Falklands : Hydrocarbons Weekend Record (10 to 12 August 2007)
Submitted by Falkland Islands News Network (Juanita Brock) 13.08.2007 (Article Archived on 27.08.2007)
Economic news has caused the price of crude to decline over the weekend.
HYDROCARBONS WEEKEND RECORD: 10 TO 12 AUGUST 2007
Compiled by J. Brock (FINN)
WEEKEND CRUDE PRICES:
Sunday, 12 August 2007 Light Sweet Crude was trading at $71.47 Cents on the New York Mercantile Exchange and Brent Crude was trading at $69.70 down 51 Cents on London’s Ice Futures Market.
WEEKEND ANALYSIS:
The economy has caused crude prices to decline significantly over the past week. People have decided limit their journeys and conserve fuel. The price of crude, however, could spike over the Labour Day holiday but it should decline after that once people get back to work.
Though losses slowed on Wall Street on Friday it is not known whether they will decline further when the market opens on Monday.
WEEKEND DEVELOPMENTS (International):
(North Pole)
Five countries, Canada, Denmark, Norway, Russia and the United States have an interest in the North Pole region and, indeed had been given 10 years last century from 1982 to 1992 to decide where boundaries should be. Needless to say, no decisions had been made and this is but one factor leading to the recent tit for tat excursions to the North Pole. Russia plants a flag on the seabed under the North Pole, Canada sends its prime Minister trekking in the area, and now Denmark is launching an expedition in the region. At the moment it’s light-hearted but it could be serious if any one of those nations decides to explore for and exploit hydrocarbons, said to be 25% of the world’s reserves.
WEEKEND REGIONAL DEVELOPMENTS:
(South America General)
State oil company PDVSA is investigating how a suitcase with nearly $800,000 in undeclared cash ended up on a plane carrying company officials to Argentina to work on bilateral cooperation deals. This instead of exploration and production news permeated the Latin American Press over the weekend. There has been a conference between Argentina, Brazil and Venezuela in Tarija over the weekend. The Government of Argentina says it is willing to invest in exploration and exploitation of natural gas in Bolivia providing multinational companies, like Petrobras and Repsol-YPF, are not committed to the project
Wednesday, 01 August 2007 Light Sweet Crude was trading at $76.44 down $1.77 on the New York Mercantile Exchange and Brent Crude was trading at $75.40 down $1.65 on London’s Ice Futures Market.
Thursday, 02 August 2007 Light Sweet Crude was trading at $76.86 up 33 Cents on the New York Mercantile Exchange and Brent Crude was trading at $75.76 up 41 Cents on London’s Ice Futures Market.
Monday, 06 August 2007 Light Sweet Crude was trading at $72.77 down $2.71 on the New York Mercantile Exchange and Brent Crude was trading at $71.68 down $3.80 on London’s Ice Futures Market.
Tuesday, 07 August 2007 Light Sweet Crude was trading at $72.42 up 36 Cents on the New York Mercantile Exchange and Brent Crude was trading at $71.13 down 4 Cents on London’s Ice Futures Market.
Wednesday, 08 August 2007 Light Sweet Crude was trading at $72.15 down 27 Cents on the New York Mercantile Exchange and Brent Crude was trading at $70.99 down 81 Cents on London’s Ice Futures Market.
Thursday, 09 August 2007 Light Sweet Crude was trading at $71.59 down 56 Cents on the New York Mercantile Exchange and Brent Crude was trading at $70.21 down 99 Cents on London’s Ice Futures Market.
Friday, 10 August 2007 Light Sweet Crude was trading at $71.47 down 12 Cents on the New York Mercantile Exchange and Brent Crude was trading at $70.39 down 18 Cents on London’s Ice Futures Market.
ANALYSIS:
Wednesday, 01 August 2007: After reaching a high of $78.77, profit taking caused the price of crude to drop significantly today. Prices are still artificially high, with no relief at the pump seen until after the Labour Day holiday at the end of the month.
Thursday, 02 August 2007: Nervousness about OPEC’s adamant refusal to raise production has helped increase the price of crude today. OPEC has stood by its decision not to increase production as, in the organisation’s view, there is enough supply to meet demand.
A factor that could help to lower crude prices is refinery capacity in the United States. It has risen to 93.6 %. Ideally, refineries should be operating at 95 or 96%. Yesterday’s report of a drop in crude inventories is not so optimistic but easily remedied once refinery capacity increases to its ideal level.
During the summer drive season when crude costs are high may not be the best time to replenish the 6.5 million barrels of crude owing from last week. Prices are expected to drop once the US and China summer drive seasons are over, presumably after Labour Day.
Monday, 06 August 2007: Various analysts provide economic reasons for the sharp decline in crude today. Recent readjustments downward in the Stock Markets as well as a slip in commodity prices are blamed for the decline in crude prices. This provides welcome relief at the pump during the Chinese and US summer drive seasons but it won’t filter down to the Falklands winter heating season, with another penny increase on distillates.
Crude prices, however, still remain artificially high with the fear factor about supply the main culprit. Last month’s drop of 6.5 million barrels in crude inventories in the US caused an upward fluctuation that negated the affect of the rise in refinery capacity to 93.6%.
OPEC quite wisely stated that they were not going to increase production and fear mongers said the price of crude would quickly rise past $80.00 per barrel but the opposite is now true with the threat of mass economising and people seeking alternatives to gasoline for their vehicles. As the US economy flattens there could be more economising and further declines on gasoline consumption as money tightens up.
Tuesday, 07 August 2007: Economic worries eased today when the Federal Reserve Bank announced it would not be raising the interest rate and that it stands at 5.25%. This helped to flatten volatility and helped the price of crude to remain relatively flat today. Prices, however, still remain artificially high, with a fluctuation downwards expected after the Labour Day holiday in the US.
Wednesday, 08 August 2007: Unlike the normal pattern, declining inventories of crude and gasoline in the United States have helped to lower the price of crude today. Financial constraints have had a knock-on affect on demand.
Thursday, 09 August 2007: Now we must pick up the pieces. With economic fears running rampant today investors are slowing down their participation in stock markets all over the world. Fortunately this did not affect the local exploration stocks as heavily as other share prices. While FOGL was down 7.00 and PRE 0.25, other stocks were unchanged or up.
With the US economy slow down, people are going to cut unnecessary vehicle use and opt for public transport or alternative fuels. This will ease the demand for gasoline in the United states and has helped to lower the price of crude today. Crude prices still remain artificially high.
REGIONAL DEVELOPMENTS:
(Argentina)
Though fuel is in short supply there is pressure from the government to keep gasoline prices down at the pump. Reports in the Latin American press indicate that the lower prices could signal price controls On Monday La Nacion reported that that pump prices for diesel and gasoline were creeping higher despite government pressure to keep them down.
(Bolivia and Chile)
Marcelo Tokman, the Chilean Energy Minister, is visiting Bolivia for the first time following an agenda featuring negotiations about possible investments in this sector. According to Carlos Villegas, Hydrocarbon minister of the Andean nations, the Bolivian government is waiting the Chilean Minister’s proposals. Chile’s delegation also consists of Enrique Davila the President of Chile National Oil Enterprise (ENAP), and Carlos Piña, National Energy Commission Foreign Affairs Director. Villegas is quoted as saying that the visit is in line with the process of bringing both nations closer together.
The program includes negotiations with Guillermo Aruquipa president of the Bolivian Fiscal Oil Deposits (YPFB) and William Donaire, the Vice Minister of Commercialisation and Industrialisation, as well as other authorities. Negotiations will feature 13 points of an agenda for necessary initiatives to stimulate confidence between governments and ordinary citizens.
(Chile)
ENAP, Chile’s State owned energy Company, reports there are hydrocarbons reserves that could satisfy Chilean capital Santiago's energy needs for 50 years in the Lago Mercedes area. Technology, however, is needed to extract the unique composition of natural gas with a naturally occurring diesel. Such technology does not exist in Chile, According to a senate statement Enap exploration manager Nelson Muñoz told the mining commission about the problem. According to the Chilean press, ENAP has temporarily suspended work in the Lago Mercedes blocks to develop a larger project that could require additional investment of US$100mn. Enap has so far invested US$50mn of the US$80mn authorized for exploration in the area.
On Friday Suez Energy Andino, a unit of France's Suez, announced that it would have a sizable participation in a planned liquid natural gas complex in northern Chile, According to the press release the project is one of the steps Chile is taking to alleviate energy shortages in its northern region. This seems to be a chain reaction caused by cuts in natural gas shipments from Argentina, which is dealing with its own energy crisis. ENAP, Chile's government-owned oil company is building another LNG plant in central Chile.
(Argentina and Venezuela)
As reported in HDR, an energy security treaty designed to boost Venezuela's participation in Argentina's energy market has been signed by Argentine President Néstor Kirchner and his Venezuelan President Hugo Chávez. Venezuela's state oil company PDVSA and its Argentina’s state energy company, Enarsa has set up a joint venture reported to be called Petrosuramérica, The company has already been incorporated and it is thought that headquarters will be located in Buenos Aires. It is expected that the new joint venture will be exploring for and exploiting hydrocarbons as well as refining hydrocarbons products, developing petrochemicals, seeing to pipelines to transport products and experimenting with renewable projects. Also included in the wish list is generating electricity and working with the maritime transport industry. Further plans about a US$400mn LNG re-gasification plant presumably built by Venezuela and located in Argentina have also been announced.
(Argentina Venezuela and Bolivia)
August 10th, Argentine President Néstor Kirchner and Bolivian President Evo Morales will launch a basic engineering tender for a US$450mn liquids separation plant. Both presidents say that Venezuelan President Hugo Chávez, will start bidding in the Bolivian city of Tarija near the border with Argentina. The plant is part of the Argentine-Bolivian US$2bn GNEA bilateral gas pipeline project, bidding for which started last month. The pipeline will have capacity to transport 27.7Mm3/d of natural gas to Argentina, which will benefit the provinces of Chaco, Corrientes, Formosa, Santa Fe and Missiones, which lack gas services.
(Brazil)
A press release from Brazil’s state environmental agency CPRH says that Brazil's north-eastern Pernambuco state government has granted a preliminary license to build the Abreu e Lima oil refinery. Brazil's federal energy company Petrobras and Venezuelan state oil company PDVSA are partners on the project.
(Peru)
Peru's production of natural gas has greatly increased over the last Year, with the production of over 295 million cubic feet of natural gas per day. Perupetro, Peru's state hydrocarbons promotion agency, reported that when compared to the natural gas production of Jan - Jul 2006, a 55.47 percent increase can be seen in the production of Jan - Jul 2007. Production of natural gas in Peru is rising. Compare June and July of 2007, a 6.4 percent increase can be seen.
(Ecuador)
Ecuadorian President Rafael Correa has said that his government plans to review contract terms of all foreign oil companies operating in the country and not just those of Spanish Repsol YPF.
LOCAL DEVELOPMENTS
(Falkland Islands)
Share prices for Rockhopper Petroleum are remaining firm after last week’s positive update on progress in the North Falkland Basin. The company announcement states that volumetric work has been completed on the Company’s leads and prospects in licences PL023 and PL024. The work suggests unrisked P50 recoverable reserves of in aggregate 2.5 billion barrels providing encouragement against the backdrop of an easing rig market.
For several years now exploration companies exploring for hydrocarbons in the North Falkland Basin have been searching for a suitable rig but a tight market caused by high crude prices has dried up any hope of an immediate supply of a rig. Now that the market has eased somewhat there is hope that an exploration rig would be brought to the North Falkland Basin. It is thought that since water depths are relatively close, the same rig could be used for Desire Petroleum and Rockhopper Petroleum.
It is hoped that Desire and Rockhopper will be sufficiently high on the priority list for a rig, as the underlying cause of the tight rig market, high crude prices, still plagues the market.
Meanwhile, the Financial Times reports that two industry sources said that oil companies exploring in the North and South Falkland Basins were “unlikely to be able to finance exploration work far into the drilling stage without significant external funding” and that “sales of equity stakes in certain assets was one option; issuing new shares was another,” the unnamed sources said. Analysts believe that consolidation between oil companies could be the way forward.
What was not indicated was the fact that water in the South Falkland Basin is deeper and needs either a modified rig or drill ship to complete exploration, while the water depths in the North Falkland Basin are suitable for a standard semi submersible exploration rig.
Progress report – Wednesday 8 August 2007
2D Seismic (survey completed)
The seismic processing continues at Fugro. About 30% of this dataset has now been received
at FOGL and interpretation is underway. We expect the processing of the survey to
continue into early September.
Controlled Source Electromagnetic (CSEM)
2 new lines have now been completed and the data has been sent to OHM in Aberdeen for
processing. Acquisition is progressing on the final part of the programme which will be
completed in August. Processing of the new data is expected to take 2-3 months to
complete
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