Oil to $60.....by January?

[Gordo]

Re: Oil to $60.....by January?

Tanker rates up 750% in a few weeks-More oil = higher tanker rates

Rates boost for tanker owners in scramble to ship more oil

By Robert Wright in London on FT.com
Published: December 8 2007 02:00 | Last updated: December 8 2007 02:00

Oil tanker owners are celebrating one of the industry's most remarkable ever turnrounds after charter rates for some vessel classes multiplied around seven times in the space of a few weeks.
Owners of Very Large Crude Carriers (VLCCs), capable of carrying 2m barrels of oil, have been chartering their vessels for as much as $150,000 a day in the past two weeks, against only just over $20,000 in early November.
The spike results mainly from industry fears about the effect on tankers of the strong market for shipping dry bulk cargo, where owners can earn up to $180,000 a day chartering out the largest, Capesize, ships.
Owners of single-hull tankers - due to be phased out for environmental reasons by 2010 - are increasingly converting them into bulk carriers, reducing the supply of tankers.
The concerns have come just as many customers are seeking to ship oil to replenish depleted inventories.
Market conditions are most beneficial for operators that concentrate on the short-term spot market, chartering out their vessels on a voyage-by-voyage basis, instead of agreeing long-term charters with customers such as oil majors.
Two Oslo-based owners - Frontline, operator of the world's largest tanker fleet, and US-listed Nordic American Tanker Shipping - are heavily exposed to the spot market. Nordic American currently owns 12 Suezmax tankers, carrying 1m barrels of oil each.
"For us, it's excellent," said Herbjorn Hansson, Nordic American's chairman and chief executive. "We have many ships. Except for one, they're all in the spot market. Only 14 days ago, rates were about $20,000 and now they are over $60,000 a day and even higher."
Some owners that charter their vessels out on a long-term basis have also benefitted, according to George Saroglu, chief operating officer of Athens-based, New York-listed Tsakos Energy Navigation.
Many of his company's long-term charter agreements included an element linked to the spot rate.
"The majority of our fleet has these features built into the period arrangement," Mr Saroglu said.
Rates are now at their highest since a spike in early 2005, although still below the peak reached in late 2004. VLCCs then briefly commanded rates above $200,000 a day as the market soared on rising Chinese demand and the knocking-out of some Gulf of Mexico oil facilities by hurricanes.
"You've had earnings go straight through the roof because suddenly the sentiment changed," said Johnny Plumbe, chief executive of ACM Shipping, a London shipbroker specialising in tankers. "The demand and the shortage of tonnage have meant operators were not able to get a VLCC."
However, there are questions about how long rates can stay at present levels.
Mr Saroglu said he expected similar market conditions for the next six to eight weeks, while conditions after that would depend on the severity of the northern hemisphere winter.
Fearnleys, an Oslo-based tanker broker, says in its weekly report that conditions have already become more uncertain.

[GRG55]

Re: Oil to $60.....by January?

Tanker rates up 750% in a few weeks-More oil = higher tanker rates

Rates boost for tanker owners in scramble to ship more oil

By Robert Wright in London on FT.com
Published: December 8 2007 02:00 | Last updated: December 8 2007 02:00.

Anybody who thinks this is an indication of significant additional supply coming on the market is wrong.

These rates were driven by AG-EU and AG-FE (Arabian Gulf to Europe and Far East, respectively) charters. These are for spot cargos as Gordo's referenced article states. That means they are carrying cargo that was contracted for purchase before the recent price decline, in other words at a time WTI was in the $90's per barrel.

That is most definitely NOT a sign of surplus. It's a sign that SOMEBODY needed oil so badly they were prepared to bid top prices for the barrels AND for the spot transportation to move it.


An excerpt from Dec 2 on the Peak Cheap Oil thread:

As promised OPEC has increased its output in November, despite the Abu Dhabi offshore maintenance shut-down. Daily spot charter rates for Very Large Crude Carriers out of the Arabian Gulf jumped from $33,000 to $84,000 in one week in late November. The world fleet is pretty much booked up, so any further increase in OPEC production may have a wee bit of trouble getting from source to market. I am betting no increase in quotas at the Dec meeting because of this.

[Gordo]

Re: Oil to $60.....by January?

Anybody who thinks this is an indication of significant additional supply coming on the market is wrong.

These rates were driven by AG-EU and AG-FE (Arabian Gulf to Europe and Far East, respectively) charters. These are for spot cargos as Gordo's referenced article states. That means they are carrying cargo that was contracted for purchase before the recent price decline, in other words at a time WTI was in the $90's per barrel.

That is most definitely NOT a sign of surplus. It's a sign that SOMEBODY needed oil so badly they were prepared to bid top prices for the barrels AND for the spot transportation to move it.


An excerpt from Dec 2 on the Peak Cheap Oil thread:

Thanks for the excellent response, GRG55. It's hard to argue with those cold hard facts.

However, I'm still hoping that the tanker owners may be preparing for some extra oil about to come on line to contribute to "one of the (tanker) industry's most remarkable ever turnrounds."

We'll see in a couple of months.

[GRG55]

Re: Oil to $60.....by January?

I am short on oil right now but what about the Ghawar oilfield, the key oilfield of Saudi Arabia? Is it running dry?

Opinions?

My earlier post with the flippant answer was rather unhelpful.

Stuart Saniford and Euan Mearns over at The Oil Drum have done some interesting sleuthing on Ghawar. Here's a link:
http://www.theoildrum.com/node/2470

Just remember that nobody really knows what's happening at Ghawar other than the very top levels in Aramco, and they aren't talking.

The field is slated for a major waterflood upgrade (the north of the field has been on waterflood for many years; presumably voidage replacement appears to be inadequate at expected extraction rates). This will occur in conjunction with the massive waterflood component of the new Khurais development.

[Tulpen]

Re: Oil to $60.....by January?

Just took a small fortune and shorted over 90.

[Gordo]

Re: Oil to $60.....by January?

Just took a small fortune and shorted over 90.

Tulpen,

See article yesterday 12/10/07 from platts.com Energy News in which Energy Secretary Bodman said he would help (by encouragement) to "break the back" of high oil prices.

This quote was made in Texas of all places but did not receive any play in the MSM.

See full article from Platts below. (Good luck on your shorts.) Current oil price not supported by fundamentals: Bodman

New York (Platts)--10 Dec 2007 US Energy Secretary Samuel Bodman Monday said he does not believe current oil prices were supported solely by fundamental market factors. Bodman, in an interview with CNBC while attending the groundbreaking ceremony for the expansion of the Motiva refinery in Port Arthur, Texas, was asked whether he believed the NYMEX light, sweet crude contract price of about $87.50/barrel was supported by fundamentals. "I do not," replied Bodman. He cited such non-fundamental political concerns as the tension surrounding relationships with Iran and Venezuela asaffecting price issues beyond supply and demand factors. But Bodman again said "insufficient inventories" in consuming countrieshas exacerbated such concerns. He also declined to include participation by speculators as being afactor in the recent price spikes. "Speculators don't really change prices.... They can change thevolatility... When we get additional supplies on the market, we will see areversal in this price trend; at least I hope so," Bodman said in response toa question from a CNBC reporter. Bodman also said there was little the US government could do directly to lower oil prices, saying this was "beyond the scope of what a government cando...What we can do is encourage both OPEC and non-OPEC suppliers to increase their crude production. He added that, should they do so, he could foresee that such measures would "break the back of this run-up in crudeprices."

[GRG55]

Re: Oil to $60.....by January?

Tulpen,

See article yesterday 12/10/07 from platts.com Energy News in which Energy Secretary Bodman said he would help (by encouragement) to "break the back" of high oil prices.

This quote was made in Texas of all places but did not receive any play in the MSM.

...The same way that Ben "contained" subprime, and Hank maintains a "Strong Dollar policy"?

[Gordo]

Re: Oil to $60.....by January?

Unfortunately for my side, T-Bone has not missed many predictions in the last year or so but maybe he is due to miss one.

Oil to hit $100 in next six months - Pickens

Tue Dec 11, 2007 2:12pm EST

NEW YORK, Dec 11 (Reuters) - Oil prices will hit $100 a barrel before dipping to $80, and should pierce the triple-digit threshold within the next six months, investor T. Boone Pickens said on Tuesday.
"Get ready for $100, it is coming up. A hundred dollars will come before $80," said the Texas oilman who heads the BP Capital hedge fund during an interview with CNBC television channel, adding that he expects the market to become adjusted to $100 oil.
"You'll see it ($100 oil) within the next six months. A hundred dollars is going to become routine."
U.S. oil rocketed to $99.29 a barrel in late November on concerns about supplies ahead of the Northern winter and the slumping dollar.
Worries a slowdown in the U.S. economy could depress demand growth in the world's top consumer have since sent prices down. Oil was around $90 a barrel on Tuesday.
Pickens said that supply constraints would continue to drive prices higher, as well as moves by oil producers to ensure more revenue.
In April, when prices were around $65 a barrel, Pickens said oil could tip $80 a barrel in late 2007. (Reporting by Matthew Robinson; editing by Matthew Lewis)

[c1ue]

Re: Oil to $60.....by January?

The field is slated for a major waterflood upgrade (the north of the field has been on waterflood for many years; presumably voidage replacement appears to be inadequate at expected extraction rates). This will occur in conjunction with the massive waterflood component of the new Khurais development.

GRG,

Is the water used in this 'waterflood' salt or fresh water?

I am assuming salt...

Out of curiosity, just how much could that be?

[Spartacus]

Re: Oil to $60.....by January?

My first thought would be the water must be pure.

I would assume if one used salt water, the salt can be deposited in the rock formations preventing later petroleum extraction.

GRG,

Is the water used in this 'waterflood' salt or fresh water?

I am assuming salt...

Out of curiosity, just how much could that be?

[Guest]

Re: Oil to $60.....by January?

Spartacus -

No way can it be fresh water - they are employing millions of gallons of water injection daily (coming straight from the gulf I believe), which in this part of the world would have to be tankered in, or purified from salt water using 'lots' of oil for the process, if the injected water were fresh. Water injected volumes are massive.

The water injections that have been going on for many years are (GRG55 correct me if I'm wrong) 'tertiary recovery techniques' - or at least a couple of decades ago these were considered as such. In past decades any water injection was considered an extraction technique to be employed only after a well was past it's prime. Now it's considered standard 'accelerated recovery' anywhere.

Anyone discussing whether Ghawar still has decades of future production must factor in the techniques being used there to maintain pressure. I think massive water injection is considered a heightened risk also for damaging the well structure? They've been using massive water injection now for decades.

Sure makes you wonder, that water injection is standard practice in all Saudi major wells, and Saudi Arabia is looked to by the (formerly) optimistic IEA and other international entities modeling future global petroleum supply, as being the world's "swing producer" for all the extra millions of barrels they assume Saudi will provide in coming decades.

[idianov]

Re: Oil to $60.....by January?

KSA is pumping desalinated water into oil reservoirs. The biggest risk to oil production is they eventually flood horisontal wells with water. There will be not enough time to compensate by drilling more wells.

From Wikipedia:

In 2004 the volume of water supplied by the country’s 30 government-operated desalination plants reached 1.1 BCM. 6 plants are located on the East Coast and 24 plants on the Red Sea Coast. By the year 2009, new plants will add an additional 0.58 BCM of water per year. Saudi Arabia is the largest producer of desalinated water in the world.

Water supply and sanitation in Saudi Arabia

[Gordo]

Re: Oil to $60.....by January?

Just took a small fortune and shorted over 90.

In view of the $4+ spike in oil today, here is the latest report from Henry Groppe on 12/7/07.

http://www.davidstrahan.com/blog/?p=105#more-105

IEA to blame for $100 oil spike - Groppe
Posted on Tuesday, December 11th, 2007
(Podcast) When the oil price soared to over $99 per barrel earlier this year, the cause was not surging demand, nor speculation, nor even impending peak oil, but a forecasting error by the International Energy Agency. That’s according to a presentation by veteran analyst Henry Groppe, one of the most original thinkers in the oil patch, at an investment conference organized by 13D Research in New York last week.
In an interview with lastoilshock.com, Mr Groppe went on to argue that Saudi Arabia can maintain current production for up to two decades, global peak oil will come in 2008, but that prices will nevertheless remain between $65 and $85 per barrel until around 2015.

The IEA was inadvertently responsible for record oil prices this autumn because of its bullish forecast – issued in September 2006 - that non-OPEC oil supply would grow by 1.8 million barrels per day the following year. According to Groppe, it was this that prompted the cartel to forestall an expected glut by cutting quotas by 1.7 mb/d in late 2006. However the IEA forecast proved wildly over-optimistic and the Agency now says non-OPEC output is likely to grow by just 500 thousand barrels per day. So when seasonal demand picked up this autumn “there wasn’t enough oil” and prices soared.
The IEA has a history of over-estimating non-OPEC supply, but this time the predicted increase was the largest since 1984, a time when massive over-supply forced Saudi Arabia to slash output from 10 mb/d to 2.25 mb/d. This, says Groppe, “got the Saudis’ attention”.
Groppe’s analysis challenges the growing belief that Saudi Arabian production cuts in recent years have been driven by geological constraints. The Houston-based consultant is convinced that the kingdom can maintain 8-9.5 mb/d for as long as two decades, and that it will also build a cushion of spare capacity. However he also believes global oil production will peak in 2008 because of steep declines elsewhere.
But in another challenge to conventional wisdom, Groppe insists that global peak oil is consistent with an oil price of $65-$85 until around the middle of the next decade – barring geopolitical spasms. That’s because around 15 mb/d of oil consumption in the developing world is still used for electricity generation and other non-transport purposes for which there are much cheaper alternatives such as coal. The substitution of such fuel oil is already under way, particularly in China, and will allow oil consumption in the transport sector to keep rising despite the cap on overall production. It was the elimination of this kind of oil use in the US and Europe that led global oil consumption to drop by 8 mb/d between 1980 and 1985.
Groppe is a Houston-based contemporary of M. King Hubbert who founded the consultancy Groppe, Long, Littell over 50 years ago, and who claims to have forecast every major discontinuity in the oil market since then. If he is right about the role of the IEA in the recent price spike, it would be ironic that the OECD’s energy watchdog, which routinely calls on OPEC to pump harder, should have scared the cartel into producing less. It would also be ironic that OPEC had been misled by the IEA, since Groppe’s analysis has also exposed how OPEC’s official production numbers are often falsely inflated by as much as 2 mb/d.
In a separate development, the IEA recently confirmed that it is reviewing its reliance on oil resource forecasts from the United States Geological Survey that are widely regarded as wildly over-optimistic.
Listen to the interview with Henry Groppe

[Guest]

Re: Oil to $60.....by January?

Idianov -

I stand corrected! Awesome scale on this project. Only in Saudi is there enough cheap petroleum to pull off a desalination project like that. In other parts of the world this would be considered massively inefficient.

[GRG55]

Re: Oil to $60.....by January?

KSA is pumping desalinated water into oil reservoirs. The biggest risk to oil production is they eventually flood horisontal wells with water. There will be not enough time to compensate by drilling more wells.

From Wikipedia:

In 2004 the volume of water supplied by the country’s 30 government-operated desalination plants reached 1.1 BCM. 6 plants are located on the East Coast and 24 plants on the Red Sea Coast. By the year 2009, new plants will add an additional 0.58 BCM of water per year. Saudi Arabia is the largest producer of desalinated water in the world.

Water supply and sanitation in Saudi Arabia

These are the water desalination plants for human consumption, not oilfield injection.

I am short of time this morning, so answer to various questions above will be a bit abbreviated and, you reservoir or production engineers out there will find this oversimplified, so apologies in advance.

Waterflood is normally a secondary recovery technique - first stage of enhancing recovery after a field has been operating on primary recovery. Under primary recovery the "natural" energy sources in the reservoir are used to move and lift the oil from the reservoir - these include solution gas drive, gas cap drive, bottom or edge water drive, and depend entirely on the nature of the reservoir. Waterflood injects water in a pattern, optimised to sweep oil from the reservoir, as a supplemental energy source to move the oil to the producing wells, and often to conserve and make maximum use of the natural energy sources. This is a very common technique in the oil patch, something that Matt Simmons didn't seem to properly explain in his book IMHO. Following maximum waterflood recovery various tertiary recovery techniques can sometimes be applied depending, again, on reservoir rock type, oil quality, remaining reserves, and so forth. An example of this is miscible flooding using injected gas such as CO2 - much talked about as carbon sequestering discussions gain prominence. (The use of the thing that is causing global warming, to produce more of the thing that is causing global warming is a discussion for another time... ).

Ghawar has been producing since 1951, and first went on waterflood in the early 1960s. Currently the most depleted part of Ghawar, the north region reservoirs (Ghawar is actually one massive structure with multiple reservoirs with differing quality, generally best at the north and decreasing to the south) takes about 2 million barrels of water per day. Water cuts (% water in the total lifted wellhead fluid) are popularly reported as 30% - I do not have any detailed data readily at hand to verify that, but that number actually seems low to me given age of the waterflood and the quality of the reservoir.

The massive water project associated with the Khurais field development is at the Quarayyah Seawater Treatment Plant, which is located on the east coast (Persian Gulf) side of the Saudi peninsula. From the reports I've seen the initial new-expansion capacity will be 4.5 million barrels of water per day, with approximately 2 mm going to the newly developed Khurais field and the remainder to expand the current waterflood at Ghawar. I understand the Quarayyah water station is planned for ultimate expansion to 14 million barrels per day of water. I don't have exact details for Quarayyah, but water treatment would normally include biocides (to prevent contamination of the reservoir) and oxygen removal for corrosion management in the pipeline system. Sweet water desalination is not part of the scheme. Remember that the water that is recovered from the produced fluid is treated and re-injected, so there is generally no benefit to putting sweet water into an oil reservoir.

These developments are absolutely massive in scale, among the biggest in the industry. Khurais, when fully developed is expected to produce 1.2 mm bbls per day of oil. Manifa, a heavier grade of crude, is expected to produce 900,000 bbls per day. At 1.2% per year global demand growth on an 85 mm bbls per day current base, the world uses an additional 1 mm bbls per day each year.

The oil at Manifa apparently has high vanadium counts in it, and cannot be used in most current refineries (I believe it fouls refinery catalysts), and therefore has limited to no current market. So when you hear H.E. Saudi Oil Minister Ali Al-Nuaimi say that there are no bids for some of Aramco's oil, he is technically correct, but it's useful to perhaps understand why. Saudi is constructing a refinery that is reputed to be specifically designed to use the Manifa crude, to be completed about 2011.

These are the sorts of problems the industry continues to deal with to supply energy. The easy, cheap oil has largely been developed, and every barrel of that we burn has to be replaced with something more costly to develop, produce and process - a situation that will not be news to anyone on iTulip of course.