By:  Bob van der Valk

The Canadian government led by their Prime Minister Stephen Harper has softened their stance on China’s human rights record by giving a silent nod of approval to the China National Offshore Oil Corporation (Cnooc), the Chinese state oil company, making a bid for Canadian oil company Nexen.  They will be investing in Canada’s vast tar sands crude oil reserves with China becoming a new market for Canadian oil sands around Alberta.

Currently nearly all of Canada’s crude oil is destined for export to the United States. President Obama intransigency by not approving the construction and operating  permit for the complete route of the Keystone XL pipeline is coming back to bite the US in its proverbial behind.  A takeover of Nexen by Cnooc will give the Chinese supplies of crude oil in the Gulf of Mexico, the North Sea and the off shore Nigeria.

The front of the White House sit-in by protesters against the Keystone XL pipeline in September 2011

In 2005 Unocal’s Board of Directors accepted a $17 billion takeover bid from ChevronTexaco passing up on a higher offer from Cnooc. US governmental approval on the deal became a heated political debate in Washington with this type of international merger requiring federal approval. ChevronTexaco was the white knight, who rode to the rescue of the Bush administration, when it looked like China would have a foot print on US soil with the crude oil reserves then owned by Unocal.

Canada will have the same type of public reaction with political parties fighting it out on whether to allow the Chinese to own a part of their sources of energy troves.  China will finally have established a foot print on North American soil.  The US Presidential election will have one more issue to talk about between now and November 6th.

Bob van der Valk is a petroleum industry analyst working and living in Terry, Montana.  He can be contacted at (406) 853-4251 or e-mail:  tridemoil@aol.com
His viewpoints about the petroleum industry are posted on his web page at:   http://www.4vqp.com/pages/12/index.htm

Emerging markets have also revived America’s role as a big commodity producer. Soaring grain exports have raised farmers’ incomes to record levels, and regulators fret about incipient bubbles in agricultural land. At the same time, surging oil prices have triggered a gusher of new output. In 2011 crude-oil production reached its highest level since 2003, of 5.7m barrels a day (b/d). Production in the Gulf of Mexico is almost back to the levels reached before the Deepwater Horizon oil spill of 2010.

In recent years, techniques have been discovered to release gas from densely layered rock formations known as shale. These techniques—horizontal drilling and hydraulic fracturing, or fracking—have released so much shale gas that its price has tumbled (see our special report). Now the same methods are being applied to race after oil.

In 1999 North Dakota’s rig-count stood at zero after small pockets of conventional oil had run out. Now the Bakken oilfield is pumping out more than 550,000 b/d of shale oil, and Williston, the town at the centre of the field, is booming. It used to take five minutes to cross town; now the weight of oil traffic means it takes 20, according to one resident of this remote corner of a thinly populated state. At Walmart, crowds of shoppers have pressed all the trolleys into service; and its vast car park, like many other similar sites in town, provides a temporary home for fleets of camper vans housing workers flooding to the region’s oilfields. New homes, hotels and “man camps”—row upon row of workers’ huts—are springing up all around.

This year shale oil should contribute some 720,000 b/d to America’s total production. And shale-oil deposits in Texas, Ohio, Nebraska, Colorado and Kansas could eventually contribute as much as 5m b/d, according to the most optimistic forecasts. The Bakken field may well hold more than people think, and Ohio’s Utica shale has barely been tapped.

America is the world’s third-largest oil producer. The deep waters of the Gulf of Mexico could yield substantially more oil (perhaps 1m-2m b/d on top of the 1.3m b/d currently produced). America has plenty of other places where it might look if unfettered drilling were allowed, such as the east and west coasts and restricted parts of the Gulf of Mexico. Oil production in Alaska could also be expanded. America now imports 9m b/d; by “going back onshore” and exploiting all its options, optimists think it could produce 7m more b/d in a decade or so. Daily net imports of crude oil this year are the lowest since 1995, and will probably keep falling in the coming years (see chart 3).

Not so long ago, terminals were still being built in America to import liquefied natural gas (LNG). Now the country is enjoying a bonanza of domestic gas. Americans pay less than $3 for 1m British thermal units, where Europeans and Asians often pay more than $10. Accordingly, America is now planning to send the stuff abroad. Michael Levi of the Council on Foreign Relations thinks that exports of 60 billion cubic metres a year would yield revenue of $20 billion, though higher imports of other goods would offset the benefit to the trade balance.

“America’s economy. Points of light – Amid the gloom there are unexpected signs of boom, especially in energy.” (2012-7-14). The Economist. Retrieved 2012-7-24.

By:  Bob van der Valk
Dateline:  Terry, Montana

A short crude oil pipeline connecting the United Arab Emirates (UAE) with a harbor on the Gulf of Oman was inaugurated on Sunday, July 15, 2012.

Iran will be the biggest loser is this game of brinkmanship and a game changer in future negotiations as a bargaining chip. Ironically, the Iranian theocrats are the main cause of this attempt to skirt the Arabian Gulf, which is currently being used by Very Large Crude Carriers to ship 20% of the world demand for crude oil. This pipeline is a reaction to Iran’s overt threats to shut down the Strait of Hormuz if the US, Europe, Israel and Saudi Arabia push them against the wall over nuclear fuel enrichment and allow UN nuclear inspectors into facilities possibly used for this purpose.

The US military has already bolstered its presence in the region and sent four mine sweeper ships in early June, joining four other mine sweeping vessels already in the region, according to its Bahrain-based Fifth Fleet spokesperson.

On Thursday, July 12, 2012 US officials said the United States deployed a fleet of robot subs in the Gulf to prevent Iran from blocking the strategic Strait of Hormuz with mines making good on their official pronouncements. And in late April, a squadron of F-22 stealth fighters was sent to an air base in the United Arab Emirates.

Crude oil exports have begun through the new pipeline bypassing the Strait of Hormuz by connecting Abu Dhabi, the capital of the United Arab Emirates, to Fujairah on the Gulf of Oman. The operation of the 263-mile $4 billion pipeline could represent about 30% of the amount currently shipped through Persian Gulf and will be sufficient to blunt the impact of any Iranian attempt to seal the Strait of Hormuz.

Fujairah is located in Oman and is the world’s third biggest refueling ports for commercial ships. In case Iran does not make good on its threats, the pipeline still makes economic sense because a new $5 billion refinery will be built on Fujairah, one of the U.A.E.’s seven sheikhdoms, for local sales of oil products. A terminal will also be built at the port for transiting liquefied natural gas.

Regardless of Iran’s actions, the oil pipeline and its future expansion will forever break dependence on the narrow and vulnerable Strait of Hormuz for crude oil bought by the US, Europe and the Far East. It renders hollow the ability of Iran to blackmail its Arab neighbors and the West to extract concessions for its regional ambitions.

The pipeline will also dampen the impact on the global economy, if Israel eventually does bomb Iranian nuclear installations or Washington leads sharper coercion of Tehran. Currently, about one fifth of world’s oil transits through the Strait of Hormuz. Abu Dhabi, which holds over 90 percent of the UAE’s oil, has taken a risk by angering the Iranian regime, although Tehran has dismissed the pipeline’s potential as Western propaganda.

However, Iran may be hit by a double whammy because prospects are increasing of turmoil in world oil and gasoline prices. In July, energy tensions became worse after the European Union started implementing a nearly total ban on crude oil imports from Iran as part of Western economic sanctions. Domestic US crude oil supplies, which are being extracted from shale rock through the use of hydraulic fracturing, will more than offset any of the Iranian crude oil not being shipped due to economic sanctions.

The expanding American domestic supply is turning the US into a decider of world crude oil prices overshadowing Saudi Arabia. American light-sweet crude is not easily exportable but the large supply capacity combined with heavy investments in infrastructure will allow the US to boost exports of products as a substitute for other types of oil.

Proven shale oil reserves have risen by 68 percent in the US and Canada since 1990 and the US may become energy secure by 2025 for both crude oil and natural gas as hydraulic fracturing becomes a widespread method for North America for their energy needs.

Some information for this article was obtained from The Moderate Voice web site by RIJ Khindaria.

 

By:  Bob van der Valk
Dateline:  Terry, Montana

• US consumption estimated at 18.76 million b/d in 2012 and 18.88 million b/d in 2013 (EIA)
• Only expected to recover to between 21-22 million b/d through 2035 (EIA)
• Light / medium crude oil imports to US Gulf could be eliminated by 2014/2015 from rising Canadian pipeline deliveries and domestic production
• Heavy crude imports from Venezuela and Mexico should continue in medium term
• January-March crude imports from Venezuela and Mexico were 845,000 b/d and 995,000 b/d respectively

Political developments could influence stability of Venezuelan supply

► USAC (PADD 1) crude imports YTD are 1.5 million b/d, roughly 10% below 2008 levels

► USGC (PADD 3) crude imports YTD are 5.8 million b/d just over 15% below 2008 volume

► US crude stocks (excluding SPR) currently at 387 million barrels – highest level since July 1990

► Total US refinery utilization at 91.9% of capacity – spurred by export opportunities – week ending June 15

► PADD 3 operating at 93.2% and PADD 1 at 81.3% of capacity

US Crude Oil Production

► US crude production expected to 6.3 million b/d in 2012 versus 5.7 million b/d in 2011 (EIA)

► Production currently at 6.26 million b/d – strongest figure since July 1998

► 2013 crude production expected to rise by a further 400,000 b/d

► North Dakota production at 575,000 b/d in March – highest level on record

► Texas crude output at 1.7 million b/d in March up almost 30% year-on-year

► Heavy investment by Shell to start off-shore drilling in Alaska with reserves estimated at around 25 billion barrels further releasing domestic supplies

 

Bakken Crude Update

►Bakken field in North Dakota expected to produce around 600,000 b/d in 2012 and 650,000-700,000 b/d in 2013 – Breakeven point between US $40 $60 per barrel – WTI basis

► North Dakota rail export capacity increased from roughly 310,000 b/d in 2011 to 470,000 b/d and may be 700,000 b/d by year’s end

► Pipeline capacity at almost 440,000 b/d in Williston Basin (Eastern Montana, North Dakota, South Dakota)

► Bakken crude has approximately US $10/bbl and US $20/bbl discount to spot WTI/Dated Brent providing refiners in all PADDs to incentive gain access to supply

► Crude flows to East, West and Gulf Coasts as rail capacity expands and price differential entices refiners through reduced acquisition cost

► BNSF – controls roughly 75% of North Dakota exports – recently announced US $85 million railroad maintenance & expansion project

Pipeline Updates

► Enbridge to reverse the 240,000 b/d Line 9 pipeline from East to West from Sarnia, Ontario to Montreal

► After regulatory approval and infrastructure maintenance flows to begin spring 2014

► Crude to be sourced from Alberta, Saskatchewan & Manitoba and will primarily consist of light-sweet oil

► Used to feed the Nanticoke refinery (120,000 b/d) and process Canadian crude not foreign imports

► May lead to reversal of Portland, ME to Montreal, Canada pipeline

► Crude from Portland, ME would be required to sail on Jones Act vessels to PADD 1 refineries

► Total flows from Cushing to the USG will total 1.1 million b/d from these projects by 2013

Pipeline Updates

► Seaway pipeline has been reversed since mid-May delivering 150,000 b/d from Cushing, Oklahoma to US Gulf

► Seaway expansion to 400,000 b/d planned to be complete late 2012 / early 2013

► Southern leg of Keystone XL – Gulf Coast Project – construction will begin mid-2012 and should be completed by early 2013

► Gulf Coast Project will deliver crude from Cushing Oklahoma to the US Gulf with a capacity of 700,000 b/d with expansion potentially to 830,000 b/d

► This will eventually be linked to Keystone XL originating in Alberta

US Crude Oil Imports

► Nigerian imports contracted roughly 75% since March 2007 to March 2012 to approximately 10.5 million barrels (340,000 b/d)

► This was roughly 4% of total US imports compared to 10% in 2010

►  Reduction in Suezmax requirements (March 2007 to March 2012) was equal to 37 vessels

► Canadian imports rose to highest level on record of 76.4 million barrels (2.5 million b/d) – March 2012

► Imports from Saudi Arabia comparatively steady at 42.5 million barrels (1.4 million b/d) and still constitute around 15% of total import volumes

► Reduced spread between Dated Brent and WTI might help increase the attractiveness of West African grades

 

The above information was provided by McQuilling Services with additional data obtained from Oil Price Information Service at www.opisnet.com

 

 

 

 

 

Crude oil production in the Bakken rose almost 5 percent from April’s output. The number of producing oil wells went up more than 3 percent. There are almost 7,000 producing oil wells in western North Dakota, which is almost twice as many wells as it had five years ago, and crude oil production has increased five fold.

Meanwhile a dispute between Canadian pipeline Enbridge Energy LP and Saddle Butte Pipeline is brewing into what could become a political showdown between the two countries over whether Bakken oil production will be squeezed out by Canadian oil sands crude oil flowing from across the northern border.

The subsidiary of Saddle Butte – High Prairie Pipelines LLC is accusing Enbridge of denying its request to directly link a proposed 450-mile pipeline from the booming Bakken oil fields in North Dakota and Eastern Montana to a highway of pipelines currently feeding crude oil to Midwest East Coast refineries.

Saddle Butte is attempting to connect its High Prairie Pipeline to Enbridge at Clearbrook, MN. However, Enbridge Energy has so far refused to allow a pipeline interconnection by High Prairie Pipeline at its facility in Clearbrook, MN.

Even though oil prices have been falling, North Dakota’s crude oil production has been continuing to increase. The ND Department of Mineral Resources reported oil producers pumped an average of 639,000 barrels of oil each day in May 2012 or almost 20 million barrels of crude oil for the month.

Currently most the Bakken crude oil is being hauled to refineries and the Cushing, OK hub by rail car. The Keystone XL (KXL) pipeline is about two years away from being completed from Alberta, Canada to Cushing, OK. The permit for construction and operating the southern leg of the KXL from Cushing to the Gulf Coast has now been approved by the state agencies involved and is expected to be completed by the end of 2013.

Bob van der Valk is a petroleum industry analyst working and living in Terry, Montana. He can be contacted at (406) 853-4251 or e-mail: tridemoil@aol.com

His viewpoints about the petroleum industry are posted on his web page at: http://www.4vqp.com/pages/12/index.htm

Some data in the above article was obtained from E & E Publishing as well as Oil Price Information Service (OPIS) at www.opisnet.com

Photo courtesy of Travis W. Cooksey