World of Oil

Saudis form oilfield guard

Saudi Arabia recently began devel-oping a specialized security force of 35,000 to protect its oil infrastructure from potential attacks. Recruitment began a few months ago and the force already has more than 5,000 personnel. The troops are being trained in the use of new surveillance equipment, crisis management and countermeasures in a program being managed by US defense firm Lockheed Martin, according to the Nicosia-based Middle East Economic Survey.

Denmark plans meeting of arctic nations

Danish Foreign Minister Per Stig Moller and Greenland’s Premier Hans Enoksen have invited foreign ministers from Canada, Norway, Russia and the United States to Greenland next May to discuss how borders in the region should be set. The invitation is the result of increasing interest in the region’s natural resources, resulting from receding ice cap which offers the potential for exploiting oil and other resources in previously unreachable locations. “It cannot serve any good if the Arctic regions are divided according to who is first to plant a flag,” said Moller according to the Jyllands-Posten newspaper. “Sending a defense minister to Hans Island is not the way to solve matters.” He was referring to Denmark’s and Canada’s dispute on who has sovereignty over Hans Island, as well as how Russian scientists anchored their national flag on the bottom of the sea.

US appeals court blocks Shell Alaska drilling

The 9th US Circuit Court of Appeals ruled in August that Royal Dutch Shell PLC must further postpone plans for exploratory drilling in the Beaufort Sea off the northern coast of Alaska. This comes after a court ordered a month long halt to drilling in July. The court also indicated that environmental groups have a good chance of prevailing in their effort to keep the energy giant out of the area. Petitioners have “raised serious questions and demonstrated that the balance of hardships tips sharply in their favor,” the court’s ruling said. Consequently, Shell will begin releasing contract workers and could soon disband its offshore drilling.

Hunt Oil Co. signs deal with Iraqi Kurdish government 

Dallas-based Hunt Oil Co. and the Kurdish government have agreed to jointly explore for oil in the Dihok area of Iraq’s Kurdish region. The company signed a production sharing agreement with the Kurdistan Regional Government (KRG) in early September. “Revenues from this Kurdistan petroleum development will be shared by the KRG throughout Iraq consistent with the Iraq constitution and the new Oil and Gas Law of the Kurdistan Region,” KRG Minister of Natural Resources Ashti Hawrami said. This is the first contract to be signed since the Kurdish government enacted the Oil and Gas Law of the Kurdistan Region in August. Iraq’s oil minister, Hussain al-Shahristani, called the deal between the Kurdish government and Hunt Oil Co. illegal. “Any oil deal has no standing as far as the government of Iraq is concerned,” said al-Shahristani. “All these contracts have to be approved of by the Federal Authority before they are legal. This (contract) was not presented for approval. It has no standing.” Al-Shahristani’s comments were made as he arrived for an OPEC ministers meeting in Austria. His comments underscore the Iraqi central government’s view that exploration contracts with foreign companies should only be signed after the adoption of a new national oil law, which has been postponed repeatedly in the past year due to political and sectarian disagreements over its terms. Geological surveys and seismic work of the Dihok area will be done by a local subsidiary of Hunt Oil Co. by the end of the year, and the company plans to drill its first exploration well next year.

 Nuclear power proposed for Alberta 

Energy Alberta Corporation filed an application in late August with the Canadian Nuclear Safety Commission for a license to prepare a site for Canada’s first nuclear facility west of Ontario. The $6.2 billion plant near Peace River in Alberta would be built by Energy Alberta’s partner, Atomic Energy of Canada Ltd., a federal Crown corporation. According to Reuters, privately held Energy Alberta has agreed to supply an unknown company with 70% of the plant’s 2,200 MW output. Energy Alberta’s president, Wayne Henuset, declined to name the mystery power buyer citing confidentiality agreements. Peace River is the hub of one of Alberta’s three oilsands basins, and Henuset stated in a press conference that a reason the power plant makes sense for the area is the significant draw that will come from future oilsands developers, who use electricity in the extraction and upgrading process.

 Malaysia, Brunei close to finalizing maritime deal 

Malaysia and Brunei are close to resolving a maritime boundary dispute that has hindered oil and natural gas exploration in an area west of Borneo Island. “Both sides had put forth new proposals, and agreed on the need to resolve the matter urgently. They instructed their negotiating teams to work out the details,” said a joint statement carried by Bernama, Malaysia’s official news agency. This statement was made following bilateral talks between Bruneian monarch Sultan Hassanal Bolkiah and Malaysian Prime Minister Abdullah Ahmad Badawi. At stake is a so-called deepwater area, near where several oil and gas fields have been discovered by both sides in recent years. The two countries, which have close political ties, have taken their time in deciding who has sovereignty over the area, despite an increase in offshore upstream activities such as the drilling of exploration wells and seismic surveys. In February 2002, Brunei awarded exploration rights in the contested area, only for Malaysia to award nearly identical acreages under its own licensing round in January 2003. Malaysia’s state owned Petronas gave Blocks L and M to US independent Murphy Oil Corp., while Brunei awarded Block J to a consortium headed by French oil company Total S.A., and Block K to a group led by Royal Dutch Shell PLC. Petronas’ move was the result of a major discovery by Murphy Oil in Malaysian waters adjacent to the disputed blocks in November 2002. The ambiguity over the disputed waters resulted in a skirmish in March 2003, when a Malaysian navy patrol vessel chased a Total survey team out of the disputed area, thus ending exploration activities at both blocks.

 Uganda, Congo begin to resolve border dispute 

Tensions between Congo and Uganda have been mounting this year over oil exploration around Lake Albert, which straddles their two countries. The areas affected include Rukwanzi Island and the Semliki valley, located in exploration Block 3A jointly owned by Tullow Oil and Heritage Oil. Conflict escalated in July when the Congolese army captured four Ugandan troops in Block 3A, and later in August the Congolese army attacked an oil exploration crew on Lake Albert working for Heritage Oil, killing one crew member. In an effort to resolve the disputes Congo’s President Joseph Kabila and his Ugandan counterpart, Yoweri Museveni recently met and agreed to joint exploration. The two countries are also to review the 1990 treaty concerning oil exploration and exploitation along their common border in the area. Uganda’s minister of energy and minerals will meet his Congolese counterpart in early October to finalize talks on the review of the 1990 cooperation treaty, the ministry said.

 Dispute between Kazakhstan, Eni continues

 In early August, conflict began to mount between the Kazakh government and Italian oil giant Eni over work at the Kashagan oilfield project, located in the Caspian Sea. The project was being conducted by Eni, with partners ExxonMobil, Total and Shell. In August, the Kazakh government began accusing the consortium of being too slow at developing the vast field, “if the operator can’t resolve these problems, then we don’t exclude their possible replacement,” said Kazakh Prime Minister Karim Masimov. Later that month, the Kazakh Environment Minister Nurlan Iskakov shut down operations at the field citing environmental violations and gave Eni 60 days to reach a negotiated solution for the project. “We are now conducting a planned audit and we have all the grounds to believe that the operator is not complying with ecology legislation of Kazakhstan,” said Iskakov. From there possible action was threatened by European Union Energy Commissioner Andris Piebalgs if companies’ rights were ignored. “I am worried because Kazakhstan has always been a very reliable partner for every investment, above all for energy,” said Piebalgs. “At this stage we do not believe intervention is necessary, but the Commission will take adequate measures if the legal rights of European companies were put at risk.” On Sept. 6, Prime Minister Masimov upped the ante by demanding its state energy company KazMunaiGaz take a leading role in running Kashagan and stated that the government is also seeking more than $10 billion in compensation from Eni for the delays. Eni boss, Paolo Scaroni, met with Masimov on Sept. 7 in an effort to settle the dispute, however these talks were unsuccessful. As a result, Italian Prime Minister Romano Prodi issued a statement on Sept. 13 saying he will visit Kazakhstan in October with hopes to settle the dispute. As a result of the Kashagan conflict the Kazakh government passed an amendment giving the government the right to pull out of natural resources contracts, if a threat to national security and national economic interests is seen. “The amendment will give the government the right to annul contracts on strategic fields, not only oil and gas, if the conditions of the contracts are not being complied with and there is a threat to national security,” Valeriy Kotovich, one of the lawmakers who initiated the amendment, told Dow Jones Newswire. Kotovich added that the amendment would certainly apply to the Kashagan dispute. “The amendment should give the government more room in solving the Kashagan questions,” Kotovich said.

 Iran to privatize parts of oil industry 

Over the next four years, Iran plans to privatize parts of its oil industry to help attract foreign investment and increase the economy, reported the state-run Islamic Republic News Agency, or IRNA, in July. “Refineries, petrochemical plants and all oil exploration industry will be given to the private sector,” IRNA quoted Iran’s newly appointed ambassador to Mexico, Mohammad Hassan Qadiri-Abyaneh, as saying. Qadiri-Abyaneh also expressed the desire for greater cooperation between the two countries, “we are ready to cooperate with Mexico in the fields of construction of oil refineries and petrochemical complexes. I have come here with a clear mission, which is improving ties in its highest level and in all dimensions.”

 Rebel group bombs Pemex pipelines

The Popular Revolutionary Army, or EPR, claimed responsibility for the bombing of a number of Pemex-run oil and gas pipelines that happened on Sept. 10. EPR also claimed responsibility for the bombing of energy pipelines in July that cut gas supplies to thousands of businesses. There were no injuries from the most recent blasts, most of which were in Veracruz state next to the Gulf of Mexico. Pemex chief executive Jesus Reyes Heroles said it could take four or five days to get supplies back to normal after the attacks. He estimated the damage would cut off around 25% of Mexico’s natural gas supply for 24 to 36 hr. The rebels have claimed they would keep up the attacks until the government releases two rebels the group says are in a secret Mexican army prison. “The surgical actions on Pemex pipelines are a type of political-military action in self-defense against aggression we have suffered,” the rebels said in a statement posted on a website used by Latin American guerrilla groups, Reuters reported.

Drilling on the decline in the Gulf of Mexico

Rig owners say that oil and gas drilling in the Gulf of Mexico is falling off because they can get much longer contracts in places where the reserves are larger. Rigs have moved to places such as the west coast of Africa, Brazil and the Middle East, with the number of rigs in the Gulf of Mexico falling to 53 from 72 at this time last year. Other barriers to owners in the Gulf are insurance premiums and strict government regulation. Steve Lawrence, chief executive of Clarksons Offshore in Houston, a company that negotiates deals involving offshore drilling companies, said the Gulf is being abandoned because the reserves are drying up. “If the oil and gas were there, people would pay the insurance premiums; they would pay the higher wages,” Lawrence said.

Tehran explores strategic oil storage in China

In September, Iran signed a memorandum of understanding (MOU) with China as it seeks outlets for its crude in the face of Western sanctions. “We have signed an MOU, but the capacity of the storage is not final,” acting Iranian Oil Minister Gholamhossein Nozari said on the sidelines of the Sept. 11 OPEC meeting in Austria, Reuters reported. Iran’s President Mahmoud Ahmadinejad replaced previous oil minister Kazem Vaziri Hamaneh with Nozari in a surprise move Aug. 12. Norazi was previously the managing director of state-run National Iranian Oil Co.

US crude futures continue to rise

 Since reaching a record high in July, US crude futures have continued to rise, ending at above $80 in September amid continuing supply concerns as front-month crude futures options expired. On the NYMEX, October crude settled at $80.57 per barrel on Sept. 17, and rose again to $81.51 on Sept. 18. “The Iranians are making noise again, world supplies are tight,” said Mike Fitzpatrick, vice president at MF Global. France and Iran exchanged remarks in September about the possibility of war over Iran’s nuclear program plans, again raising concern about supply from Iran. Nigeria’s supplies have been continually interrupted by rebel and criminal attacks, while rebels in Mexico hit several energy pipelines, raising concerns about the reliability of another key US supplier.

Japan looks to share oil reserves

 Japan intends to implement a program that will enable countries in East Asia to share oil reserves when disaster strikes, the Nikkei stock exchange learned in August. Japan will begin negotiations for such a program with New Zealand as a first step. The Ministry of Economy, Trade and Industry believes that an emergency oil sharing program in East Asia, where oil demand continues to rise, will help stabilize oil prices and the region’s economies when shortages hit. Rising oil prices could lead to an economic break down in some countries during emergencies, posing a threat to the integrated economy in the region. Under a scenario drawn up by the METI, Japan and its partner nations would buy or sell oil from their reserves in times of crisis.

 Nigerian army launches Delta raid 

A suspected criminal hideout in the Niger Delta, one of the main oil producing regions in Nigeria, was attacked by the Nigerian army on Sept. 14 using helicopter gunships and ground troops. A criminal gang suspected of murdering five people from Ogbogoro, including three chiefs, was the target. Ogbogoro is a waterside community on the outskirts of Port Harcourt, the delta’s largest and most violent city. “The criminals who killed the chiefs and civilians recently have regrouped in the thick forest near the community. So we went there to root out the criminals,” said Sagir Musa, a spokesman for the military in the Niger Delta. Musa said soldiers were firing at the suspected hideout and dropping bombs from helicopters while ground troops were surrounding the area. He declined to comment on the number of casualties.

 Jordan to resume Iraqi oil imports

The official Petra news agency reported that Jordan plans to restart Iraqi oil imports soon, ending a four-year break initiated by the US-led war that deposed Saddam Hussein. Khaled al-Shraydeh, Jordan’s energy minister, said the supply would ultimately cover Jordan’s daily need of 100,000 barrels. The oil would be trucked across Jordan’s desert border from the northern oil fields in Kirkuk escorted by Iraqi security. “The Iraqi government said it was ready to start supplying us with oil, which we expect will happen within the next few days,” al-Shraydeh said. Jordan and Iraq signed the deal last August when Jordanian Prime Minister Marouf al-Bakhit made a surprise visit to Baghdad. Before the war started in 2003, Iraq covered all of Jordan’s oil needs, delivering a fraction for free and the rest at about one-third of the world market price, the energy minister did not say how much Jordan would now be paying for the oil.

 PDVSA ousts US dollar 

Venezuelan President Hugo Chavez instructed state-run PDVSA to switch its investment accounts from US dollars to Euros and Asian currencies to reduce risk. Venezuela transferred some of its reserves into Euros last year, as did other oil producers including the United Arab Emirates, Kuwait and Qatar. He added that he had told Oil Minister Rafael Ramirez, who also heads PDVSA, to switch currencies after the US Federal Reserve began increasing the number of dollars in circulation.

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