Home' Trinidad and Tobago Guardian : October 13th 2016 Contents OCTOBER 13 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
Global oil supply could fall in line with demand
more quickly if OPEC and Russia agree to a steep
enough cut in production, but it is unclear how rapidly
this might happen, the International Energy Agency
said on Tuesday.
OPEC, led by Saudi Arabia, agreed last month to
cut production to around 32.5 to 33 million barrels
per day (bpd) and Russia has signalled it is ready to
join in any effort to temper supply and shrink a stub-
born global surplus of unwanted crude.
Oversupply helped send oil prices from US$115 a
barrel in June 2014 to as low as US$27 in January
this year. Crude has since recovered to around US$50
on expectations of a production cut.
The IEA said in its August report it expected world
oil demand to grow at a rate of 1.2 million bpd next
year, keeping its forecast unchanged from last month,
but cut its estimate of growth in 2016 by 40,000
bpd to around 1.2 million bpd, from around 1.3 million
bpd last month.
"Even with tentative signs that bulging inventories
are starting to decline, our supply-demand outlook
suggests that the market---if left to its own devices---
may remain in oversupply through the first half of
next year," the IEA said. "If OPEC sticks to its new
target, the market's rebalancing could come faster."
"At this stage, it is difficult to assess how the OPEC
supply cut, if enforced, will affect market balances,"
the agency added.
"A significant rebound in production from Libya
and Nigeria and further growth from Iran would sug-
gest that bigger cuts would have to be made by others,
such as Saudi Arabia, to meet the ... production tar-
OPEC members meet next month in Vienna.
Iran is recovering market share after years of West-
ern sanctions, in Libya, civil unrest has cut production
and a series of attacks on oil infrastructure have cur-
tailed Nigerian supply.
All three are expected to be exempt from any coor-
dinated cuts, meaning that the onus will likely rest
on some of the higher-producing members, such as
Saudi Arabia and Iraq.
The IEA forecast a decline of 900,000 bpd in non-
OPEC output in 2016 to 56.6 million bpd, and expects
a rise of 400,000 bpd in 2017.
Global stockpiles fell for the first time since March,
down 10 million barrels to 3.092 billion barrels, just
shy of July's record 3.111 billion barrels.
"The fall in stockpiles was largely driven by crude,
which fell in all OECD regions and especially sharply
in Asia Oceania. This brought crude stocks back to
early February levels. Refined product stocks across
the OECD hit yet another historic high as refineries
increased runs in August," the IEA said. Reuters
International oil companies are
reaching out to Brazil after it opened
its most promising offshore region
to increased competition, a move
welcomed by Petrobras chief exec-
utive officer Pedro Parente as he
seeks partners to spread investment costs.
Producers rushed to contact Houston-
based Brazilian officials last week after Con-
gress removed a requirement that Petrobras
control operations at all new projects in an
area known as the pre-salt, Parente said.
It's the most investor-friendly change in
regulation since the 1997 oil law that ended
the company's monopoly in Brazil.
"Our foreign ministry representation unit
in Houston, in the very following day,
received seven manifestations of interest
of big companies," Parente said at
Bloomberg's offices in New York City.
The policy shift comes as the state-con-
trolled producer is selling assets to slash
debt, which stood at US$125 billion in the
second quarter. The Rio de Janeiro-based
producer has a group of more than 30 proj-
ects worth about US$40 billion that it is
marketing to potential buyers, Parente said.
Allowing others to control drilling and
production in the potentially oil-rich pre-
salt will provide a larger group of offshore
operators for Petrobras to team up with at
upcoming licensing rounds. Foreign oil com-
panies haven't had a chance to bid for
licenses to operate in the pre-salt since
before anyone knew how vast the reserves
The nationalistic oil policies were put in
place in 2010 when the government moved
to put Petrobras in control of the biggest
group of offshore discoveries this century.
This limited access to bidding with Petrobras
as a minority partner, or trying to buy into
an existing license awarded under previous
Pre-salt oil was formed when the South
American and African continents began
separating more the 100 million years ago.
The repeated flooding and evaporation of
salt water in what is now the South Atlantic
created a layer of the mineral as thick as
2,000 meters that blankets the deposits.
The biggest discovery in the area, Libra,
holds an estimated 8 to 12 billion barrels
of recoverable reserves.
Interest in the region is strong. Petroleo
Brasileiro SA, as it is formally known,
recently sold its stake in a pre-salt con-
cession to Statoil ASA for US$2.5 billion.
The government is planning to offer new
pre-salt exploration acreage in 2017, and
the new rules let Petrobras bid more selec-
tively as it looks to contain capital expen-
ditures. The company is likely to continue
shedding staff in the next two years, said
Higher-than-expected output at the pre-
salt has cut Petrobras's break-even cost to
US$40 a barrel, and the company can lower
it further, said Parente. The company will
continue efforts to reduce spending even
if oil prices rebound, he said, adding that
he sees oil at US$50 to US$55 a barrel next
"Productivity of the pre-salt fields in
Brazil is amazing," said Parente. "Some
wells produce 40,000, 50,000 barrels a
day per well. So I think this is what is in
the mind of these companies."
Petrobras is also looking to bring in part-
ners for its refineries, which posted losses
in four out of the past five years. The "ideal"
partner would supply knowledge, not just
money, according to Parente.
The influx of partners, asset sales and
increased competition in offshore fields
from foreign producers will force Petrobras
to become more efficient, the company's
top managers said.
"Five to ten years from now the market
landscape will be completely different,"
said Nelson Silva, Petrobras' head of strat-
egy who was at the interview. "It will put
pressure in us to improve." Bloomberg
BP Plc has abandoned plans to drill for oil and gas off the
south coast of Australia, saying it can get better value for its
exploration spending elsewhere, although it still sees strong
potential in the Great Australian Bight.
The decision comes as a win for environmental groups which
have heavily opposed drilling off the coast of South Australia,
saying it would damage whale and sea lion breeding grounds,
a haven for dolphins, and important fisheries.
BP said the Bight project, where it has been working with
Norway's Statoil, would not be able to compete for capital
investment with other opportunities in its global portfolio in
the foreseeable future.
"This decision isn't a result of a change in our view of the
prospectivity of the region, nor of the ongoing regulatory
process," BP's head of exploration and production in Australia,
Claire Fitzpatrick, said in a statement.
"It is an outcome of our strategy and the relative compet-
itiveness of this project in our portfolio."
BP was forced to revise its Bight exploration drilling plan
late last year and was awaiting a decision by the National
Offshore Petroleum Safety and Environmental Management
Authority later this month on two wells, and a broader envi-
ronmental plan by the end of this year.
The agency said on Tuesday it had yet to receive a request
from BP to withdraw its application.
The Wilderness Society, which has long fought to stop drilling
in the Great Australian Bight, on Tuesday urged the federal
government to terminate BP's leases and cancel all exploration
permits in the basin.
"We should not be expanding the fossil fuel industry into
pristine treacherous seas where the risk of spills is far greater
than we've seen before," Wilderness Society national director
Lyndon Schneiders said in a statement.
Others with exploration permits in the region include Chevron
Corp, Murphy Oil working with Santos, and Karoon Gas Aus-
tralia, which just won an exploration permit last week.
Karoon called the Bight Australia's "most active and prospec-
tive frontier oil exploration province." Industry consultant Wood
Mackenzie has estimated it could hold 1.9 billion barrels of oil
equivalent, making it a potentially major resource.
BP said Statoil, a 30 per cent partner in the exploration
licenses for four blocks in the Bight, had accepted its decision
to give up on the Bight.
The Australian Petroleum Production and Exploration Asso-
ciation said earlier this year the industry was potentially looking
to spend more than A$1 billion (US$760 million) on exploration
alone in the region.
opening lures big oil to Brazil
IEA: Oil market
faster if OPEC
sticks to target
BP scraps plan to drill off Australia's south coast
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