m. London time. The contract lost 29 cents to close at $32.78 on Friday. Prices rose 11% last week, the most since August.

Bullish Bets

Brent for April settlement slid 16 cents to $34.94/bbl on the London-based ICE Futures Europe exchange. The contract dropped 19 cents to close at $35.10 on Friday. Brent’s premium to WTI reached $2.75, close to the 11-week high of $2.86 hit on Feb. 26. The more-active May contract was down 22 cents at $35.22.

Hedge funds and other speculators increased net-long positions in WTI futures and options to the highest level since November, U.S. Commodity Futures Trading Commission data show. Speculators’ net-long position in WTI rose by 13,385 contracts to 110,554 in the week ended Feb. 23, according to the data. Shorts, or bets that prices will decline, slipped 6.7% while longs climbed 0.2%.

What a Saudi oil-supply freeze would really mean for markets

Foto PetroSociety.
Saudi Arabia shot down rumors it might cut oil production, but reaffirmed its commitment to an output freeze that could restrict crude flows to market this summer. With the world’s biggest exporter already pumping near-record volumes, that may not matter.
Last week’s pledge to cap production at January levels along with Russia, Venezuela and Qatar—repeated Tuesday in Houston by Saudi Oil Minister Ali al-Naimi—could mean the Middle Eastern nation refrains from the typical output boost needed to feed the summer increase in domestic demand. Forgoing that surge would, in theory, deprive the market of exports equivalent to about a quarter of the current global crude surplus.
“Come summer, the production freeze will amount to a cut in Saudi crude exports,” said Olivier Jakob, managing director of consultant Petromatrix GmbH in Zug, Switzerland. “By holding supply at January levels and not increasing when their domestic requirement for power generation is at its peak, there will be about 500,000 bpd less Saudi crude making its way to global markets.”
Saudi Arabia has on average boosted output by about 360,000 bopd from January levels to the seasonal peak in June and July, according to figures going back to 2002 from the Riyadh-based Joint Organisations Data Initiative. Over the same period, the amount of crude the country burns to generate electricity typically rises by as much as 500,000 bpd as citizens turn up their air conditioning, the data show.
Seasonal Pattern
“The market is still assuming a big summer swing up” in Saudi production this year, said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd. in London. “The freeze is making people think Saudi exports may now have to be down over the summer.”
With Saudi Arabia’s production already at near-record levels, a dip in exports wouldn’t leave the market short.
The biggest member of the Organization of Petroleum Exporting Countries ramped output up last year to intensify pressure on U.S. shale producers and mark its territory before Iran’s return to world markets. It was pumping 10.2 MMbopd in January, according to data compiled by Bloomberg—a level that already exceeds the summer production peak in all but one of the past 10 years.
The exception was 2015, when peak summer output reached a record 10.6 MMbopd, 400,000 higher than last month’s level, according to data compiled by Bloomberg. The International Energy Agency projects the second-quarter supply surplus will be about 1.5 MMbopd.
This year, “the kingdom would not necessarily have to sacrifice crude exports to meet seasonal demand,” according to Sen. It has large amounts of oil in storage plus natural gas from the new Wasit project that could feed power generation, she said. “If alternatives can fill the gap in the summer, the dip in Saudi summer exports will not be that significant.”
Finally, as OPEC Secretary-General Abdalla El-Badri affirmed in Houston on Monday, the freeze agreement will initially last three to four months before the participants decide whether to take other steps—potentially expiring at exactly the time Saudi Arabia would typically open the taps. The accord is “the beginning of the process” and producing countries will gather again in March to discuss it, al-Naimi said Tuesday.
Oil sank after Naimi’s comments, during which he ruled out that the deal was a prelude to output cuts. Benchmark Brent crude traded 2.3% lower at $32.52/bbl as of 10:55 a.m. in London.
As far as the other participants in the freeze are concerned, the impact will be limited because they were already expected to have flat production this year, according to IEA Executive Director Fatih Birol.
The whole agreement could turn out to be an empty gesture, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.
“For Saudi Arabia to announce an output freeze is disingenuous when their production levels are already at the high watermark,” Tchilinguirian said.

Iran calls proposed Saudi-Russian oil-output freeze ‘ridiculous’

Iran called a proposal by Saudi Arabia and Russia to freeze oil production “ridiculous” as it seeks to boost its own output after years of sanctions constrained sales.
The proposal by Saudi Arabia, Russia, Venezuela and Qatar for oil producers to cap output at January levels puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh said Tuesday, according to the ministry’s news agency Shana.
“It is very ridiculous, they come up with the proposal on freezing oil production and call for this freeze to take place in their 10 million barrels a day production vis-a-vis Iran’s 1 million barrels a day” planned production boost, he said. “If Iran’s crude oil production falls, it will be overtaken considerably by the neighboring countries.”
The three OPEC members and Russia are seeking to stop the 40% drop in oil prices over the past year caused by a global crude glut. Iran is seeking to boost output by 1 MMbpd this year after international sanctions on its oil industry were lifted last month.

Unconventional gas is structurally changing global gas markets

The growth of unconventional gas is spreading across the world with major implications over many years for markets and prices according to a new World Energy Council study, “Unconventional Gas, A Global Phenomenon,” which looks at where and how fast the revolution is taking place.
The study, developed with project partner Accenture Strategy, says that, despite an uncertain price environment, the magnitude and speed of change is not only influencing the US market, but also other markets, including countries such as China, Argentina, and Algeria, which have similar potential as the US in shale gas production. Also, countries such as Mexico, Saudi Arabia, South Africa, Poland, and Turkey are mentioned in the study as having significant potential for shale gas development.
Christoph Frei, secretary general, World Energy Council, said, “Unconventional gas is causing a shift in the dynamics of the natural gas market which will be felt for many decades to come. Its spread around the world is being accelerated because it can make gas more affordable to consumers and reduce concerns about the security of supply.
“So far, the surprising resilience of the US shale gas market has led the way in the shale gas boom, and, while other countries may not have the unique characteristics of the US, they will learn how to become LNG producers or exporters which will change the global dynamics of energy.”
The study identifies three emerging global trends:
Shifting portfolio allocations: Current price uncertainties are resulting in operators shifting their capital to more flexible, shorter-cycle investments rather than in deep-well projects, which is exemplified by the US.
International growth of unconventional gas operators: New operators across the world are realizing the global opportunities and bringing new supplies to the markets such as China, Australia, and Argentina, which will have an effect on markets before 2020.
Interconnected markets: Excess supplies in some countries have led to price normalization and other structural shifts that are making the market more global and transparent across the three main regional hubs of Asia, Europe, and North America.
Lower oil prices and weakened Asian demand has resulted in the virtual disappearance of the price spread between the Japanese LNG and UK markets in 2016. Additionally, US prices remain depressed due to the continued buildup of domestic supplies.
In order to realize the full potential of the global gas phenomenon, the study goes on to highlight the need for certain decisive interventions to alleviate uncertainty in the market:
Industry: Bring a higher degree of focus to portfolio allocation, risk management, and efficiency and continue to seek new and innovative investment partnerships to deliver projects.
Policymakers: Establish policies that promote a liquid market and competition needed for security of supply and the formation of clear price signals.
Consumers: Evaluate the economic and environmental benefits of diversifying energy assets with natural gas in power, industry, transportation, and chemicals, and consider innovative investment partnerships to secure supplies.
In addition, the study says that there are also society and environmental concerns which national oil companies are best placed to address and thereby puts them in a prime positon to take advantage of growth opportunities.
Frei commented, “Already, the rapid growth in unconventional gas has significantly disrupted global trade flows. With concerns about affordability and security driving exploration into unconventional resources outside of North America, unconventional gas will continue to be a key factor in how the world energy market develops. In particular, continued growth in the US and Australia will significantly influence the balance of supply and demand, with Argentina, China, and Saudi Arabia emerging as unconventional gas producers out to 2020–2025.”
Melissa Stark, managing director, Energy industry group, Accenture, and co-author of the report, added, “The report emphasizes the smooth nature and optionality of the US shale gas supply. The US LNG exports are very different from any supply we have seen before because this supply can come onstream very quickly in response to market demand and prices. This LNG supply is driving fundamental changes and commercial innovation in the global LNG market.”
The rapid growth of unconventional gas is demonstrated by the US. In December 2015, 49% of its gas supplies came from unconventional gas, and, by 2019, it is predicted that US LNG supplies will account for one-fifth of global capacity and that the US will be the third largest LNG exporter.
The study, which is the work of industry and academic experts from across the world who are part of the Council’s Natural Gas Knowledge Network, will be launched at the Africa Gas Forum during the Africa Energy Indaba on Feb. 15.
“Unconventional Gas, A Global Phenomenon” is one of 15 Knowledge Networks studies for the World Energy Resources flagship study which will be presented at the 23rd World Energy Congress in Istanbul, Turkey.

Thursday, February 25, 2016


Indonesia will increase the mandated amount of biofuel in diesel to 20% next year from 15%. Rising biodiesel consumption may help extend palm oil’s advance.

Palm oil exports from Indonesia, the world’s biggest producer, may decline for the first time in at least eight years as the government raises the amount required in biodiesel output. Futures climbed to a two-week high.

Shipments are set to drop as much as 10% from about 25 million metric tons this year, according to Bayu Krisnamurthi, the head of the government-appointed Indonesia Estate Crop Fund for Palmoil. Demand for biodiesel may climb to at least 7.1 million kiloliters (1.9 billion gallons) from about 1.3 million kiloliters in 2015, he said.

Indonesia will increase the mandated amount of biofuel in diesel to 20% next year from 15%. Rising biodiesel consumption may help extend palm oil’s advance, with prices climbing 26% from a six-year low in August on concern that the strongest El Nino in almost two decades and haze from Indonesian forest fires will curb output.

“Palm oil is in oversupply and energy is the biggest and the most likely market that can absorb it,” Krisnamurthi said in a Nov. 19 interview in Jakarta. The government is committed to boosting biodiesel demand as it’s cleaner than fossil fuel and the program will help cut diesel import costs, he said.

Rising consumption may support palm oil. Prices will range between $550 to $600/ton in the first quarter and climb to $600 to $700 beyond the second quarter, Krisnamurthi estimated. Palm oil closed at 2,341 ringgit ($553) a ton on Bursa Malaysia Derivatives on Thursday, the highest level since Nov. 9. Prices are up 3.3% this year.


The success of the plan will rely on subsidies and hinges on gas oil prices, Dorab Mistry, director at Godrej International, said this month. Any impact on exports may be limited by existing stockpiles of palm oil in Indonesia.

The crop fund collects and manages levies from palm oil exporters, who pay $10 to $50/ton. The tax income on exports may jump to 9.7 trillion rupiah ($707 million) next year from more than 4.5 trillion rupiah this year, Krisnamurthi said. Levies will be used mostly for biodiesel subsidies, he said.

The government could use money from the state budget if funds collected by the levy are not enough, Rida Mulyana, director general of new and renewable energy at the Energy and Mineral Resources ministry, told a conference in Bali on Thursday. The government has to ensure the biodiesel program “continues for as long as we can,” he said.

Palm inventories in Indonesia were estimated at 2.94 million tons at the end of September, according to a Bloomberg survey published last month. Reserves in Malaysia, the world’s second-biggest producer, rose to a record 2.83 million tons in October, Malaysian Palm Oil Board data showed this month. Indonesian palm oil production will stagnate or fall about 3% to between 30.6 million tons and 32.3 million tons in 2016, Krisnamurthi estimated.

Low crude oil prices, resistance from auto makers in Malaysia and insufficient supply chain infrastructure in Indonesia have contributed to lower-than-anticipated biodiesel use in both countries, Fitch Ratings said in a Nov. 23 report. Crude oil has slumped more than 40% in the past year amid speculation a global glut will be prolonged.


          Four things are now affecting the picture. Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.