World of Oil

Russia increases Transneft tariffs

Russia’s Federal Tariff Service will raise the main tariff for oil pipeline transport by 6% for 2008. Transneft’s tariff applies to the price oil companies pay to Transneft’s regional subsidiaries for actual transportation and what Transneft charges for coordinating the process-the dispatch fee. The transportation fee will be increased by 6%, while the dispatch fee will be increased by 33%. The tariff service also said the tariff on the Baltic pipeline to Russia’s key Primorsk port will increase by 15%.

US to implement drilling application fee

In 2008 the US Interior Department will begin imposing a $4,000 processing fee for each new oil and gas drilling permit application submitted by energy companies. Congress included the new fee in spending legislation signed by President George W. Bush on Dec. 26, 2007.

Oil sands fail environmental tests

Alberta’s oil sands projects have received poor environmental marks in a report released Jan. 10. Environmental groups Pembina Institute and the World Wide Fund for Nature surveyed 10 Alberta oil sands ventures-including seven which have yet to start production-for air emissions, attention to land use, climate change, water consumption and pollution, and overall environmental management. Only Shell’s Muskeg River operation got a passing mark. “What this study has shown is that there’s more talk than there is action in terms of meaningful commitments to addressing the issues,” said Dan Woynillowicz, senior policy analyst at the Pembina Institute.

Ukraine gives lifeline to Naftogaz

A Ukrainian state budget summary stated that a state guarantee would be offered by the government to Naftogaz for foreign loans taken before Jan. 1, 2008, of an amount equal to the loans owed by the company. Analysts have said Naftogaz is in technical default on a $500 million Eurobond. Ukraine’s Prime Minister, Yulia Tymoshenko, said the company was facing bankruptcy after years of mismanagement.

Gas supply shortages for Greece, Turkey and Iran

On Dec. 30, 2007, Turkmenistan halted daily deliveries of up to 812 MMcf of gas to Iran, citing technical problems and Iran’s failure to pay for gas received was delaying pipeline repairs. Although Turkmenistan blamed technical issues, Iranian officials said the country also seeks a higher price for the natural gas it sends to Iran. “Turkmenistan must first start supplying gas and then come to discuss (the price),” said Iranian Oil Minister Gholamhossein Nozari. Iran receives about 5% of its gas needs from Turkmenistan and the supply disruption caused shortages in some northern areas. The supply disruption also caused Iran to decrease gas exports to Turkey on Jan. 7. “We hope that with people’s (fuel) savings and a rise in temperatures these conditions would go back to normal as soon as possible and that we would be able to send our gas to Turkey again,” said Ebadollah Ghanbari, head of public relations of Iran’s national gas company. He did not announce a day when Iran expected to resume gas output to Turkey. As a result of the decreased Iranian gas flows, Turkey has taken steps to decrease gas consumption, which has fallen to 4.38 Bcf of gas per day from 5.01 Bcfgd, a Turkish official told Reuters. “As of yesterday, those gas-fired electricy producers who could do so have switched to alternative fuel, while others have implemented certain cuts. In this context there is no problem in electricity production,” the official said. Turkey has also been forced to halt the flow of Azeri gas to Greece; however an agreement was reached with Greece to make up for the cut in their supplies.

Russian and Serbian gas pipeline and energy deal

On Jan. 21, Serbia’s Prime Minister said Belgrade would accept a Russian offer of an energy pact that would link the country to the South Stream pipeline in return for Gazprom receiving a stake in Serbian oil monopoly NIS. The South Stream pipeline, a joint project by Gazprom and Italy’s Eni, would carry 1.06 Tcf of gas via the Black Sea, and would re-emerge on the Bulgarian coast to continue through one of two routes-through Greece or through Romania, Hungary, the Czech Republic and Austria-before arriving in Italy. The South Stream pipeline is Moscow’s challenge to the rival Nabucco plan to supply Central Asian gas to the European Union, Russia supplies a quarter of the European Union’s gas. Belgrade, which gets 90% of its gas supply from Russia, hopes having the pipeline branch into Serbian territory will mean cheaper power, resulting in faster economic growth. “This is Serbia’s biggest economic project, and this agreement will guarantee great economic growth,” said Prime Minister Vojislav Kostunica in a statement to local media that announced the Serbian government would accept Russia’s proposal. “Serbia will in this way secure a stable and reliable energy supply for the coming decades.” Analysts have said the deal between Russia and Serbia was politically motivated, a reward for Russian backing of Serbia’s efforts to prevent its breakaway Kosovo province from becoming independent. On Jan. 25, Serbia’s president and prime minister met with Russian President Vladimir Putin to finalize the energy deals between the two nations.

Prosecutors charge five with South Korean oil spill

South Korean prosecutors indicted five people and two companies for marine pollution in the country’s worst oil spill ever. The accident occurred on Dec. 7 after a tugboat snapped its towing cable and the barge it was towing began to drift in rough seas and strong winds, eventually smashing into the anchored supertanker Hebei Spirit, causing it to leak 10,900 tons of crude oil. The three South Korean captains of the barge and its two tugboats and two Indians who operated the Hebei Spirit, were charged with polluting the ocean and with professional negligence, the regional prosecutors’ office said in a statement posted on its website. Prosecutors have also charged the barge’s operator, Samsung Heavy Industries, and the tanker’s owner, Hebei Spirit Shipping, with polluting the ocean.

Kashagan agreement reached

A deal was reached with the Eni-led AgipKCO consortium over the development of Kashagan Field, with Kazakhstan’s state-run KazMunaiGaz to take an equal share in the project with the largest shareholders-increasing to 16.81% from 8.33%. KazMunaiGaz issued a statement on Jan. 14 saying all companies in the consortium-which also includes Shell, Total, ExxonMobil, ConocoPhillips and Inpex-had agreed unanimously to the new terms.

Baghdad asks Shell to test Akkas 

The Iraqi government has asked Shell to carry out tests on the giant Akkas gas field. Shell has been asked to conduct a “long-term production test” at Akkas, a Shell spokesman told Reuters, a move which could prompt Shell to take a stake in the field. The results of the test will enable the government to better ascertain the size and quality of the reservoir. Iraq is also issuing a tender to build a pipeline to supply Syria with 50 MMcfgd of gas from the Akkas field. Iraqi Oil Minister Hussain al-Shahristani said the tender would be issued soon to build a 28-mi segment of the pipeline from the field to the Syrian border, with Syria building its own longer section to take the gas to existing processing facilities at Deir Azzur.

Russia removes opposition to CPC expansion

Russia has lifted its opposition to the expansion of the Caspian Pipeline Consortium oil link, said Kazakhstan’s President Nursultan Nazarbayev. The Caspian Pipeline Consortium ships oil produced in Kazakhstan and has been struggling with Russia over a plan to double its capacity-Moscow criticizes the project for low returns and was previously opposed to the capacity increase. After Kazakhstan pledged to join the Burgas-Alexandroupolis pipeline-a trans-Balkan pipeline to take Russian and Central Asian oil from Bulgaria to Greece-Russia agreed to support the CPC capacity expansion.

Malaysia, Iran sign $16 billion gas deal

In Dec. 2007, Iran’s Pars Oil and Gas Company (POGC) and Malaysia’s SKS Ventures signed a $16 billion agreement to develop Golshan and Ferdows gas fields in southern Iran. The contract was formally signed by Ali Vakili, director of POGC, and Mokhtar Al-Bokhari, director of SKS Ventures, in the capital of Tehran on Dec. 26, 2007. “This contract is worth $16 billion. Some $6 billion is for development of offshore and $10 billion for development of onshore gas fields for a period of 25 years,” Vakili told the official IRNA news agency. The reserves at the Golshan gas field are estimated at more than 50 Tcf of gas and are expected to produce 2.5 Bcf of natural gas per day. The Ferdow’s gas reserves are estimated around 10 Tcf and it would produce more than 800 MMcfg of gas.

Thailand to buy gas from Indonesia

Indonesia and Thailand have signed an agreement on energy cooperation which will allow Thailand to buy natural gas from the Natuna Field in Indonesia. Thai Energy Minister Piyasvasti Amaranand signed a joint statement with his Indonesian counterpart Purnomo Yusgiantoro on Dec. 19, 2007, which would extend energy cooperation between the two countries. Under the agreement, the two countries will exchange information on energy as well as allow Thailand to buy natural gas from Indonesia’s Natuna Field and a pipeline will be built from the archipelago nation to Thailand.

Construction begins on second section of Kazakhstan-China oil pipeline

Construction began on Dec. 11 for the second section of the Kazakhstan-China oil pipeline. The pipeline is jointly invested by CNPC and KazMunaiGaz, with each owning a 50% stake. The pipeline, with a full length of 1,739 mi, starts at Atyrau at the Caspian Sea and ends at Alataw Pass on the border of Kazakhstan and China via Aktobe. The 278-mi prophase section between Atyrau and Kenkiyak was completed and went on stream at the end of 2003. The 598-mi first section between Atasu and Alataw Pass was put into operation in May 2006. The 473-mi Kenkiyak-Kumkol section is to be completed and begin operation on Oct. 1, 2009.

Beijing to increase tax on crude

The Chinese Finance Ministry has proposed a 10% tax on crude production, to be phased in beginning at a 5% rate. Vice Minister Zhu Zhigang also said in a statement on the ministry’s website that the time has come to introduce the long-awaited fuel tax, a move poised to lift China’s regulated fuel prices by a significant margin. The 10% tax would be based on oil prices, replacing the current volume-based levy, Zhu said. This measure is set to make a hefty cut in the revenues of oil producers such as PetroChina and Sinopec. The ministry did not specify when the tax would take effect, but said it “should be imposed as soon as possible.” This resource tax would go to local governments to compensate them for the extraction of oil and would also benefit the environment, Zhu said.

Turkey, Syria to build joint exploration company

Turkey and Syria have decided to form a joint exploration and development company, increasing the countries’ cooperation in the oil sector, said Syrian Oil Minister Sufian al-Alaw on Jan. 08. Through the project the two neighboring countries will cooperate on importing and exporting oil extracts in addition to setting oil distribution stations in Syria, said al-Alaw. According to the Syrian Arab News Agency, the countries also discussed the possibility of importing natural gas from nearby Azerbaijan and Iran through a Turkish oil company, in addition to connecting Syria to the Turkish natural gas pipeline network.

Pakistan okays Iranian gas pipeline deal

On Jan. 8, 2008, the Pakistani Cabinet approved the Iran-Pakistan-India gas pipeline agreement. The cabinet gave its approval to the planned gas purchases, a government guarantee, gas sales to local supply companies and taking additional gas if India doesn’t joint the pipeline project. The cabinet also recommended making a formal request to the Iranian government to allocate an additional volume of 1.05 Bcf of gas a day to Pakistan if India doesn’t participate. The pipeline will run from Iran to India via Pakistan and supply some 3.2 Bcf of Iranian gas to India and some 2.1 Bcf to Pakistan every day. Pakistan’s part of the pipeline is likely to cost $2.7-3 billion, and range from 435-652 mi in length.

Russia removes offshore rig import tax 

Russia has removed import duties and taxes for offshore drilling rigs temporarily imported to Russia for exploration work as part of a move to boost offshore exploration. The measure, which will last for two years, is the first move toward a reduction of taxes for companies operating in Russia’s offshore plays. The government said it had cancelled customs duties and taxes for offshore rigs to be rented by a Russian citizen from a foreign owner for five months. Russia’s offshore plays are believed to hold massive reserves, but offshore fields are more expensive to develop than onshore fields. The government has also been discussing a mineral resource tax break to develop offshore fields-similar to that introduced last year for the underdeveloped but resource-rich region of east Serbia.

Malaysia partners with Conoco and Shell

The Malaysian state oil company has partnered with ConocoPhillips and Shell to drill for natural gas in four underwater fields off the coast of Malaysia. The three parties are establishing a jointly owned company to be based in Kuala Lumpur and oversee the appraisal and development of the fields. ConocoPhillips and Shell will each own a 30% stake and Petronas Carigali, the Malaysian government-owned oil company, will own 40%. The company will drill for natural gas in four fields in waters off the northwest coast of Sabah, a state on the island of Borneo. The fields, known as the “Kebabangan Cluster,” include Kebabangan, Kamunsu East, Kamunsu East Upthrown and Kamunsu East Upthrown Canyon.

Gazprom, Rosneft split Tomskneft 50/50 

Russian oil giant Rosneft split its Tomskneft oil unit 50/50 with Gazprom. Tomskneft-whose production is 240,000 bpd-is the first Yukos asset that Rosneft has agreed to share. The sale would reduce Rosneft’s oil production by about 5% per day, and would increase oil production of Gazprom, the world’s largest gas producer, by 14%. According to the terms and conditions of the sale, the co-owners of Tomskneft will jointly make managerial decisions on the basic issues of the company’s development and on the rotation of the staff holding key positions.

Conoco, Marathon make gas deal with Alaska

ConocoPhillips and Marathon Oil Corp. have agreed to drill for natural gas in exchange for the state of Alaska’s support of the companies’ application to keep exporting Cook Inlet natural gas to Japan or other countries, the Anchorage Daily News reported. The state is supporting a two-year extension of the federal export license for the Nikiski plant owned by Conoco and Marathon, the only LNG export plant in North America, which converts about 150 to 200 million cubic feet of gas into liquefied natural gas each day. In return, Conoco and Marathon have agreed to drill for natural gas to develop additional natural gas reserves in Cook Inlet. Jim Bowles, president of Conoco Alaska, said Conoco has agreed to drill two new wells in Cook Inlet in 2008. Marathon will drill at least five wells, company executives said. The agreement also gives other area gas producers the opportunity to use the plant to process their gas, and Conoco and Marathon have also agreed to sell valuable seismic and well data to other companies looking to develop the area.

CNPC and Chevron partner on gas project

A 30-year production-sharing contract was signed between Chevron’s main Chinese subsidiary and China’s National Petroleum Corporation (CNPC) for the joint development of the Chuandongbei natural gas area in central China. CNPC will hold a 51% interest in the project with Chevron acting as the operator holding a 49% participating interest. “The signing of this contract demonstrates our worldwide focus on large-scale exploration and production projects, and our long-term strategy to grow our business in China,” said Dave O’Reilly, chairman and chief executive officer of Chevron. The Chuandongbei gas development covers nearly 772 square mi in the Sichuan province. Chuandongbei, which includes the Dukouhe-Qilibei, Luojiazhai and Tieshanpo gas fields, has an estimated resource base of 5 Tcf of natural gas.

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