Will Keystone XL Pipeline Increase or Decrease Gasoline Prices
created: 29 Feb 2012 09:01
tags:
The Keystone XL Pipeline Project has generated a huge amount of controversy, been the target of demonstrations and political wrangling and has suffered from propaganda, smears and lies. Each claim by the pipeline lobby has been countered by its opponents.
The rather thorny subject of gasoline prices has become a major area of disagreement between the two sides. The pipeline proponents claim that extra volumes of crude will lead to a reduction in prices, its opponents claim the opposite. Who is correct?
MSNBC wrote the following: Why the Keystone pipeline would boost pump prices
The proposed pipeline would relieve a glut of crude oil backing up in the Midwest and redirect those barrels to Gulf of Mexico ports. From there they could be shipped to world markets and repriced at higher global prices. But that likely would mean higher prices for drivers in the nation's midsection, who currently are enjoying an unusual discount stemming from a lack of pipeline capacity.
The Midwest has been enjoying a rather strange phenomenon whereby a surplus of crude has led to a big discount for US & Canadian crude oils in relation to similar quality crudes elsewhere. Cushing in Oklahoma has a surplus of crude arriving, but a shortage of pipelines available to transport it away.
Refiners with access to these cheap crude oils have been making huge profits, whilst selling gasoline at prices that would be loss making for refineries in other regions. So in the short term, this argument is undoubtedly right.
However, the Keystone XL Pipeline Project is not the only show in town. Back in November last year, a long expected announcement was made that the Seaway Crude Oil Pipeline was to be reversed, helping relieve Cushing of its surplus. The reaction was swift:
the spread between Brent and WTI has plummeted 18 percent to $10.66—a stark contrast to the record $28 a barrel just a month ago
Subsequent perceptions of delay to this project have once again led to an expansion of the WTI-Brent spread, but come closer to June, when the pipeline enters operations, this is expected to shrink again.
Meanwhile, Transcanada has decided not to wait for a Presidential signature.
The company also informed the DOS that what had been the Cushing to U.S. Gulf Coast portion of the Keystone XL Project has its own independent value to the marketplace and will be constructed as a stand-alone Gulf Coast Project, not part of the Presidential Permit process.
So the leg that will help ease the surplus at Cushing will now go ahead anyway. The company expects it to enter operations late next year.
So one way or another drivers in the Midwest will see higher gasoline prices.
However, this is not the complete story. First of all, whilst Midwest refineries have been making hay, North Eastern ones have been closing. Their crude is indexed to global prices, not to landlocked WTI. Without their local refineries, drivers are facing even higher gasoline prices.
Meanwhile global crude oil supply dynamics are leading to ever higher oil prices. Declines in production in major exporters are a major problem. The world needs new sources of crude to replace them.
Currently, the most important region of crude oil production growth is North America. Unless the growing volumes from North Dakota & Alberta can reach the global markets global oil prices will inexorably rise. So pipelines that bring these sources to market will, if only marginally, have a downward effect on crude oil prices.
So the opponents are right, gasoline prices will rise, at least in the short term, and at least for some consumers. However for those of us not living in the Midwest, the economic impact of Keystone XL will be all positive. Ironically, now that the part of the project needing Presidential permission will supply oil to Cushing rather than helping reduce stocks there, its contribution will undoubtedly help reduce prices, whilst the segment that is going ahead immediately will have the opposite impact
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A Battle over Mozambique's Gas
created: 27 Feb 2012 08:16
tags: lng mozambique pttep shell
Mozambique is a country with no history of oil and gas industry, either upstream or downstream. However, recent discoveries are starting to put the country on the map as far as the industry goes. Large reserves of gas have been found and the future looks likely to bring not one, but two LNG projects.
Now a small share of one of these projects is being fought over. Cove Energy is a small AIM listed company that has acquired interest in two Mozambique concessions; a 10% net interest in the Onshore Rovuma concession, and 8.5% net interest in Rovuma Basin Offshore Area One.
First Shell made an offer:
- Proposed Offer of 195 pence in cash for each Cove share.*
- The Proposed Offer values the entire issued and to be issued share capital of Cove at approximately £992.4 million and would represent a premium of:
- 73.3 per cent. to the closing price of 112.5 pence per Cove share as of 4 January 2012, the last business day prior to Cove's announcement of the sale process for the company; and
- 28.5 per cent. to the average closing price of 151.75 pence per Cove share over the five business days ending on 21 February 2012, the last business day prior to the date of this announcement.
Soon after, PTTEP, the Thai E&P company made a counter offer:
- PTTEP proposed the terms of a possible cash offer to acquire all the issued and to be issued share capital of Cove Energy Plc. for 220 pence* for each Cove share (the “Proposed Offer”). The Proposed Offer values the entire issued and to be issued share capital of Cove at approximately 1,119.6 million Pound Sterling (GBP).
All this for a company with no production and whose assets are in countries not known for their hydrocarbons. Cove's crown jewels are The Rovuma Project, which is a world class gas discovery and is estimated to have resources of up to 30 trillion cubic feet (“TCF”)
Mozambique looks like a country that we are going to be reading more about in the coming years, if two companies are bidding a billion pounds for just 8.5% of one of two major projects. Given the suitability of the location for supplying Asia with LNG, I wouldn't be surprised if we don't see more Asian gas giants looking for a piece of the action
See Mozambique Oil and Gas Profile for more information on this exciting new player in the world of Oil & Gas.
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Oil is Nothing Without Infrastructure
created: 13 Feb 2012 14:54
tags: iraq pipeline usa
As the world awaits the impact of the embargo on Iran, one of the suppliers that we are relying on over the longer term to make up the difference is Iraq. The country faces a mass of problems, technical and political in order to step into the breach. Wildly optimistic forecasts have been made about future production, but its not just upstream that needs serious investment, but so do the logistics infrastructure needed to get rising volumes to customers.
So the news that Foster Wheeler has completed an export facility with capacity of 1.8 million barrels per day is an important one, it will make the realisation of production increases easier. There is more to come:
A further increase of another 1.8 MMBPD in Iraq’s export capacity is intended to be delivered on completion of phase 2 of the expansion.
Meanwhile thousands of miles away, another growing region is suffering from the same problem.
Want to lay your hands on some oil at just $US70 a barrel? Turns out you can. Question is what you will do with it once you own it. Such cheap oil also raises a worrying prospect: North America's vaunted progress toward less reliance on energy imports may well get bogged down for want of a pipeline.
The problems faced in the Bakken, illustrate nicely the need for the Keystone XL pipeline. Because as oil production patterns change, the infrastructure needs to change too. Because Oil is Nothing Without Infrastructure
