Iraq awards BP-led consortium a contract to develop oil field

Reporting from Baghdad -- A much ballyhooed effort by Iraq to lure foreign investment and expertise to help its battered oil industry fizzled Tuesday after it became clear that the government is not prepared to pay the prices international oil companies are asking for their services.

Iraq was seeking bids for the development of eight of its existing oil and gas fields, but only one contract to work one oil field was awarded at a public auction televised live from Baghdad's Rashid Hotel in the heavily fortified Green Zone.

The disappointing outcome to the widely anticipated event, which was planned a year ago, suggested that international oil firms aren't as eager to invest in Iraq as the government had hoped and that there will be no quick fix for the nation's looming financial problems.

"It's pretty much a total disaster," said Peter Kemp of the New York-based Energy Intelligence publishing group. "It seems the Iraqis totally miscalculated the commercial realities of this process."

The sole contract was awarded to a consortium led by Britain's BP and including China's CNPC International Ltd., marking the first time foreign companies have been permitted to invest in Iraqi oil since 1972, when the country's oil industry was nationalized. Iraqi Oil Minister Hussein Shahristani called it a "historic day" that coincided with the withdrawal of U.S. troops from Iraq's cities.

The auction drew dozens of executives from the world's top oil firms and was being closely watched for signs of how the new Iraq is likely to go about developing its vast proven oil reserves, the third-largest in the Middle East after Saudi Arabia and Iran.

But as the bids were unsealed, it quickly became clear that there was a wide gulf between the maximum price the Iraqi government was prepared to pay investors to develop the oil fields and the minimum price oil companies were prepared to accept.

A Chinese consortium sought 10 times the price offered by the Iraqi government to develop the Maysan field in southern Iraq, and a consortium led by U.S. oil giant ConocoPhillips sought five times more than the Iraqi offer to develop the Bai Hassan field in the north.

Under such contracts, oil companies would be paid a fixed fee per unit of oil or gas produced, above a certain threshold, in return for much-needed technical expertise and investment in infrastructure to increase production.

Four of the eight fields on offer received only one bid each, and a gas field in troubled Diyala province received no bids, indicating that oil companies are less keen to enter the potential quagmire of Iraq than had been anticipated, despite recent security improvements.

Shahristani acknowledged that oil companies investing in Iraq will need to pay hefty fees to security companies to ensure the safety of employees, which may explain why their prices were so high.

"Some of the oil companies are not very comfortable with the security situation, and this is why they didn't offer acceptable bids," he said.

The process also has been bitterly opposed by some Iraqi politicians, who believe that the fee structure being offered to foreign oil companies represents a surrender of national interests. Shahristani was under intense pressure not to concede too much, said Ruba Husari, founder of the Iraq Oil Forum website.

"In political terms, he can say it wasn't a sellout, that we did not give our oil fields to the international companies at any price," she said.

Shahristani said he thought the prices offered by the government were realistic but he also hinted at the political pressure, saying that his government had sought to balance a fair price for the oil companies with the need "to have a fair deal for the Iraqi people."

But Iraq is equally under pressure to do something to bolster its oil production, which has been sagging as the country's antiquated oil infrastructure erodes after decades of neglect. The government, which is running an $18-billion deficit this year, is being funded by surpluses accumulated in previous years, but it could face difficulties next year, officials say.

Shahristani said he was confident that the contract awarded would be enough to generate an extra $1.7 trillion over the next 30 years from southern Iraq's vast Rumaila oil field. But Husari said she thought the production targets set for the field were "overambitious."

Companies whose bids were rejected by the government were invited to resubmit their offers, which would then be considered by the Iraqi Cabinet. But it was unclear what the time frame would be, or whether a middle ground could be found given the differences that emerged.

The Oil Ministry also plans a second public auction by the end of the year, seeking investments in previously undeveloped oil fields.

Source

Iraqi oil minister says OPEC to cut production

OPEC members are expected to cut oil production when they convene in March to try to push up prices to at least $70 a barrel, Iraq's oil minister said Saturday.

Hussain al-Shahristani also identified the country's political tensions, bureaucracy and lack of funds as main impediments to developing Iraq's hydrocarbon resources.

OPEC cuts have so far failed to stop the dramatic fall in oil prices since July. The drop has hit Iraq particularly hard. The country depends on oil revenues for nearly 95 percent of its budget. As a result, the government was forced to slash its 2009 draft budget from $80 billion to $64 billion.

"The year 2009 will be a tough year around the world and that will be reflected on the oil demand and then prices will drop," al-Shahristani told a symposium in Baghdad on developing Iraq's oil and gas industry.

"In March, OPEC will convene and there will be an intention for more production cuts to shore up prices and encourage production from non-OPEC members," al-Shahristani added.

"We do believe that the price should be no less than $70 for a barrel."

In December, OPEC announced a 2.2 million barrel production cut aimed at boosting prices that have plummeted from mid-July highs of $147 per barrel. The cuts came on top of another 2 million barrel production cut instituted in the last quarter of 2008.

But oil prices have continued to deteriorate. Benchmark light, sweet crude for March delivery dropped a dollar on Friday to settle at $40.17 a barrel on the New York Mercantile Exchange.

Iraq is a member of the Organization of Petroleum Exporting Countries but is not committed to its production quota because the war-plagued country produces less than its potential.

Al-Shahristani also renewed his objection to oil deals signed between the Kurds and Western oil companies, saying they are a main "impediment" in approving the country's long-awaited hydrocarbon law because they "contradict the law and contradict Iraq's benefit."

The Kurds run a three-province semiautonomous region with vast oil reserves. They argue that the Iraqi constitution gives them the right to unilaterally negotiate and sign oil deals without consulting with the central government in Baghdad.

The Kurds' nearly two dozen deals have left politicians at loggerheads since February 2007.

"Iraq's oil sector should not be taken hostage by the current political situation and it should be freed to be developed properly," he said.

He also called on the government to ease some of its bureaucracy and enable the ministry to have a say on major contracts to speed up development of Iraq's dilapidated oil and gas infrastructure.

"Now, we have dilapidated and eroded pipelines. ... We can't buy new ones because we don't have enough money especially because the 2009 budget has not been approved yet."

Iraq, which sits on the world's third-largest oil reserves - at least 115 billion barrels - has offered 19 oil and gas fields to international companies for development in two major bidding rounds.

Iraq plans to add 4 million to 4.5 million barrels a day to its current 2.4 million barrels per day capacity over the next four to six years. The ministry plans to sign the contracts for the first round in mid-2009 and the second round by the end of the year.

A third bidding round, to be announced this year, will offer 65 exploration blocks nationwide, al-Shahristani said without elaborating.

Source

A Call for Oil Price Stability

In less than a year, oil prices have gone down partly because of the ongoing global financial crisis. I first thought of the Iraq invasion in 2003 as the major cause of price increase of oil.

Early this year, I've witnessed first hand here in the Philippines how an oil-consuming country gets affected by the continuing rise of oil prices. People literally jammed our light-rail transit system. Those who would normally use their cars to commute to work suddenly found themselves among the throng of people lining up to get a cheap ride on the trains.

I read an article on the dailynews.com today urging cooperation among oil producers and consumers to help stabilize the price and future supply of oil. Will our world leaders finally "talk" about this pressing issue? You can read the whole article from this link:

http://www.newsdaily.com/stories/lj506554-us-london-energy-meeting

Crude continues decline despite signals from OPEC

Oil prices slumped Friday, despite signals from OPEC that it may slash production again, with the markets instead focused on the most recent reports showing drastic cutbacks in spending and consumption by businesses and consumers.

Gasoline prices again fell overnight, prompting one analyst to note a "half price holiday sale on gas" with Americans fueling up for the Thanksgiving holiday at half the price they did in July.

Light, sweet crude for December delivery fell $1.20 to settle at $57.04 a barrel on the New York Mercantile Exchange.

The Commerce Department Friday reported the largest ever October plunge for retail sales and a sharp drop in business inventories. It said retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.

The decline in sales was led by a huge drop in auto purchases, but sales of all types of products from furniture to clothing fell as consumers retrenched.

That likely means fewer vehicle miles driven, both because of job losses and less trips to the shopping mall and less money spent on vacations. Businesses are slowing down as consumption drags.

The Commerce Department reported business inventories dropped by 0.2 percent in September. It was the first decline since March 2007 and the biggest drop in more than three years, since inventories fell by 0.3 percent in July 2005.

The national average price for regular gasoline fell overnight, down 2.6 cents to $2.152 a gallon, according to according to auto club AAA, the Oil Price Information Service and Wright Express. That is nearly $1 a gallon below what it was a month ago and nearly $2 below where it was in July when prices peaked at $4.11 per gallon.

"We're on a trajectory that cannot be turned around on the short term," Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service, said Friday of gasoline prices.

In his blog Thursday, Kloza estimated that the daily U.S. gasoline bill for the rest of November will be about $750 million per day less that what it was in early July when the cost was $1.55 billion per day.

He said some retailers have noted the actual purchase amounts of gasoline are smaller than what they were over the summer as motorists realize they will pay less for gas the next time they fill up.

He put the odds of oil dropping below $50 per barrel at about 50 percent even as the Organization of Petroleum Exporting Countries repeatedly removes oil from the market to keep pace with deteriorating demand.

An OPEC official said the 13-member states would meet in Cairo Nov. 29 on the sidelines of a previously planned meeting for Arab members of the group.

The official asked not to be named because the Vienna-based organization is not issuing a formal statement.

OPEC held an emergency meeting only three weeks ago and slashed production by 1.5 million barrels a day. Crude has tumbled 8 percent since then.

Analysts say OPEC's rhetoric rarely matches what it does.

Nevertheless, as the economy turns around, consumption of fuel will increase and send oil prices higher.

"In the long run global growth will be restored at some point," Kloza said Friday. "It will do their dirty work for them."

George Littell of Groppe, Long & Littell said OPEC's recent cuts will not be felt for a few more weeks. He noted that prices did not begin to fall this summer until Saudi Arabia ratcheted up production in July.

Littell said oil prices likely will start to rally in a few weeks once OPEC cuts start to hit and cold weather sets in across the country.

Jim Ritterbusch, president of energy consultants Ritterbusch and Associates, said OPEC needs to do something. If OPEC were to maintain production levels, oil consuming countries would be happy, but it probably would drag prices down another $5 or $10 a barrel, he said.

Oil prices have fallen about 60 percent during the last four months after reaching $147.27 in July.

OPEC, which produces about 40 percent of world supplies, has said it may cut production by the end of this month if prices continue to fall.

Before the 1.5 million barrel cut, OPEC said it was taking 520,000 barrels out of daily production. That too was brushed off by the market.

Meanwhile, the government said Friday that natural gas stockpile levels in the U.S. rose more than expected last week, but are 2 percent below the year-ago average.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states rose by 62 billion cubic feet to about 3.47 trillion cubic feet for the week ended Nov. 7.

Analysts had expected a boost of between 41 billion to 46 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The news sent natural gas for December delivery down less than a penny to settle at $6.312 per 1,000 cubic feet on the New York Mercantile Exchange on Friday.

In other Nymex trading, heating oil futures fell 4 cents to $1.8351 a gallon, while gasoline prices dropped 6 cents to $1.24 a gallon.

Source

Fuel Price Cut on September 2008

Some relief is on the way. Fuel prices will drop for a second consecutive month at midnight tonight. The Minerals and Energy Department made the announcement last Friday that the retail price of petrol will drop by between 69 and 78 cents per litre. The wholesale price of diesel with 0.05% sulphur content will drop by R1.44 per litre. Diesel with 0.005% sulphur content would drop by R1.46 per litre. This comes as a huge relief to consumers who had been battling with the increased fuel prices a couple of months ago.

The wholesale price of illuminating paraffin will drop by R1.46 a litre and the single maximum national retail price for illuminating paraffin by R1.94 a litre. This is also much welcome for consumers of paraffin who were not happy that the price of paraffin did not drop when the petrol and diesel prices last dropped.

It is now a matter of waiting to see if the fuel prices continue to drop. The drop has been attributed to the strengthening rand and the softening world oil prices. But with the hurricane season approaching it will be interesting to see how oil prices react. We may see oil prices rising due to decreased supply because of the hurricanes.

Source

Oil Prices Rise as Gustav Shuts Gulf Installations

World oil prices rose by less than one dollar in Asian trade today after the Hurricane Gustav forced the shutdown of almost all oil production in the Gulf of Mexico, said analysts.

New York's main contract, light sweet crude for delivery in October, rose 84 cents to USD 116.30 a barrel when trading closed Friday at the New York Mercantile Exchange.

Brent North Sea crude for October gained 72 cents to USD 114.77 from USD 114.05 in London on Friday.

About one quarter of the US oil production comes from the Gulf, one of the largest energy production hubs in the Americas, but the US officials said that more than 96% of Gulf oil production and 82% of the natural gas output had been stopped due to the storm.

Gustav was on target to plough into coastal Louisiana today, potentially as a Category 4 storm with sustained winds of 242 kilometres per hour and storm surges up to 4.8 metres above normal.

"It's all about Gustav," said Tony Nunan, of Mitsubishi Corp's international petroleum business in Tokyo.

He said that price gains had been limited because of underlying worries about a global economic slowdown and falling demand for oil.

World oil prices have sunk from record highs above USD 147 a barrel in early July after surging from USD 100 at the start of the year.

Today's rise of about one dollar was "not really that much", Nunan said, adding that trading would be thin because the US markets were shut for the Labour Day holiday.

Source

Oil prices soar to new heights as Arizona faces record gas prices

Oil prices jumped above a record $127 per barrel Friday as Goldman Sachs Group projected oil prices to hit $141 this summer and $150 to $200 per barrel over the next two years.

All that puts inflationary pressure on gasoline prices, which are also at record highs.

The national average gas price is $3.79 per gallon, according to AAA. Gasoline prices in Arizona also are hitting record highs, with Glendale at $3.56 per gallon, Flagstaff at $3.69 and Scottsdale at $3.60. The statewide average is $3.57 per gallon, according to AAA.

Oil prices were $126 per barrel Friday morning, Arizona time, after approaching $128 early in the day, according to Oil-Price.net.

Oil-Price.net projects crude will hit $164 a barrel over the next year.

Crude prices were also pushed up Friday after Saudi Arabia declined President Bush's request to increase oil outlays.


Source