Archive for the ‘energy’ Category

Wind of change comes to Chile

president bacheletLatin American nations are leading their Western counterparts with respect to diversity in renewable energy. Now GDF Suez has opened its 38 MW wind farm facility at Monte Redondo in Chile.

Work on the wind farm began at the start of this year, with more than $100 million being invested, as GDF Suez commits to it’s green credentials in it’s South American operations. According to estimates, Monte Redondo will prevent the emission of 54,000 tones of CO2 per year, whilst providing energy for up to 60,000 homes.

“GDF SUEZ strongly believes in Chile and in the development opportunities it offers. The Group holds broad and multiple areas of expertise in this country and intends to further reinforce them.” said Gerard Mestrallet at the inauguration

Monte Redondo will also assist in providing long term stability in energy prices, as GDF Suez has already entered into a 14 year supply contract for 100 GWh/year, beginning in January 2010. Chile has historically been dependant upon gas imports from Argentina, which have been the subject of much contention, as Argentina seeks to secure it’s own domestic energy requirements & supply has fluctuated from agreed measures.

Chilean President Bachelet said that clean energy investments have grown sharply from a mere 2 MW in 2006 to 250 MW in 2010 & it would seem that this may be only the beginning of a love affair with wind power. By the end of the 2009, a further five new wind parks will begin operating in Chile, increasing the country’s wind energy production by a factor of 10.

These new projects are slated to produce 180 MW of wind energy, dwarfing the existing 20 MW currently produced by Chile’s two existing projects. According to the National Energy Commission, other new wind turbine projects which are currently under review or in planning will soon generate 1,500 MW for the country’s Central Power Grid. To put this into perspective, the country’s largest proposed hydro-electric project, Ralco, will provide 690 MW at full capacity.

It is encouraging to see real commitment from what people in the West term “developing” markets, Chile & Brazil are world leaders in the advancement of renewable energy & also in implementation of green policies down to grass roots level. Perhaps those of us in our ivory towers in Europe & the Us should pay a little more attention to what is being implemented in the southern hemisphere.

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Brazil confirms hydrocarbon strategy

Santos basinMuch has been made of Brazil’s offshore hydrocarbon deposits particularly in the Tupi oil & gas reserves which have been touted by state owned energy firm Petrobras as containing up to 5-8 billion barrels of recoverable oil.

Tupi,which is located in the pre-salt region, is estimated to contain between 5 billion & 8 billion barrels of light crude, & is the world’s biggest new field since a 12-billion-barrel find in Kazakhstan in 2000. The pre-salt region covers an offshore area 800 kilometers long and 200 kilometers wide between the states of Espirito Santo and Santa Catarina, is estimated to contain up to 80 billion barrels of light crude under a thick layer of salt far beneath the ocean floor.

As discussed in a previous article, Petrobras (NYSE: PBR)  & partners including Repsol and BG Group discovered vast deposits of oil under more than 4,000 meters of water, rock and salt in 2006. These deposits are at previously untapped depths and will be costly to extract. It is thought that other reserves may be nearby in other as yet unexplored blocks.

To capitalise, Brazil’s regulatory agency the ANP has announced that it will be excluding Tupi from a new round of block concessions scheduled for spring 2010, as Brazil looks to protect it’s strategic reserves & is currently changing the concession framework for blocks in the area. According to proposed legislation, which is being heavily pushed by President Lula, Petrobras will operate all blocks in pre-salt areas with a minimum 30% stake. Output would belong to the federal government under a production sharing model & participating IOCs will receive a fixed share of the revenues.

This is a canny move & possibly a very good gambit to make, as IOCs are now on the backfoot with new capacity for exploitation becoming scarce. More tellingly, companies such as Royal Dutch Shell, Total, Chevron & Exxon Mobile have come under increasing pressure in countries such as Nigeria & Angola in recent months, especially from Chinese state firms.

Last month, CNOOC, made a bid to acquire concessions in 23 prime blocks in Nigeria, which could see the Chinese state-controlled oil giant securing more than 20% of Nigerian hydrocarbon assets. There has been some speculation that Nigeria may be using the Chinese approach as a heavy hammer to extract more favorable terms on concessions that are due for re-newal, however, it underlines the fact that oil majors must look for more stable environments in which to do business.

ANP Director Nelson Narciso has expressed confidence that oil majors will still be interested in new pre-salt areas despite market uncertainty over the new terms because of both economic & political stability.

“As long as the production sharing agreements are preceded by a fair competition, there is no reason for not being happy with Brazil,” he said. “I expect that if everything goes well, by the end of next year we’ll be in a position to start the bidding for the new pre-salt round”

Lula has a knack of getting his way, as he is seen as being instrumental in pulling Brazil out of the global recession via his socialist policies, which have been very popular with Brazil’s citizens. Our view is that the IOCs will be forced to accept these terms on the pre-salt fields, whilst picking up other concessions in more mature blocks as a sap. We have been bullish on Petrobras for a good while & we see no rason to change that view on the basis of this news.

 

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Russia, Italy, Turkey confirm Samsun-Ceyhan pipeline deal

ENI logoThe Vice Prime Minister of the Russian Federation, Igor Ivanovich Sechin, the Russian Minister of Energy, Sergei Shmatko, the Minister of Energy of the Republic of Turkey, Taner Yildiz and the Minister for Economic Development of the Italian Republic, Claudio Scajola, signed today in Milan a joint statement concerning the construction of the Samsun-Ceyhan oil pipeline between Turkey’s Black Sea coast and its Mediterranean coast.

The agreement testifies the level of cooperation among the three Governments, in particular in the energy sector, and it underlines their joint commitment to enhance energy security in their respective countries and in the European market through the diversification of transport routes, as well as the protection of the environment.

In line with the agreements signed in Ankara on August 6th 2009 by the representatives of the Russian Federation and the Republic of Turkey, which envisage the participation of Russian oil companies in the Samsun-Ceyhan Project, the Ministers agree that this initiative will contribute to strengthening security of supply, to protecting the environment and to enhanced cooperation.

At the same time, representatives of Eni, Calik Holding, JSC Transneft and Rosneft, the energy companies involved, signed a Memorandum of Understanding which envisages the commitment to discuss the definition of the economic and contractual conditions for Russian companies to participate in the Samsun-Ceyhan Project in order to ensure the volume of crude that would guarantee the economic sustainability of the project.

Eni (NYSE:ENI) has been heavily involved in the oil pipeline project since 2005 and will play a leading role in its realization. In 2006, Eni bought 50% of Trans Anadolu Pipeline Company (TAPCO), the company designed for the realization and management of the Samsun Ceyhan pipeline.

The project has been developed taking environmental issues into consideration and adopting measures which comply with the most rigorous international safety standards. Furthermore, in order to cause minimal disturbance to the environment and existing infrastructure, the pipeline will be built along existing pipeline routes.

The Samsun-Ceyhan pipeline will facilitate safer transport across the Bosphorus and Dardanelles Straits as well as reducing the impact on the region’s complex and delicate ecosystem.

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Heritage makes a move on oil in Kurdistan

oil donkeyHeritage Oil Plc, an independent upstream exploration and production company, provides the market with information in relation to the Taq Taq oil field in the Kurdistan Region of Iraq (“Kurdistan”) and an update on the proposed acquisition of Genel Energy International Ltd (“Genel”). Further to its announcement on 5 October 2009, Heritage issues this announcement in part to comply with its obligations under the FSA Disclosure and Transparency Rules in relation to the Taq Taq licence in which Genel has an interest.

Heritage (LSE:HOIL) understands that since 14 October 2009, all production from the Taq Taq oil field has been diverted into the local market. Production for export has ceased, in coordination with the other operators in the region, and export production is not expected to recommence until a payment mechanism is in place. Exports commenced on 1 June 2009, so far no revenue has been received for any exported production and none is expected until there is an agreement on the payment mechanism between the Federal Government of Iraq and the Kurdistan Regional Government.

According to Genel, the current gross production capacity of the Taq Taq oil field is approximately 35,000 bopd which is expected to increase to approximately 60,000 bopd by the end of December 2009 as new production facilities are completed. Average gross production for the Taq Taq oil field in September 2009, according to Genel, was 29,580 bopd, of which approximately 52% was sold into the domestic market, in part driven by the opening of the Erbil refinery in July. Current local demand for oil products in Kurdistan, as estimated by Douglas-Westwood Limited, an independent provider of business research and analysis, is approximately 130,000 bpd and this has historically been met through imports from neighbouring countries or other parts of Iraq.

Elections took place in Kurdistan at the end of July and a new government is in the process of being formed. A caretaker government is currently in place whilst the new Prime Minister forms his government, which is expected to be completed by early November. Heritage and Genel continue to monitor progress on the formation of the new government and expect formal approval of the proposed transaction once the new oil and gas committees are formally appointed, together with an understanding of the pricing and payment mechanism which is to be established for international sales from Kurdistan.

In addition, Heritage understands the FSA investigation previously disclosed continues and that the parties concerned are assisting with the FSA’s enquiries. Heritage confirms that discussions with Genel are continuing with the terms of the merger nearing formal agreement. Both sides remain committed to successfully completing the proposed transaction, however the transaction is taking longer to conclude than had originally been estimated. We hope the implementation agreement can be signed and the prospectus published before the end of the year.

Tony Buckingham, Chief Executive Officer, commented: “The understanding we have obtained in the past few months of the Genel assets and the domestic market for petroleum products in Kurdistan means that we remain committed to the Genel Energy merger.

It will create a leading company with oil production, exploration and refining capacity in the Kurdistan Region and is expected to generate significant value for shareholders as well as substantial tax revenues for the people of Iraq. The transaction is taking longer to conclude than both parties had originally planned, however we believe the implementation agreement can be signed and the prospectus published by the end of the year.”

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China in “Scramble for Africa”

Guinea

Guinea

Chinese interest in acquiring “strategic assets” continues unabated, with recent acquisitions & investments in a number of companies in Australia & South America.

As we saw in last weeks bullish approach regarding Nigerian oil, China is looking a little further afield & it’s all seeing eye has settled upon Africa. The latest country to be courted is the Republic of Guinea as China seeks to gain access to the West African nation’s large mineral deposits.

The impoverished nation possesses more than 25 billion tonnes of bauxite ore, with more than 150 mineable deposits having been prospected to date. Additionally, Guinea’s mineral wealth includes more than 4 billion tonnes of high-grade iron ore, significant diamond and gold deposits & as yet undetermined quantities of uranium. Bauxite exports account for more than 75% of GDP, according to Wiki sources.

Guinea’s Minister for mines was quoted in the Financial Times as saying that the Guinean government is in talks with the China International Fund (CIF) regards a $7Bn investment into a number of projects including infrastructure, minerals & oil.

“Instead of just giving natural resources… in exchange for promises of developing our infrastructure, we decided to take the joint venture approach and co-own not only the infrastructure development companies and projects, but also whatever natural resource companies or projects are developed jointly.” said Mohamed Thiam “All the government’s stakes in various mining projects will be put in that mining company. Future mining permits or concessions that the government decided to develop on its own will be put in that company,”

China still doesn’t seem to be too picky regarding who it does business with, as the present Guinean government is a military dictatorship that has recently put down a bloody coup last month. 150 people were killed on September 28, when troops opened fire on a crowd  gathered in  the capital Conakry, in order to protest at ongoing corruption in Captain Moussa Dadis Camara‘s rule.

Sidya Toure, who leads the only effective opposition & is a former prime minister was quoted “I do not understand how you can believe that we can inject this kind of money into the economy of Guinea where the total gross domestic product is only three billion dollars.”

CIF is also planning to form a consortium with the Guinean government & near neighbour Angola’s state oil company Sonangol to look at prospecting for oil off Guinea’s coast. As we reported previously, West Africa has become a hotbed of speculation & investment, as new oil fields are coming under development in Ghana, Angola, & Senegal. It is considered likely that offshore Guinea will also provide new hydrocarbon deposits that can be exploited.

What is interesting is that CIF on the face of things, does not seem to be an officially backed government company, whereas all the recent deals have been undertaken either by the Chinese Development Bank or via large state owned enterprises such as CNOOC or Chalco. CIF is registered in Hong Kong & an inspection of the website gives very little information on the structure of the entity.

Last November, as it became clear that the global economy was heading into a recessionary period, central government in Beijing implemented a 4 Trillion yuan/$586 Bn stimulus package, aimed at cushioning the blow of decreasing exports on the economy whilst also improving industrial efficiency at all levels, with energy receiving a special focus.

Adopting various measures such as tax reductions, rebates, fiscal subsidies, improved access to credit & direct government expenditure, central government has been encouraging state owned oil companies such as Petrochina & CNOOC to expand foreign investment in upstream opportunities, whilst increasing domestic refining capacity & oil product stockpiles.

We have seen a number of examples of this with Russia signing a 20 year $25Bn oil supply contract in February, which will see Rosneft supplying up to 300,000 bpd of oil via it’s East Siberia-Pacific Ocean (ESPO) oil pipeline to China. This was closely followed by the China Development Bank extending a $10Bn loan to Brazil’s state owned company Petrobras in return for securing strategic oil supply contracts & this month CNOOC has made a bid to acquire more than 16% of Nigeria‘s stated oil reserves.

It would appear that sentiment is currently running against Western based IOC’s & countries in emerging markets that have currently untapped or underdeveloped  hydrocarbon deposits are enjoying the ability to play interested parties off against one another. What is interesting to me is the fact that China seems to be playing Guinea at arms length via what is in effecr a shell company, allowing them to hold up a clean pair of hands on an international basis.

This desire to secure resources at what would seem “any cost” should, in our opinion, receive close attention from both a geo-political & investment point of view. IOCs will not be able to compete in areas where there are no rules, particularly in Africa, whilst it looks like China will circumvent accepted norms using any available route to acheive their aims.

Original article published at MyStockVoice

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Olympic Dam upgrades & expansion crucial to BHPs future operations


bhp logo

Mining giant BHP Billiton has announced revised figures that significantly upgrade the reclaimable reserves for its flagship Olympic Dam operation in southern Australia.

New figures released by BHP (NYSE:BHP) point to a 22% increase from 284 thousand tonnes to 347.5 thousand tonnes of of U3O8, due to mineral re-classification as operational drilling taps into larger sources. BHP has correspondingly upgraded the operational lifetime of Olympic Dam from 43 to 54 years.

Olympic Dam is arguably BHP’s most valuable asset, as it is a multi-mineral source combining the world’s 4th largest copper deposit, 5th largest gold deposit & significant amounts of silver. It is also currently the world’s largest single uranium ore deposit.

With a production level of 3344tU last year, Olypic Dam is placed 4th in extraction levels for uranium, BHP are now looking to expand the size of their operations on this site. At present, all mining activities are conducted underground, however, BHP has submitted an expansion plan to local government that would see open pit miningf being introduced to the site. With government expected to make a preliminary decion on the expansion project next year, this is a critical time for BHP, as the following chart illustrates.

Olypic_Dam

In an earlier post, we discussed the impact of Sino energy requirements on Australian miners, as the Chinese are heavily commited to reducing pollution & are searching for cleaner energy sources to power their expanding economic requirements. In April this year, Chinese officials announced they would start building five extra power plants this year on top of the 24 already under construction & 11 already in operation.

“There are not enough uranium resources in China to support the aggressive nuclear power development plan for the next 20-30 years,” said Professor Liu Deshun, of China’s Institute of Nuclear and New Energy Technology. “Australia has the uranium resources that could be exported and in China we have the demand”

Earlier this year, BHP managed to successfully expand into the Yeelirrie deposit in Western Australia, which is estimated to  have a 10 to 12-year lifespan and a resource of 35,000 tonnes of uranium,  as a result of the Western Australian government lifting a six year old ban on uranium extraction in the state. With this prescedent & also the ability to secure long term supply contracts to China, Australian Minister for Resources, Martin Ferguson, has indicated the Federal Government was unlikely to stand in the way, subject to environmental and investment tests.

In the short term, this could also have a large knock on effect on the share price of some of it’s key competitors, namely Freeport McMoRan & Rio Tinto. Rio is also a top producer of uranium ore, with it’s Ranger Mine in Kakadu, which currently supplies 10% of global requirements, any uplift in BHP’s production capacity is sure to impact that figure.

More interestingly for me, there has been much speculation that BHP could be looking to acquire Freeport McMoRan (NYSE:FCX)  in order to bolster their gold & copper production, however, referring to the anticipated production uplift in both of these commodities if the expansion plan is successful, why would BHP Billiton look at dishing out more than $27 Bn, when they could integrate on an existing site?

The Australian government is also more likely to sponsor the expansion project in my point of view, as it will keep the majority of that cash pile invested in the country & help to secure more than 15,000 jobs directly & indirectly for the lifetime of Olypic Dam. Perhaps readers of the WSJ should think a little more on geo-political terms when voting on nonsensical polls.

Original editorial at MyStockVoice.com

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Kudrin Upbeat on oil, should we upbeat on RSX ?

Alexei KudrinRussia has been hard hit by the current economic crisis & especially by the decline in oil prices this year. According to Economics Ministry data, Russia’s GDP declined by 9.3% in July 2009 year-on-year and 10.2% in the first seven months of the year. Energy products, including crude oil & natural gas, accounted for 65.5% of exports in the first half, while metals made up 12.1%.

According to Finance Minister, Alexei Kudrin, the Russian economy will be on the rise again as early as in the third quarter of 2009.

“We still do not have the final data for the second quarter, but we expect Russia’s economy to grow in the third quarter compared to the second quarter, and the third quarter will mark the end of recession,” Kudrin told a news conference whilst in London attending the G20 summit

Russia has recently raised forecasts for the price of oil and is now looking at revising its views on gross domestic product (GDP), Kudrin said last week. The Economy Ministry now sees Urals oil averaging $57 a barrel this year, up from the $54 forecast previously & the average price of crude is projected to increase gradually to $58 in 2010, $59 in 2011 and $60 in 2012.

With 40% of  the Market Vectors Russia ETF Trust (NYSE: RSX) predicated on energy, it is plain that energy prices need to remain stable if not advance in the light of the news above, if it is to become more attractive to risk averse investors. Trading at $23.54 off of a 52 month low of $10.34, it is still a long way off of its high of $40.75.

RSX

Standard & Poors retained it’s BBB rating on Russia last Thursday, which would seem to allay some fears, as it was widely expected that the rate would be cut. The ratings agency also noted that by the end of 2012, with net debt levels at 14% of GDP, Russia’s public balance sheet remains superior to the BBB rating median of 42% of GDP.

The government is also now tapping its $85.7 billion Reserve Fund & $90.7 billion National Wellbeing fund, which were built on windfall oil revenues, to pay for an “anti-crisis” program that is worth about 2.5 trillion rubles ($79 billion).

Personally, I am positive on Russia long term & feel that this ETF offers value for a long term portfolio, year to date, it has returned 75.4% & I reckon it has further to go. Lately it has been trading in a choppy pattern & has suffered a significant retrace, but with S&P confirming it’s rating, I’ll be looking closely at the price of crude & natural gas over the next month or so, any gain there & I’ll be adding with an expectation of an additional 25% gain this year.

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