Now this idiocy has crossed the atlantic.

The EU Energy commissioner is calling for a moratorium on drilling in the North Sea.

Immediate action: utmost caution must be exercised for the moment with respect to new drillings. As said, given the current circumstances, any responsible Government would at present practically freeze new permits for drilling with extreme parameters and conditions. This can mean de facto a moratorium on new drills until the causes of the accident are known and corrective measures are taken for such frontier operations as the ones carried out by the Deepwater Horizon.

We have the first uncontrolled event in the more than 30 years of off shore experience, and now everyone is coming out of the woodwork and saying lets stop.

For the help of Mr Oettinger
here are a few pointers:

1. The BP spill happened at one of the deepest water drilling sites in the world. It is the ewtreme conditions that are hampering the operation to cap the flow. The North Sea is far shallower.
2. Stopping drilling offshore in Europe will not reduce environmental risks, just shift them
3. Offshore Africe is the next big area for deep sea drilling. Some of the unemployed rigs in the USA are already on their way. I doubt that African countries have the same level of safeguards as the USA or EU.
4. This type of spill will probably never happen again, not because of politicians but because oil companies have seen the price that BP is paying.
5. Norway, the single biggest oil producer in the North Sea was sensible enough not to join you little club, and as such is beyond the reach of your sticky paws.
6. Finally, as energy commissioner your duty is to balance energy needs with social responsibilities, not panic like a little girl facing a hairy spider.

It must be lovely to be a politician. They are responsible for none of the world’s problems, and in possession of all the answers. I wonder sometimes why, with omniscient beings like this, looking out for our welfare, there are any problems left in the world.

First Nigeria

KBR announced today that it has been awarded a contract by Houston-based FPR Inc. to provide Design and Early Engineering Services for the development of the Araromi Refinery Project in the OK Free Trade Zone (OKFTZ) in Nigeria.

Nigeria like many oil producers is keen to go downstream. The country has suffered fuel shortages in the past, and no doubt wants to avoid repeats. According to the EIA, Nigeria imports 85% of its refined products, whilst the refineries are mothballed.

Yet building new capacity is never going to be the answer to a problem that was not caused by lack of capacity, but by market distortions and alleged corruption. Pricing reform and privatisation would solve the problem immediately. Yet this is the route being chosen:

KBR will execute the Design and Early Engineering Services for a low complexity 160,000 barrels per day Greenfield refinery and marine facility estimated in excess of US$3 billion.

What kind of crazy investor builds a low complexity refinery in this day and age?

Meanwhile in Iraq:

Foster Wheeler AG announced today that its Global Engineering and Construction Group has been awarded a feasibility study and front-end engineering design (FEED) contract by the Iraqi Ministry of Oil for a new grassroots refinery at Nassiriya in southern Iraq. The proposed refinery will have a capacity of 300,000 barrels per day.

Iraq may or may not be in need of new refineries, but its existing ones are certainly not in good shape. Like Nigeria, fuel prices are below costs, which means that demand is much higher than it should be.

One person I spoke to with inside knowledge of the market, told me that nobody even has any market projects for Iraq, as their are just too many variables.

Bearing in mind how poor these two countries are, and how much excess capacity there is in the sector, what a massive waste of resources it will be if these projects are actually built.

Huge discoveries of natural gas promise to shake up the energy markets and geopolitics. And that’s just for starters.

Among its claims:

Ending cartels

the rise of gas power seemed likely to doom the world’s consumers to a repeat of OPEC, with gas producers like Russia, Iran and Venezuela coming together in a cartel and dictating terms to the rest of the world. The advent of abundant, low-cost gas will throw all that out the window

Slowing Renewables

The shale boom also is likely to upend the economics of renewable energy. It may be a lot harder to persuade people to adopt green power that needs heavy subsidies when there’s a cheap, plentiful fuel out there that’s a lot cleaner than coal.

Even changes in China’s Foreign Policy

The less vulnerable China is to imported oil and gas, the more likely it would be to support sanctions or other measures against petro-states with human-rights problems or aggressive agendas. Moreover, the less Beijing worries about U.S. control of sea lanes, the easier it will be for the U.S. and China to build trust. So, domestic shale gas for China may help integrate Beijing into a Pax Americana global system.

For what its worth, I think that these things are emminently possible. However, I think that the biggest impact of this new embarrassment of riches will be on Fuel Oil and heating oil.

Much commentary is on replacing coal in electricity generation. However coal has very powerful lobbys, not least the unions, whereas the losers from a switch away from oil to gas are not so endowed. Moreover, the winners and losers overlap to some extent.

The most illogical use for oil is in heating and electricity generation. As a vehicle fuel it has no competitor, unless the pitch is queered. Even before the Shale revolution, fuel oil was fast being replaced by natural gas. Now that change is likely to be even faster.

This poses a challenge for refiners, which facing a challenging time are cutting back on investments. Yet unless they increase their ability to crack the bottom of the barrel, natural gas is going to eat their lunch. For oil producers, it will create downward pressures on prices.
So whilst shale gas is good for some in the industry, it will create as many problems as opportunities and like all revolutions will see losers as well as winners.

Hat Tip: Shale Blog

The worldwide rig count for April 2010 was 2,676, down 203 from the 2,879 counted in March 2010 and up 621 from the 2,055 counted in April 2009.

They are down, yet when we look at the individual numbers, the USA is up, International is flat, and Canada is down sharply.

The Canadian rig count for April 2010 was 123, down 263 from the 386 counted in March 2010

Does anyone know what happened in Canada, thats an amazing drop.

Shell has completed its largest petrochemicals project.

Shell today announced the successful completion of the Shell Eastern Petrochemicals Complex (SEPC) project in Singapore. SEPC is Shell’s largest petrochemicals investment to date and the second world-scale petrochemicals project the company has completed in Asia in four years. The completion of the project reinforces Shell’s intention to remain a leading player in the expanding Asian petrochemicals market.

The new complex is part of the Shell Pulau Bukom Refinery. The project includes a world-scale ethylene cracker, which started up in March.

At the same time, Shell’s peers are not standing still. Its neighbour in Singapore is following a very similar strategy.

A significant milestone in the development of ExxonMobil’s largest integrated chemical and refining complex was reached with the arrival of seven world-scale furnace modules at the Singapore facility.

Each furnace module is about 15 stories (50 meters) tall and weighs over 2,000 tons, the equivalent of the combined take-off weight of five Boeing 747 airplanes. Employing ExxonMobil’s state-of-the-art, proprietary furnace technology, the furnaces are part of a feed-flexible steam cracker that will have an ethylene production capacity of one million tons per year.

So Singapore will have not one, but two enormous petrochemical plants.

As if that were not enough, Total has got in the act as well.

Total announces the inauguration of the world’s largest olefin cracker based on ethane in Ras Laffan, Qatar.

It is another manifestation of the natural gas bounty in Qatar.

The ethane feedstock used in the Ras Laffan cracker comes from the North Field,a giant offshore gas field in which Total holds interests through the Dolphin and Qatargas I and II projects. The natural gas (methane) is treated for export in the liquefaction plants also based in Ras Laffan and the associated ethane produced at Dolphin will be valorized by the Ras Laffan cracker as raw material for the petrochemical industry.

There are a few important points to notice when looking at these stories.

1. Scale: Each of the projects is on a massive scale, small is not beautiful in this business.
2. Location: Where economic growth is rapid
3. Raw Materials: In Total’s case, there is a big raw material cost advantage

Like the refining industry, petrochemicals is moving to where the customer is, and countries with raw materials, are becoming more significant players. The market is already dominated by the likes of Sabic, a company with huge raw materials procurement advantages, and this is a trend that seems to be continuing.

State-controlled Hindustan Petroleum Corporation Limited (HPCL) announced the halt of its plans to build a 300,000 barrel per day (bpd) project in the southern city of Visakhapatnam due to a lack of investment. Two of the project’s key partners, French industry giant Total and local-based Mittal Investments have both decided to end their interest in the venture.

Like other similar projects elsewhere, it can be difficult to keep the interest of private investors, with the current state of the industry. When faced with paying for the whole project, even the state owned companies, sometimes change their mind.

This is all in spite of the Indian market growing at a fast rate.

Meanwhile, Chennai Petroleum, another Indian Oil subsidiary, faces a slightly different problem.

Chennai Petroleum Corp Ltd (CPCL) has put on hold its plans for setting up a 15 million tonnes per annum (mtpa) refinery at Ennore, as it had not received environmental clearance. The company is instead looking at investing Rs 9,000-Rs 10,000 crore on expanding its existing refinery.

Probably the setback is for the best, as it has to be more efficient to expand an existing facility.

On the other hand, as if to demonstrate that Indian is still a place for refinery investments, we have this news.

A leading private oil refiner is willing to build a well-head refinery at Cairn India’s Barmer oil-field after the Rajasthan government has agreed to give tax concessions.

It all goes to raise a big question however. If the government offers tax concessions, and if they award the permits, and if investors can be found, then a refinery can be built. If price controls are not too onerous, it might even make a profit. Its not exactly a ringing endorsement of the sector is it.

Valero Energy Corporation announced today it has reached an agreement to sell the assets of its terminal operation and discontinued operations in Delaware City to the Delaware City Refining Company LLC and Delaware Pipeline Company LLC, wholly owned subsidiaries of PBF Energy Partners LP.

So one of the few refineries that was actually shut down, is going to arise from the ashes.

The sale price is $220 million for the assets.

It gets Valero of the hook for the potential liabilities which would come with the shutting down and breaking up of the refinery, as well as cash, albeit not a lot. However, not everyone is convinced that they did the right thing.

The refining industry has been hit hard by the recession. Some capacity needs to be shut down permanently. The opportunity to buy distressed assets at rock bottom prices and put them back into operation will delay the industry’s return to significant profitability.

This is true. The silver lining that we expected from the cloud of terrible margins was that poor quality assets would be taken out of production. However, with the likes of Tom O-Malley jumping at the opportunity to buy cut priced assets, this may not happen to the extent that it should.

Given that we all know that a rationalisation is necessary, one also has to question the logic of the buyer. Assuming that he wants to cash out at some point in the future, who does he think will buy, before significant capacity is closed, and with the example set by this deal, who will do the closing?

So who wants to spend such sums in today’s challenging environment? Surprisingly there are two competing projects, involving three oil majors, and Canada’s biggest pipeline company. This week, one of the projects filed its plan.

The Denali Project consists of a gas treatment plant (GTP) on the Alaska North Slope, transmission lines from the Prudhoe Bay and Point Thomson fields to the GTP, and a mainline that will cross Alaska into Canada with its terminus at Blueberry Hill, Alberta. Also included will be delivery points along the route to help meet natural gas demand in Alaska and Canada. Denali’s cost estimate for the GTP and mainline is $35 billion dollars (2009 U.S. dollars). Denali expects the Project to be in service in 2020.

The details of the project are staggering. For example

The pipeline will cross 600 Roads or Railroads, 130 Pipeline or Utilities and 750 Rivers & Streams. It will use nearly 6,000 vehicles and items machinery.

However, first they have to win the competition. The Alaska Pipeline Project, a venture of Exxon & Transcanada, filed their plan back in January.

According to the Houston Chronicle, everyone agrees that only one of these can get built, the question is which one?

At approximately 12:30 a.m. Pacific time today, a fire occurred at the Tesoro Anacortes refinery. The incident was on a small section of the refinery following minor, routine maintenance. The fire was contained at around 2 a.m., has been extinguished and the unit has been shut down and isolated.

Unfortunately there was more than just a loss of property.

It is with a sense of the most profound sadness that Tesoro must report the loss of four of our friends and co-workers as a result of this tragedy.

This is the worst refinery accident in the USA for 5 years.

It is the most destructive refinery explosion since the blast five years ago that killed 15 people and injured 170 at BP PLC’s refinery in Texas City, Texas.

These things happen with an unfortunate frequency in our business, and it is imperative on everyone to do everything they can to reduce the risks. We can never eliminate them, our business is a dangerous one, but we can always do better.

There was another fire at the weekend. This time, there was thankfully no loss of life.

Anglo-Russian oil giant TNK-BP announced during the weekend that a fire broke out at its refinery in Saratov near the border with Kazakhstan. TNK-BP officials said the fire raged for less than two hours. There were no injuries or significant damage to the facility.

Interestingly the company is obviously working on this very issue.

TNK-BP announces the opening of a Safety Academy based at one of the Group’s main plants – the Ryazan Oil Refining Company — where Group company employees and their contractors will undergo training.

BP was of course criticised heavily for allowing standards to slip following the fire in Texas. Hopefully this situation will not be repeated.

Lets all go about our daily business safely.

Barack Obama eases offshore oil drilling ban.

After all this is a man who has said a lot about climate change and the enviornment in general. However, when I read some of the commentary, I was convinced. Nobody is happy.

President Barack Obama’s plan to expand oil and natural gas drilling in untouched Atlantic waters while walling off parts of the Pacific and Alaskan coasts represents a bid to bridge the divide separating environmentalists and drilling advocates on the issue. But the middle-ground approach announced on Wednesday alienated environmental advocates who say new offshore production threatens marine life; drew quick criticism from Republican drilling advocates in Congress who said it doesn’t go far enough; and received only muted enthusiasm from energy industry leaders who are wary about the administration’s commitment to oil and gas development.

The change of heart will not enable drilling everywhere, but does open up a significant number of places where there may be a decent amount of oil & gas. The fact that everyone is upset is probably evidence of a reasonable compromise rather than anything else. After all both sides of the argument are using pretty week rhetoric.

Pro-drilling politicians like to pretend that the USA can drill its way out of trouble, and wean itself off foriegn oil. Whilst every little helps, this is conpletely beyond the realms of possibility, as the USA consumes 1/5 of the worlds oil production, and not even the wildest optimist expects massive volumes to be found offshore.

Anti-drilling environmentalists on the other hand act as if they can reduce the USA’s carbon emissions by stopping drilling. This is also stupidity of the first order, but that is the default classification of most of their arguments anyway. Arguments about local environmental impacts are far more relevant.

It is perfectly possible for the USA to come up with a solution that reduces carbon emissions, and increases domestic hydrocarbon production.

In a great piece of timing, Shell & Chevron, were announcing the start up of an important new project, in the Gulf of Mexico.

The Perdido deepwater project, located in the U.S. Gulf of Mexico, has started crude oil and natural gas production. Production from the Great White, Silvertip and Tobago fields utilizing the Perdido hub is expected to reach full capacity of 130,000 barrels of oil-equivalent per day after the drilling of additional wells.

The volume of crude is not earth shaking, but the development is important for another reason.

Located in an isolated, ultra-deep sector of the Gulf of Mexico, Perdido marks a new era in innovation and safely unlocks domestic sources of energy for US consumers. The facility sits in approximately 2,450 metres (8,000 feet) of water, which is roughly equivalent to six Empire State Buildings stacked one atop the other, and will access reservoirs deep beneath the ocean floor. Perdido smashes the world water depth record for an offshore platform by more than 50%.

So the benchmark has been raised (or lowered) and even deeper water is now a possibility. Whilst I would love to know what the costs are on such projects, I admire the people who are responsible for these breakthroughs, however the economics pan out. Without people like that, we would still be in the stone age.