Kuwait, Saudi May Resume Neutral Zone Oil Production
OPEC members Saudi Arabia and Kuwait have discussed resuming oil production in jointly operated fields in the Saudi–Kuwaiti Neutral Zone, Kuwaiti state news agency KUNA said.
Saudi Arabia’s minister of state for energy affairs visited Kuwait to “continue to discuss and cooperate on the resumption of oil production in the southern [Neutral Zone] after settling all required technical issues from both sides,” KUNA said, quoting a Kuwaiti government spokesman.
The Saudi–Kuwaiti Neutral Zone, or Divided Zone, is an area of 5,770 square km between the two countries’ borders that was left undefined when the border was established in 1922.
The two countries halted output from the jointly run oilfields - Khafji and Wafra - more than four years ago, cutting some 500,000 barrels per day or 0.5 percent of global oil supply.
In February, Saudi energy minister Khalid al-Falih said the country expected to reach an agreement this year to resume oil output from the Neutral Zone.
Washington has been pressing its top Persian Gulf ally Riyadh to reduce crude prices by increasing production.
Neutral Zone oil output is divided equally between Saudi Arabia and Kuwait.
The Wafra field is operated by state-run Kuwait Gulf Oil Co and Chevron on behalf of Saudi Arabia. The Khafji field is operated by state oil giant Saudi Aramco and Kuwait Gulf Oil.
Tensions have been simmering since the last decade, when Kuwait was angered by a Saudi decision to prolong Chevron’s Wafra concession until 2039 without consulting Kuwait.
2-------Algeria to Seek Foreign Loans for Power Projects
Algeria’s state power utility Sonelgaz will seek foreign loans to finance its development plan, its chief executive said, becoming the first company in the North African country to look for funds abroad in decades.
OPEC member Algeria relies heavily on oil and gas, which account for 94% of total exports and 60% of the state budget.
The government has been trying to cut spending to cope with budget and trade deficits since crude oil prices fell sharply in mid-2014.
Subsidised electricity prices are very low in Algeria compared with neighboring countries, and Energy Minister Mohamed Arkab earlier this week said there was no plan to raise prices.
Algeria subsidises almost everything, from basic foodstuffs to fuel and medicine, with the aim of avoiding social unrest in the country which has been shaken by protests since early this year demanding the removal of the ruling elite.
“External debt is an option, which is being examined in order to find the most comfortable and least restrictive conditions,” Sonelgaz CEO Chahar Boulakhras told a news conference.
“Foreign indebtedness becomes a necessity. We need funding for our development plans”.
He said the plans were aimed at meeting consumption levels in the future amid increasing domestic demand in the country of 43 million people.
The money sought by Sonelgaz will go mainly to renewable projects.
“The massive introduction of renewable energies is a priority, with a particular focus on solar energy,” Boulakhras said.
3---- TechnipFMC Awarded $7.6bn Contract for Arctic LNG-2
Oil services firm TechnipFMC said it had been awarded a major engineering, procurement and construction contract by Russia’s Novatek and its partners for the Arctic 2 liquefied natural gas project in western Siberia.
It said the consolidated contract value to TechnipFMC for Arctic LNG-2 was $7.6 billion and consists of three LNG trains, each with a capacity of 6.6 million tons per annum (Mtpa).
The Arctic LNG 2 project aims to develop more than 7 billion barrels of oil equivalent (boe) of resources.
Novatek holds a 60% stake in the project, while French oil and gas major Total, China’s CNPC, CNOOC, and Japan Arctic LNG consortium each hold 10%.
Novatek said it had reached its target for participation in the project with the completion of stake sales, meaning it could now make a final investment decision.
The project is expected to have a total production capacity of 19.8 million tonnes per year, or 535,000 barrels of oil equivalent per day.
TechnipFMC, created by a 2016 merger of France’s Technip and U.S. rival FMC Technologies, had previously carried out design engineering and construction work on Novatek’s Yamal LNG project.
“We are extremely honoured to be entrusted with this new contract by Novatek and its partners. We are leveraging our successful track record on the Yamal LNG project and notably the modular fabrication scheme,” Nello Uccelletti, president of onshore/offshore operations at TechnipFMC, said in a statement.
In a separate statement, the company said its board had approved a quarterly cash dividend of $0.13 per ordinary share payable on or shortly after Sept. 4.
4---- US Split on Renewing Chevron's Venezuela License
The Trump administration is split over whether to renew a license this week for energy company Chevron Corp’s operations in Venezuela, with Secretary of State Mike Pompeo supporting a renewal and others opposing it, three sources with knowledge of the matter said.
At issue is a six-month U.S. Treasury Department license that expires on July 27 that has allowed Chevron to keep operating its four joint ventures in Venezuela despite U.S. sanctions on the OPEC nation’s oil sector.
Washington imposed sanctions on Venezuela’s state oil company PDVSA in January as part of an effort to slash cash flow to socialist President Nicolas Maduro and pressure him to step down. Venezuela’s economy is on the brink of collapse.
Pompeo, who was once the president of oilfield services company Sentry International, understands that having an American beachhead in Venezuela would help speed an economic recovery if Maduro’s government falls, said the sources, who spoke on condition of anonymity.
White House economic adviser Larry Kudlow also favors renewing the license, the sources said. John Bolton, Trump’s national security adviser, opposes renewal as part of keeping maximum pressure on Maduro, the sources said. If Chevron is forced to leave, it could further crimp cash flow to Maduro’s government, as oil production could dip.
“Those in the administration who have looked at the enormous task of bringing Venezuela back from the abyss realize that the revival of the oil industry, the main source of foreign earnings, is a difficult multiyear process,” one of the sources said of Pompeo’s view.
“Maintaining an American lever will be very helpful on Day One,” said the source, who has spoken with Trump Cabinet members about reviving the economy after Maduro.
Amid the split, the easiest thing for the administration to do would be to renew the license for up to three months, rather than the original six, two of the sources said.
5---- UK, Denmark Building Subsea Power Cable
Italy’s Prysmian, Germany’s Siemens and Sweden’s NKT have secured contracts worth a total 1.1 billion euros ($1.2 billion) to build the world’s longest subsea power cable, the Viking Link between Britain and Denmark.
Britain’s National Grid and Denmark’s Energinet awarded the contract for the project’s 1.4 gigawatt (GW) parallel high voltage current cables to Prysmian and NKT HV Cables AB, while Siemens will supply two converter stations.
The link between the two nations will help them diversify supplies and integrate renewable power sources, National Grid said. The link will offer producers, such as those adding wind capacity, more opportunities to sell surplus power.
“Viking Link will play a vital role in helping to decarbonise the UK’s power supply,” said Jon Butterworth, chief operating officer for National Grid Ventures, putting the total value of the contracts at 1.1 billion euros.
The bulk of the work, worth 700 million euros, was won by Milan-based Prysmian, which will build Viking’s 1,250 km (780 mile) submarine section and the 135 km (85 mile) section on British soil, a sign it has recovered from glitches that plagued its Western Link project between England and Scotland.
National Grid operates the Western Link submarine connection, which has suffered repeated technical problems since operations began in December 2017. As a result, Prysmian restated core earnings for 2018 after booking additional writedowns.
Prysmian shares rose to a nine-month high of 19.88 euros after news of the contract was announced. By 1425 GMT, they were trading up 5.6% at 19.85 euros.
The two converter stations to be installed by Siemens will be built in Lincolnshire, England and Revsing, Denmark.
The Viking Link will have the capacity to power 1.5 million homes when in operation, although its start-up date has already been pushed back by a year to 2023.
The Viking Link will be National Grid’s sixth interconnector to Europe.
The company has three operational interconnectors to France, the Netherlands and Belgium, while the 1 GW IFA2 link to France and the 1.4 GW North Sea Link to Norway are due to start working in 2020.
Average British daytime demand for electricity is about 32 GW, depending on the season. Its power primarily comes from gas-fired power stations, wind turbines and nuclear plants.
6------ Petrobras to Privatize Brazil's Top Gas Seller
Brazil’s state-run oil company Petroleo Brasileiro SA is set to relinquish control of the country’s biggest fuel distributor in a share offering, pushing ahead with a privatization drive under new Chief Executive Roberto Castello Branco.
Petrobras, as the company is widely known, will effectively privatize its listed subsidiary Petrobras Distribuidora SA in the secondary share offering set to price after markets close. The parent company plans to auction off 25% of Petrobras Distribuidora shares.
That percentage could increase to 33.75% via overallotment provisions. Supplementary and additional allotments will be allocated by Aug. 28, according to the prospectus.
As Petrobras now holds 71.25% of the fuel distributor’s shares, the unit will cease to be a state-run company.
Petrobras Distribuidora has over 8,000 gas stations operating under its trade name, BR Distribuidora.
The current management of Petrobras, which was appointed in January by President Jair Bolsonaro, is aggressively exiting downstream and midstream businesses to sharpen its focus on offshore oil exploration and production.
Analysts at UBS AG and Banco Bradesco SA have “buy” and “outperform” ratings on Petrobras Distribuidora, with price targets of 30 and 35 reais, respectively. Both say privatization will free the firm of some onerous legal obligations.
“Personnel costs should fall after privatization, as (the company) will be free to follow its own hiring process rather than public-tender hiring and the dismissal process will be significantly less complex than the current one,” wrote UBS analysts led by Luiz Carvalho.
The offering will be led by the investment banking units of JPMorgan Chase & Co, Citigroup Inc, Itau Unibanco Holding SA, Bank of America Corp, Credit Suisse Group AG and Banco Santander Brasil SA.
7---------Abu Dhabi, , China Sign $12bn Deal
The Abu Dhabi National Oil Company (ADNOC) has signed a partnership framework deal worth up to $12 billion with China’s Wanhua Chemical Group for collaboration in the downstream sector, ADNOC said.
Downstream operations in the oil industry include refining, sales and shipping.
The agreement was signed during a three-day state visit to China by Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed.
ADNOC and Wanhua Chemical also signed a shipping joint venture agreement building on a 10-year LPG supply contract signed in November 2018, according to the statement.
“The potential total value of the collaboration between ADNOC and Wanhua is estimated to be up to $12 billion,” the statement said.
Under the shipping joint venture, ADNOC Logistics & Services and Wanhua Chemical will establish a partnership for LPG transportation including the operation of two VLGCs, or Very Large Gas Carriers.
The two companies have also agreed to explore and develop joint venture opportunities in both countries, with the UAE partnership focusing on producing downstream derivatives, or those relating to refined oil products.
8-------- India Reliance Stake Sale Talks with Aramco Stall
India’s Reliance Industries talks to grant a minority stake in its refining assets to Saudi Aramco have hit a roadblock over the valuation and structure of the deal, two people familiar with the matter said.
State-owned Aramco, the world’s biggest oil producer, plans to boost investment in refining and petrochemicals to secure new markets for its crude and sees growth in chemicals as central to its downstream strategy to reduce risk as oil demand slows.
Reliance had held talks on offering Aramco at least 20% in a special purpose vehicle covering refining, petrochemicals and marketing, and with a focus on expansion.
“Talks have stalled as Reliance is asking for a higher valuation and wants to transfer debt of the holding company to the new SPV (special purpose vehicle),” said one of the sources.
Reliance, controlled by Asia’s richest man, Mukesh Ambani, operates the world’s biggest refining complex with capacity to process 1.4 million barrels per day (bpd) of oil at Jamnagar in western India.
It plans to expand capacity to 2 million bpd by 2030, according to plans shared with the Indian government.
As of June 30, Reliance had outstanding debt of 2,882.43 billion rupees ($41.8 billion) compared with 2,875.05 billion rupees as of March 31, while cash and cash equivalents as of June 30 were at 1,317.10 billion rupees versus 1,330.27 billion rupees as of March 31, the company said.
Aramco and the United Arab Emirates’ national oil company ADNOC teamed up with state-run Indian refiners last year in a plan to build a 1.2 million bpd refinery and petrochemical project in India’s Maharashtra state.
But the planned refinery, initially expected to cost $44 billion, faces delays, as farmers have refused to surrender land forcing the Maharashtra government to find a new location in Raigad district, about 100 km (62 miles) south of Mumbai.
9-----Market Braces for Mexico Annual Oil Hedge
Trading in crude oil options and futures surged last week as market participants prepared for Mexico’s annual oil hedging program, in which the country buys as much as $1 billion in contracts to protect its oil revenues.
The global oil derivatives market braces itself every year in late spring and summer for the hedge, the market’s largest and most secretive financial oil deal. This year, Mexico has faced several challenges in executing the hedge and timing has become a crucial factor.
Traders and brokers who monitor money flows told Reuters that activity in crude oil options and futures suggests that Wall Street has started to position itself for the trade, attempting to secure protection against further price volatility.
It was not clear whether Mexico has started executing the hedge. The Mexican Finance Ministry did not immediately respond to a Reuters request for comment. Traders have also had to react to weakening sentiment in oil markets.
Implied volatility, a gauge of options demand, for 2020 contracts has risen steadily over the past week, dealers said. Prices for 2020 options started to surge after a top Finance Ministry official told Reuters that Mexico had finished calibrating the formula used as a basis for the program, market sources said.
“Within minutes of that announcement, we saw a big pop in implied volatility,” one source at a bank said.
“It rallied in the December 2019-June 2020 range, which is typically where the hedges lie. That volatility has been well-bid the entire week,” the source added.
The longer-term outlook for oil, however, has soured as the threat of supply disruptions was eclipsed by worries about a slowdown in demand.
Mexico aims to protect itself through the use of put options it buys from a handful of Wall Street banks and oil majors in about 50 transactions usually executed between May and August.
By selling those options, those banks and oil companies - Mexico’s counterparts to the deal - leave themselves exposed to a possible downturn in the market themselves. They compensate by selling futures. The expectation of that selling made investors exit positions this week, sources said.
10---- IEA Ready to Act Quickly to Keep Oil Market Supplied
The International Energy Agency (IEA) is closely monitoring developments in the Strait of Hormuz and ready to take swift action if needed to keep the global oil market supplied, it said.
The Paris-based agency said the right of free energy transit through the strait was critical to the global economy and must be maintained.
The Strait of Hormuz is a vital maritime transit route for world energy trade. About 20 million barrels of oil, or about 20% of global supply, are transported through the strait each day, the IEA said.
“The IEA is ready to act quickly and decisively in the event of a disruption to ensure that global markets remain adequately supplied,” it said, adding that executive director Fatih Birol has been in talks with IEA member and associate governments as well as other nations that are major oil consumers or producers.
“Consumers can be reassured that the oil market is currently well supplied, with oil production exceeding demand in the first half of 2019, pushing up global stocks by 900,000 barrels per day,” the IEA said in a statement.
IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations and can be released as needed, it said.
The stocks are enough to cover any supply disruptions from the strait for an extended period, it added without saying how long that might be.