Slight in physical stature, but colossal in the world of oil diplomacy, Alirio Parra was laid to rest Friday in London, hailed by influential figures in the industry for his role in founding OPEC in 1960, building up Venezuela’s PDVSA and smoothing the often turbulent currents of geopolitics.
“Very big loss to the industry and ourselves,” OPEC Secretary General Mohammed Barkindo, who attended the funeral, told S&P Global Platts. “We lost a reliable and dependable friend.”
Parra, who was 90 when he died March 9, was an assistant to Venezuela’s Minister of Mines and Hydrocarbons Juan Pablo Perez Alfonzo when he attended and played a critical role in the September 1960 meeting in Baghdad that led to the creation of OPEC.
He would later serve as a founding board member of Venezuelan state oil company PDVSA, where he was credited with modernizing its downstream sector and initiating the development of Orinoco Belt extra heavy crude in the mid-1990s that now underpins much of the country’s production growth prospects.
During his two-year tenure as Venezuela’s oil minister between 1992 and 1994, Parra also opened a number of mature oil fields to foreign investment. It was a move that helped to revive the country’s upstream sector and contribute to its rising crude output levels during the decade.
As head of its OPEC delegation, he was known for his work ethic and sharp understanding of global oil markets.
Venezuela’s oil ministry praised Parra as an “exemplary Venezuelan, who gave most of his life to an organization [OPEC] created to achieve a balanced oil market, as well as a fair valuation of resources for the benefit of the people.”
Even after he left the post, the soft-spoken, bespectacled Parra continued to be a fixture at OPEC meetings, on many occasions giving advice to ministers and other senior dignitaries with whom he remained in close contact.
“He was a generous friend, with an easy smile and elegant manner,” Mexico’s Deputy Secretary of Energy for Hydrocarbons Aldo Flores-Quiroga said on Twitter, one of many tributes on social media after Parra died.
Mexico is not a member of OPEC, but Flores has attended several recent meetings of the group, representing his country in the OPEC/non-OPEC production cut agreement.
Fatih Birol, executive director of the International Energy Agency, called Parra “a friend and a historic figure of the oil industry.”
At OPEC’s most recent meeting in November, the organization feted Parra, who was still active in the industry as a board member of oil conference organizer CWC Group, with a distinguished career and lifetime achievement award.
Ever the OPEC advocate and diplomat, Parra praised the 24 OPEC and non-OPEC participants in the output cut agreement for stabilizing the market and urged them to remain steadfast in their commitment to the deal.
OPEC “is more relevant and more enlightened than ever — and more understanding of the role it must play with other producing nations and the oil industry at large,” Parra said in accepting the award. “I believe, indeed, that the best days of this gathering of producing countries still lie ahead.”
The post Venezuelan Alirio Parra celebrated as OPEC pioneer, PDVSA heavyweight appeared first on The Barrel Blog.
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One 525,000-barrel cargo of Iraqi Basrah Light crude was imported into the Louisiana Offshore Oil Port over the past week, taking the number of cargoes imported to the terminal in the first half of March to just two totalling 1.032 million barrels, as regional refinery turnarounds continue to push demand lower.
One 497,000-barrel cargo of Mexican heavy sour crude Maya was imported on March 6 at Morgan City, Louisiana, according to S&P Global Platts Analytics and US Customs data.
This compares with a total of 2.527 million barrels in the first half of February, when six Basrah Light cargoes and one Maya cargo were imported.
Imports of Iraqi crude to the Louisiana Offshore Oil Port for the first half of March have fallen nearly 74% month on month.
Marathon was listed as the consignee of the Basrah Light crude, which has an average gravity of 30.92 API and typical sulfur content of 2.72%.
Overall imports of Basrah Light crude to the US Gulf Coast are also down month on month. For the first 15 days of March, regional buyers took in 1.847 million barrels of the Iraqi grade, versus 3.029 million barrels for the comparable period in February.
Demand for imported and domestic sour grades continues to move lower due to ongoing spring maintenance at 15 regional refineries with a combined capacity of 4.129 million b/d.
Additionally, most USGC refineries have completed buying for April volumes, contributing to lower demand, according to a market source.
A narrow Dubai/WTI swap spread continues to disincentivize shipments of Middle Eastern sour crude barrels to the USGC. Although second-month Dubai’s premium over WTI has widened $1.06/b to 61 cents/b since the start of March, the spread has narrowed $2.41/b since the start of the year.
As Dubai’s premium to WTI decreases, Dubai-based Middle Eastern grades become less competitive with comparable WTI-based sour grades in the USGC.
The ‘In the LOOP’ Americas crude oil wrap runs each Monday in Crude Oil Marketwire, North American Crude and Products Scan and on the Platts Global Alert. You can read the FAQ: USGC LOOP Sour crude here and find the full special report LOOP Sour Crude: A benchmark for the future here. Also be sure to download our LOOP app by searching for ‘Platts LOOP’ in your app store.
The post Only one Iraqi crude cargo imported in H1 March: In the LOOP appeared first on The Barrel Blog.
The oil and gas sector moves a lot of freight as it builds and maintains its assets. Could digital make freight more cost effective and less carbon intense? Duration: 9m 32s
The post 51 – Move Bits not Molecules – Transforming Oil and Gas Freight With Digital appeared first on Digital Oil and Gas.
The US is taking steps to boost crude steel output as a result of this week’s imposition of Section 232 import tariffs on steel and aluminum – measures that could potentially block some 28 million mt of steel imports and boost local steel production by up to 19.5 million mt. This likely means burning more coal, bringing back on stream up to 5 million mt of idled coke plant capacity to fuel blast furnaces, and greater usage of pollutant lower grade taconite Minnesota and Michigan iron ore which requires more carbon usage, according to analysts at Wood Mackenzie and SP Angel.
In short, more carbon emissions and greater energy consumption, including by the “cleaner” electric arc furnace sector which accounts for two-thirds of US steelmaking, running countercurrent to moves in other major steelmaking regions to trim excess capacity and decarbonize.Scale economies should be achieved and domestic market share won: World Steel Association director general Edwin Basson has said that 232 could be a “golden opportunity” for the US steel industry to regain global competitiveness. US Steel has already announced the restart of a 1.2 million st/year blast furnace at Granite City, Illinois, while Nucor has announced a $240 million investment in a 350,000 st/year EAF-based “micro mill” in Frostproof, Florida.
“We expect a lot of EAFs could increase capacity, and aluminum facilities coming back would increase energy usage,” said Matthew Preston, a research director with Woodmac in the US, while noting this will still represent a comparatively small part of overall US energy consumption. Iron ore imports from Brazil should rise, while US coking coal exports could decrease “very slightly,” he said.
The aim is to increase average capacity working levels at US mills from 74% in 2017 — when crude steel production was 89.9 million net tons — to between 80% and 90% of a total capacity estimated by the US steelmakers association AISI at 121.6 million net tons last year.
But a boost of this type only makes economic sense for producers so long as the US does not have a nationwide carbon market requiring CO2 emitters to pay a price for the right to produce and pollute. Integrated steelmaking produces around two tons of CO2 for every ton of steel made. As such, the 232 initiative could encourage “carbon leakage” as investors favor capacity expansion in the US over nations with effective carbon markets. In the US, there is no federal-level carbon market, only regional carbon markets in California — a system linked with Canadian provinces — and in a separate group of nine Northeast states (the Regional Greenhouse Gas Initiative). More steel output via Section 232 thus has a double cost: higher steel prices in a protected US market, and, potentially, worse air quality.
By contrast, steelmaking in the European Union, where carbon markets are most developed, is subject to a cost equation in which the carbon price is an integral part, with the top 10% most efficient producers, emissions-wise, able to qualify for full free allocation of carbon allowances (or permits to pollute).
EU INCENTIVE FOR LOW-CARBON STEELMAKING
Under legislation expected to take effect in April or May, the EU’s Market Stability Reserve mechanism will result in a gradual tightening of free allowance allocations, meaning that emissions-intensive industries, including metals producers, will have a stronger incentive to invest in lower CO2 production technologies — including fossil fuel-free hydrogen-based steelmaking as being developed by SSAB, LKAB, and Vattenfall — to maintain a competitive edge in a decarbonizing economy.
China, the world’s largest steelmaker, has made clear its commitment to decarbonization following acute atmospheric pollution problems. It is setting up a nationwide carbon market, following seven pilot emissions cap-and-trade systems at the city and provincial level since 2013. Beijing’s latest policies work on the premise that importing raw materials to produce steel or aluminum that is later exported does not make sense in the “green” world: exporting steel is equivalent to exporting pollution, in the same way that exporting aluminum is equivalent to exporting energy.
China may reduce steel exports this year by an estimated 20 million mt, after a 32 million mt drop in 2017 from 2016’s 108.4 million mt, “not because of Trump speech or tariffs, but because they want to breathe better and see blue skies,” says Jose Carlos Martins of Brazilian consultancy Neelix.
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The container industry has an elephant in the room. It’s big, smelly and has some serious boundary issues. Its name is the Bunker Adjustment Factor and recently it has grown so large that market players can barely see each other behind its fat bulk.
It creates a lot of uncertainty and engenders a lack of trust in the supply chain, which is dangerous for everyone be it a carrier, a BCO or a logistics provider.
With the prospect of volatile times ahead, and bunker prices likely to take the container industry on a wild ride, Platts has increasingly heard from the market that, more than anything, it needs a transparent and standardized tool for handling bunker prices in container freight. That is what Platts is aiming to provide by introducing new bunker surcharge indexes.
THE ROLLER COASTER
The good old days of shipping enjoying cheap bunker fuel are gone. IFO380 average prices have risen from around $144/mt in February 2016 to $405/mt in February 2018 and the trend is quite likely to continue until the end of the decade and beyond.
In fact, 2020 is expected to result in some serious spikes in bunker costs that the container industry has not faced before. The IMO’s 2020 global sulfur cap of 0.5% on marine fuels may change the game completely.
In broad strokes, if the global container fleet, which burns around 100 million tons of fuel annually, was to switch from 3.5% IFO 380 fuel to compliant Marine Gasoil (MGO) the extra bunker costs may be enormous. The spread between the two is already uncomfortably wide. The market is currently pricing gasoil futures in 2020 about $340/mt over high-sulfur fuel oil. Even if this spread remains the same, it would mean an extra cost of $34 billion a year.
Someone will have to pay this bill. However, it is almost naïve to expect that container lines will simply absorb them. They cannot afford to do it. So, they will have to pass the bunker expenses on to customers in the form of freight surcharges.
Hence, those who felt that negotiating the freight element in their contracts was stressful before may find the new decade upsetting, unless there is some change in the whole bunker surcharge pricing mechanism.
THE BAF ELEPHANT
Of course, exposure to bunker prices is not fresh news to the container market. The industry has been dealing with it for years, using the method called the Bunker Adjustment Factor or BAF.
BAF in essence is a tool for carriers to pass on extra bunker costs or savings to their customers.
Typically, in an annual contract, every quarter the carrier and its customer would be negotiating a surcharge on the agreed annual dollar per box freight in line with changes in bunker prices.
In theory this works well. In reality, carriers and their customers, each have their own ideas on BAF calculation formulas, which are often held close to the chest and include different assumptions and variables, like the bunkering ports, size of the vessels, consumption of fuel and, of course, its price.
And since the bunker fuel is priced in dollars per metric ton and BAF converts it to freight expressed in dollars per container, the differences in BAF calculation methods between counterparties leads to a lack of transparency and trust, and often ends up with one or both of them losing money and/or straining their relationship.
Certainly a BAF surcharge can be justified with completely valid reasons, usually outside of the carrier’s control. For example a shift in oil market fundamentals that causes a change in bunker prices or a disruptive regulation like the IMO 2020 sulfur cap.
However, with the lack of a standardized formula, it is hard for carriers to substantiate a surcharge to their customers, who have to deal with swings in freight and also justify them to other stakeholders in their supply chains.
When the stakes rise, along with the bunker prices, the limitations of the BAF system become even more noticeable. It really becomes that awkward elephant in the room, standing in the way of easy contract negotiation and risk management.
LIFE WITHOUT TSA
The fragility of the BAF system now looks particularly obvious to players on the head-haul container routes from North Asia to North America after the disbanding of the Transpacific Stabilization Agreement. TSA was a useful independent forum that provided a guideline formula for calculating bunker surcharges using S&P Global Platts Bunkerworld prices, which allowed some form of standardization and transparency.
Platts recently attended the TPM 2018 conference in Long Beach, California and spoke to concerned industry players about life after the TSA.
The overwhelming opinion among them was that things had become much harder and considerably less certain. All the little niggles of BAF came rushing back in, with the market struggling to cope with myriad different ideas between counterparties on which bunker prices and formulas should be used. A relatively simple process of a quarterly freight adjustment suddenly became an exercise in frustration.
And considering that 2017 annual contracts are running out on April 30, while 2018 contract negotiations are already being finalized and will come into force on May 1, the lack of a standardized bunker surcharge tool has made both carriers and their customers almost equally unhappy.
This is why Platts is keeping the TSA IFO 380 weekly bunker price assessment, which reflects an average between bunker prices in the ports of Hong Kong, Los Angeles and New York, published by Platts Bunkerworld. Also, Platts is working to replicate a low-sulfur average bunker assessment, replacing the disbanded TSA price. It will be added to the Bunkerworld sites in the near future.
These measures, in conjunction with daily bunker price assessments should help players to at least get through their current bunker surcharge negotiations without gaining more grey hair.
THE WAY FORWARD
While there are ways for the container industry to struggle through current contract negotiations, it will not help with the metaphorical elephant.
Bunker fuel trade patterns have changed and will continue to evolve. The fuel grades and ports used as guidance for bunker price surcharges may lose relevance quickly, especially in light of the new regulations coming into play and a potential price shock of 2020.
Can all of this be easily and accurately communicated in bunker surcharges during negotiations, using the current approach? It seems that the answer to this for the majority in the market is – NO.
That is why Platts is now working on a more permanent solution in the form of new bunker surcharge indexes, which would incorporate the most relevant ports, bunker types and grades and would be expressed in dollars per container.
This will simplify any surcharge negotiations for market players, allowing them to agree on the price against an independent, standardized benchmark, which will reflect current market practices and will be based on a transparent and thorough methodology.
The intention is to create an index that is agile enough to react quickly to market dynamics, reflecting them in both bunker price and dollars per container surcharge indexes. Also, in light of the 2020 sulfur cap, Platts will be assessing the new 0.5% low sulfur bunker fuel prices, starting January 1, 2019 and will include them in bunker surcharge indexes once the regulation comes into force.
Other factors such as LNG bunkering will also be considered and may be incorporated in the assessments in line with the market trend of introducing dual-powered engines, following the upcoming delivery of 22,000 TEU dual-powered container vessels to CMA CGM in 2020.
Platts is now seeking industry feedback on what assumptions and variables should be included in the methodology for bunker adjustment indexes for key head-haul routes. Please contact Andrew Scorer and Alex Younevitch to share your opinion and discuss what Platts is developing in the container space.
The post Why the container industry needs to replace BAF with a new pricing tool appeared first on The Barrel Blog.
Morocco is taking a lead in the promotion of renewable energy in North Africa, aiming to develop wind and solar to meet both domestic electricity demand and export power to Europe. Interconnectors to Spain and Portugal are under consideration.
Morocco has a considerable geographic advantage when it come to exporting power to Europe; the Strait of Gibraltar, which separates it from Spain, is only 14 km wide at its narrowest point, and already hosts a 700 MW interconnector, the only existing North Africa-Europe power link.
Morocco’s lack of commercial oil and gas production mean that fossil fuel imports have long placed a huge strain on the country’s foreign currency reserves.
Renewables offer an easy way to relieve that burden. Yet the government’s targets are a little odd and recent gas discoveries could pose a threat to the country’s renewable ambitions.
Rabat has set a goal of renewables, including large hydro, accounting for 42% of total power production by 2020.
According to the Ministry of Energy, wind, solar power and hydro provided 30% of power production in 2016, so while ambitious, the 42% goal is achievable given the number of projects under development.
But if the 2020 target is achieved, it makes the 2030 target of 52% seem distinctly less challenging. Almost all other governments would stack the growth in renewables in favor of the later date.
It seems likely that Rabat is concerned about missing the 2020 target and has announced the later goal as a backstop.
Perhaps because of its location in a region with plentiful oil and gas reserves, Morocco has never really accepted its apparent hydrocarbon misfortune.
It has consistently encouraged exploration by foreign companies, both on its own territory and that of the disputed Western Sahara.
A study funded by the US Energy Information Administration suggested that the latter holds 20 Tcf and 200 million barrels of technically recoverable shale gas and oil reserves.
Most recently, UK firm SDX Energy has announced a string of gas discoveries in the Gharb Basin and Sebou as part of a nine-well drilling campaign.
If proved commercial, the reserves could test Rabat’s policy of favoring renewables over gas-fired power plants.
Under current government policy, renewables including large hydro are to account for 75% of all new generating capacity completed between 2016 and 2030.
By far the biggest contribution to achieving the country’s renewables’ goals will come from the Noor Concentrated Solar Power (CSP) scheme near the city of Ouarzazate. Noor I provided 160 MW, with Noor II adding another 200 MW in January.
Spanish firm SENER’s Noor III is scheduled to add another 150 MW by October, with its solar tower already in place.
It will be only the second ever CSP tower to utilize molten salts. About 90% of the 5 GW of CSP capacity installed across the world to date uses parabolic troughs.
The government hopes that its focus on CSP technology will create R&D and possibly also manufacturing jobs, if CSP become more widespread globally.
CSP’s ability to make solar power dispatchable certainly holds out promise, but costs need to fall further.
The project will provide residential peak load electricity in the evening. Phases I, II and III offer energy storage of three, six and seven and a half hours respectively.
Noor III has a long-term power purchase agreement for $150/MWh, but it is hoped that future phases will be able to offer cheaper electricity as the technology develops.
The government hopes to oversee the development of 2 GW of solar power generating capacity at Noor, spread across PV and CSP. The location offers more than 330 days of sunshine a year.
Apart from transforming the domestic power sector, Rabat is also keen to start large-scale electricity exports to Europe and is currently trying to firm up its previous vague export aspirations.
A feasibility study for the construction of a 200 km, 1 GW subsea transmission line to Portugal is nearing completion. It would run from Tangier to the Algarve.
Portuguese officials have suggested that construction could begin this year, although this seems unlikely given that the financing arrangements and development consortium have not been agreed.
Construction costs are estimated at Eur600 million ($739 million).
Electricity would pass in both directions, but Rabat is hopeful that it will mainly be deployed as an export line for Moroccan power, with Portugal able to sell electricity onwards.
An agreement enabling this was signed by the governments of Morocco, Portugal, Spain, France and Germany last year.
The construction of a similarly high capacity link with Spain is also under discussion.
Morocco currently imports about 20% of its power needs from Spain, but hopes to make this more of a two-way trade in the medium term, with the focus again on exports in the future.
The Moroccan Agency for Sustainable Energy (Masen) calculates that the country will have 887 MW of solar power capacity by the end of this year, up from just 180 MW at the close of 2017; plus 1,207 MW of wind power, in comparison with 887 MW at the end of last year.
Morocco also has an often underreported 1,770 MW of hydro capacity, which contributes a large slice of its installed generating capacity of just over 9 GW.
In December, a joint venture of Vinci Construction and Andritz Hydro won a Eur284 million contract to build the 350 MW Abdelmoumen pumped storage plant to help balance out supply and demand. This would also facilitate the management of power exports to Europe.
The post Rabat banks on renewables for European power exports appeared first on The Barrel Blog.
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