World of Oil

CNPC gives rare invite

China National Petroleum Corp. signed a rare upstream deal with an overseas company to develop oil in the Jilin province in northeast China. CNPC will partner with Malaysia’s Rimbunan Hijau Group at Fuyu Block 1 in the Songliao Basin. The basin covers 87 square miles and contains heavy oil reserves. CNPC hopes advanced foreign technologies will help overcome the difficulty in developing the heavy oil reserves in the challenging block. CNPC also signed a production sharing contract in August with China Nian Dai Energy Investment, a Hong Kong company, to explore two other oil blocks in the Jilin province.

Indonesia launches tender

In an effort to boost the country’s oil and gas production, the Indonesian government launched a tender for 26 oil and gas blocks. “In order to maintain our oil and gas reserves, we need to intensify exploration,” Energy and Mineral Resources Minister Purnomo Yusgiantoro said. Twenty-one of the blocks being tendered are new blocks, while five have been offered previously but were not awarded.

Court sides with ExxonMobil

The Alabama Supreme Court has overturned a $3.5 billion decision against the company, stemming from a lawsuit over royalty payments to the state. A jury previously found ExxonMobil guilty of committing fraud in the calculation of royalties paid to the state on production from its Mobile Bay natural gas wells and was told to pay $3.5 billion in punitive damages to the state. In its appeal, the company argued the state had improperly turned a contract dispute into a fraud action.

Russian output hits new high

Russian oil production rose by 0.6% in October from September to a new post-Soviet high of 9.93 million barrels per day. Russian production has been growing for eight consecutive years and has risen by over 60% from its post-Soviet low of 6 million bpd in 1999. This year’s production has been mainly supported by new fields off Russia’s Pacific island of Sakhalin.

Arctic storm shuts down North Sea platforms

On Nov. 8, operators in the North Sea began shutting in production because of developing severe weather. The Norwegian unit of BP was the first to shut in its 80,000 bopd Valhall oilfield. ConocoPhillips followed suit the next day, shutting in seven of its 16 platforms in the Ekofisk system; the combined production from those platforms is around 140,000 barrels of oil per day. Shortly thereafter StatoilHydro shut in 110,000 barrels per day from the Visund and Oseberg South Fields. Production for each of the fields resumed early Saturday after the storm had passed. As a result of the storm, Nexen stopped production at Buzzard Field after the storm damaged a turbine exhaust stack on the platform. The field was producing 200,000 barrels of oil equivalent per day before the storm. “Production has not resumed yet,” said Nexen spokeswoman Sucharita Sethi. “We’re working on the damage.” She added that production will not “be down for an extended period” since the platform can be operated with two turbines and it has three.

Both China and Louisiana to take on offshore oil pollution

China will likely establish an oil pollution damage compensation fund next year after the enactment of the new “Regulations on the Management of Sea Areas Polluted by Ships.” China’s coastline is receiving an increasing number of large-scale oil tankers, said Liu Gongchen, deputy director of the state Maritime Safety Administration. Major oil spill incidents over 100 tons have occurred several times in recent years in China, causing environmental pollution as well as financial losses. “China should follow the international norm in establishing its own oil pollution damage compensation fund in order to speed up the cleaning-up process,” added Liu. Similarly in the US, industry regulators in Louisiana are preparing a major crackdown on oil industry pollution in state and federal waters. Up to 15 separate state and federal agencies-including the federal Environmental Protection Agency, the US Coast Guard and the Louisiana Department of Environmental Quality-have been working together for over a year planning a combined effort to monitor drilling and production in the Gulf of Mexico. The effort would initially concentrate on about 1,723 oil- and gas-producing structures in Louisiana offshore waters, but may serve as a model for law enforcement in other areas of the GOM. The initiative appears to be an attempt to make environmental enforcement in the GOM more proactive, rather than simply reacting to major spills or accidents. Harold Leggett, of Louisiana’s Department of Environmental Quality, said the program was designed to establish a framework to share information between a “hodgepodge” of existing efforts to better monitor oil and gas exploration and production in the GOM.

Norwegian government pushes for land-based power

The Norwegian government is going ahead with controversial plans to power several offshore oil and gas platforms by electricity produced on land, in an effort to cut carbon emissions by the oil industry. The Energy and Petroleum Ministry linked its approval for BP’s Skarv Field development with pledges by field partners to help develop technology that brings electrical power to offshore platforms or floating production vessels. “The license partners will take part in a program to develop this technology,” a ministry spokesperson said, adding that the project has not yet been detailed. BP Norway said it was pleased that the government passed the $5.9 billion Skarv development plan to Parliament and that it was looking forward to helping develop technology to power production vessels from land. Norway’s oil lobby has criticized such plans, saying that Norwegian emission regulations are already among the strictest in the world and that long power cables would increase production costs, especially with new discoveries increasingly found in difficult-to-reach places. Presently, offshore platforms and floating production vessels are chiefly powered by burning some of the fuel they produce.

US gives out strategic reserve royalty-in-kind deals

In November, the US Energy Department awarded contracts to Shell Oil, BP and Sunoco to deliver 12.3 million barrels of royalty oil to the US strategic reserve (SPR). Flows of oil will begin in January at a rate of around 70,000 barrels per day and last about six months. The Energy Department went ahead with its plan over objections of some members in the US Senate who want the royalty oil shipments delayed until oil prices fall below their recent record highs. The department said that the royalty oil shipments represent only a fraction of the 21 million barrels per day used by US consumers, and has rejected calls to delay the program.

Fire breaks out at damaged Pemex rig

On Nov. 13, a fire broke out on a Pemex platform where workers were trying to control a gas leak. The platform was initially damaged when a rig collided into it on Oct. 23, during a severe storm in the Bay of Campeche. Pemex previously said it had plugged the oil leak at the platform in the Kab oil field in the southeastern Gulf and was working to seal the natural gas leak. The Usumacinta rig was drilling a new well for Pemex when it was driven into the Kab 101 platform during an interconnection operation as a result of the 80 mph winds and 19-26-foot waves. The collision resulted in a gas leak forcing the workers to evacuate; twenty-one workers died in the heavy seas during the evacuation. Pemex is assembling its first-ever independent commission to investigate the deadly collision. Pemex Director Jesus Reyes Heroles said the investigation will focus on “failed procedures and safety measures.” The investigation will be coordinated by Pemex’s corporate office, rather than its exploration and production unit. Another will include federal agencies.

Gazpromneft looks for Sakhalin help

Alexander Dyukov, president of Russian oil company Gazpromneft, said the company is seeking a partner to share risks in developing its Lopukhovsky block. The company is in talks with Norway’s StatoilHydro, US major Chevron and Anglo-Dutch giant Shell. Gazpromneft bought the block, estimated to contain up to 480 million barrels of oil, from its Russian rival TNK-BP after the latter said it was not attractive enough.

Study to unlock offshore potential

Six Australian universities and the country’s scientific research center have launched an $11 million collaboration on improving subsea gas pipeline design with the hopes of unlocking stranded offshore oil and gas reserves. More than 80% of Australia’s gas resources exist in remote, offshore areas, with some potentially located as far as 186 miles offshore and at a depth greater than 3,000 feet. “Improved pipeline technology will also help achieve the ... vision of replacing traditional oil and gas rigs with platform-free fields,” a statement released by the research group said. “It presents an enormous scientific challenge.”

Energy union appeals NEB Keystone decision

The Federal Cabinet of Canada has received a legal appeal to review the National Energy Board’s approval of the construction of the Keystone Pipeline in Alberta. “The Communications, Energy and Paperworkers Union has been fighting the construction of this pipeline at every step,” says Dave Coles, president of the union. “We think parliamentarians and the public need to have the chance to examine this pipeline proposal in depth and in the context of the overall good of the country and of Canadians.” The pipeline is designed to take the oil resulting from a threefold increase in Alberta oil-sands production and ship it primarily to US markets. CEP is calling on the Cabinet to reject the NEB recommendations and refer the matter to the Standing Committee on Natural Resources. The union says the committee should hold hearings on the impact of exporting Canada’s unprocessed energy resources and look at ways to improve the transparency and accountability of the NEB. The Keystone is the first in a series of new pipeline proposals seeking NEB approval to ship raw bitumen from the tar sands of Alberta directly to the US.

Iraq oil export and production hit new high

In October, crude production and export in Iraq hit a new three-year high, with about 2.7 million barrels of oil per day in production and over 1.8 million barrels of oil per day for export. Hussein al-Shahristani, the Iraqi oil minister, told state-run al-Sabah newspaper that the crude production of Iraq is expected to reach 3 million barrels at the end of this year. Al-Shahristani also stated that the ministry plans to develop about 200 oil wells in 2008 across the country. The production and export high comes in the midst of strained relationships between the Iraqi government and the Kurdish Regional Government, as the autonomous Kurdish nation continues to push ahead with long-term plans to attract international energy companies to develop its oil and gas. The Kurdish region recently signed seven new oil and gas contracts with international companies and awarded four more contracts to a newly formed government-owned Kurdistan Exploration and Production Company (Kepco). Kepco will bring in large international oil companies as partners in the blocks to provide technical and financial backing, said the Kurdish government.

Petrobras pulls out of Mariscal Sucre plan

Petrobras Chief Executive Sergio Gabrielli announced that the company is pulling out of plans for the development of the Mariscal Sucre natural gas project in Venezuela. After analyzing the project, Petrobras came to the conclusion that it was of no advantage to the company, said Gabrielli. Petrobras and Venezuelan state oil firm PDVSA had planned to jointly develop the project, which according to Petrobras was slated to cost between $2.5 billion and $3 billion. Nestor Cervero, international director of Petrobras, had previously announced that Petrobras and PDVSA had “different ideas about the destination of gas sales.” The Brazilian firm favored selling most of the gas from Mariscal as liquefied natural gas, while PDVSA favored selling natural gas in its domestic Venezuelan market. Domestically sold gas is likely to fetch a far lower price than LNG sold in international markets.

Bioko LNG plant back by mid-December

As of Nov. 9, Marathon expected repairs that halted output at its new 3.4-million-tonne liquefied natural gas plant located on Equatorial Guinea’s Bioko Island would last until mid-November or early December, a Marathon spokesperson said. The $1.5 billion plant made its first gas shipment in May under a 17-year deal with BG Gas Marketing to supply it with all the production from the plant’s first production train. Marathon officials have said the production outage is not unusual for a new plant ramping up to full production. Marathon owns a 60% stake in the plant, with 25% owned by national gas company Sonagas and the remainder in the hands of Japanese investors.

Brazil removes 41 blocks from auction

Brazil’s government will remove 41 blocks from an upcoming auction of oil and gas exploration and production blocks. The move comes after Petrobras said it estimates the recoverable volume of oil and gas at its ultra-deep Tupi Field, in Santos Basin, at 5-8 billion barrels of oil equivalent. The blocks are being removed from the auction because they lie close to the block that contains the Tupi discovery, or lie in areas with similar geographical conditions.

Nord Stream pipeline delayed

The Nord Stream gas pipeline project between Russia and Germany has been delayed by six months. Construction of the pipeline, which is led by Russia’s Gazprom, will now begin in June 2009, and the first gas will be delivered in November 2010, two months later than initially planned, said the project’s technical director, Sergei Serdukov. He said the delays were the result of the process of getting approval for the project from all the countries in the Baltic.

Chile to lay claim to portion of Antarctica

Chile’s foreign minister, Alejandro Foxley, said Oct. 22 that his country will ask the UN Commission on the Limits of the Continental Shelf to recognize the country’s claim of sovereignty over a piece of Antarctica. Foxley told reporters the move is in response to Britain’s intention to assert rights over oil and gas resources in a portion of the Antarctic seabed that overlaps Chile’s claim. “No one can encumber Chile’s rights in regard to Antarctic territory,” said Foxley, adding that the deadline for filing a motion with the UN Commission is May 2009. He said Chile would argue that the Antarctic seabed “is a projection or prolongation of the continental shelf.” Chile’s rights, he said, “are guaranteed under the Antarctic Treaty. This additional presentation that’s being done is for the possibility that in the future there would be some political accord among the countries to debate the additional issue of projection of the continental shelf into the sea.

Kazakhstan and China to build gas pipeline 

Kazakh state oil and gas company KazMunaiGas and China National Petroleum Corporation agreed in November to set up a joint company to build a Kazakh-Chinese natural gas pipeline in 2008-2009. The state energy firms agreed to establish a joint enterprise to implement the gas pipeline project. The joint company, owned equally by Kazakhstan and China, will own the pipeline. “The project’s implementation will secure shipment of transit gas to China and will allow the diversification of export routs for Kazakh natural gas,” KMG said. The first part of the pipeline will be 828 miles long-running from the Kazakh-Uzbek border to the Chinese border-with an annual shipping capacity of 40 billion cubic meters. The second part of the pipeline will start from the Caspian Sea area and will be 920 miles long with an annual shipping capacity of 10 billion cubic meters.

Captain jailed for gas platform collision

Zbigniew Krakowski was found guilty by a UK court of being in control of a vessel with two and a half times the legal limit of alcohol in his system and for violating a 500-meter safety zone around offshore oil and gas installations, and was sentenced to a year in jail in the UK. Krakowski’s 2,000-tonne ship, the Jork, was en-route to New Holland, Lincolnshire from Lubeck, Germany when it struck the unmanned Viking Echo Platform located 40 miles off the Norfolk coast. The damaged ship began to take on water and the crew abandoned it. The ship sank the next day. The Viking Echo platform remains out of operation, at a cost of $615,000 per month. Judge John Milmo QC described the incident as “a breathtaking series of events” and said it was fortunate that no-one died in the accident.

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