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
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Why are Refineries Closing Down
created: 24 Jan 2012 14:32
tags: refinery refining
The sudden spate of refinery closures have a number of people wondering why it is happening. A few years back, commentators were blaming high oil prices on the lack of refining capacity, and yet today, refineries are dropping like flies. What happened?
The first thing to understand is that all refineries are not created equally. There are huge differences between
- The ability to add value, something that depends in large part on Nelson Complexity
- The cost of operations, including energy efficiency
- Access to and ability to process low cost raw materials, like extra heavy crudes
- The market conditions in the local or regional area
If a refinery scores high on all of these factors, it is likely to make money even in the bad times, scores low on all of them, and its probably going to shut down.
A complex refinery has the ability to upgrade low value products into higher value ones, thanks to cracking units. As Residual Fuel Oil sells for less than the price of crude, producing it drags down a refiner's margin. Highly complex refineries such as the Jamnagar Refinery I & Jamnagar Refinery II twins in India, can produce a much more valuable mix of products than could the Port Clarence Teeside Refinery one of the early victims of the current sector downturn.
Fredericia Refinery in Denmark is not a very complex one, but it is one of the worlds most energy efficient. This is extremely important when you consider how much energy a typically refinery needs. In fact, Valero, the owner of the Aruba Refinery, which was mothballed a couple of years back, decided that solving the high cost of energy was a major priority, so they announced an LNG import terminal project to replace expensive oil with cheap gas.
The importance of raw materials is hard to overstate. As an example take a look at the Wood River Refinery Project. The Conocophillips / Cenovus JV refinery has been upgraded at a cost of $3.6 Billion, partly to enable the processing of heavier crude. Crude mix has been one of the key reasons for the closure of Pennsylvania's 3 large refineries.
As an illustration, I analysed the EIA data for crude purchases by the Marcus Hook Refinery for October 2011. Imports came from Ivory Coast, Nigeria & Azerbaijan, all countries with light crude oil. The average API was 37.1. By comparison, the average US refinery was processing 30.6 API crude. Remember the lower the number, the heavier and more difficult to process, but significantly cheaper.
In terms of markets, the world can be split into two, growing markets in the developing world, and stagnant or even shrinking ones in the developed countries.
According to the International Energy Agency, demand for refined products in Europe, fell by 1 million barrels per day between 2008 and 2011. Now the current economic problems may have exacerbated this but when you look at the details, it is heating oil & fuel oil that have fallen, as natural gas steals market share. Using oil products for heating makes no sense when natural gas is so abundant and cheap. This is one reason why refineries are being upgraded to produce far more transportation fuels.
In the USA, it is actually falling gasoline demand that has helped shrink demand for oil products
according to the EIA, as high prices led to reduced mileage and more efficient vehicles.
So if we look at the refineries closing or under threat, they have a number of things in common, expensive crude, a lack of upgrading capabilities and they are located in markets with poor growth prospects. Unfortunately there are still a lot more like them, so this is unlikely to be the last word.
