[dorlomin]

$this->bbcode_second_pass_quote('agramante', '
')Egypt's control of the Suez is critical enough to the world economy that whoever is in charge

[agramante]

For a range of goods, possibly, but is that the case for oil specifically? I recall there being a huge scramble for alternate routes last year when Iran began threatening to close the Straits of Hormuz (though much of that oil goes east).

[dorlomin]

$this->bbcode_second_pass_quote('agramante', 'F')or a range of goods, possibly, but is that the case for oil specifically? I recall there being a huge scramble for alternate routes last year when Iran began threatening to close the Straits of Hormuz (though much of that oil goes east).

[agramante]

RIght...meaning they can fit through Suez, though they might go anywhere. But if Europe is highly dependent on imports from the Middle East, and Syria's pipeline and production are pretty much zero now, then the Suez Canal itself might be a critical avenue for that oil. If Suez is operating at half capacity, but that half is almost exclusively oil bound for Europe, then it's still critical.

[agramante]

Found a few interesting refs on the Suez:

http://www.suezcanal.gov.eg/TRstat.aspx?reportId=7

There are a number of reports, and you can pick any year from 2000-2012. 2012 crude oil shipments are 50% higher than 2004, for example.

And the EIA's profile of worldwide choke points, including Suez:

http://www.eia.gov/countries/regions-to ... otc&trk=p3

[ROCKMAN]

Chech my post above and you discover what I wasn't aware of: the great majority of oil shipped through Egypt goes thru that short pipeline and not by tanker. It's then shipped to various EU refineries via tankers.

Dot connecting time: while back China announced plans to build the biggest refinery ever constructed in Egypt, a country without a lot of internal oil production. So where does China plan to get the oil? My first thought was Libya right next door. But now I see where upwards of 2 million bopd moves thru Egypt in that pipeline. Oil that belongs to Persian Gulf produces. Oil that would create greater income if refined products were sold instead. Would imagine a 600,000 bopd refinery built on the E. coast where the oil export terminal is today. Instead of those 600,000 bopd being offered on the open market to EU refiners it just disappears overnight one day. Now the EU consumers compete for products instead of oil. Compete with China that may have right of first refusal of every bbl of product coming out that refinery.

But unstable times in E. these days. OTOH the US and other countries, along with the IMF, may start hold back financial support...just wouldn't be morally right to support the undeclared coup. If there just some country with a lot of money and a great motivation to build relationships with E. that didn't give a crap about their internal politics as long as it didn't interfere with that country's biz plan

[SeaGypsy]

This 12 year old kid tells it like it is:https://www.youtube.com/watch?feature=player_embedded&v=QeDm2PrNV1I

[agramante]

The Suez profile on that EIA site includes the SUMED pipeline which you were talking about, Rock (and let's not forget that's in Egypt, too). The pipeline can carry about 2.4 million bbl/d, but most is going through the canal. So it's not the sole lifeline, and in an emergency ships could be diverted around Africa, with the delay of about 15 days. Even so, avoiding such an emergency--not only for economic reasons but also for the well-being of their county, and their own long-term position within it--is no doubt part of why the Egyptian military did what they did.

[ROCKMAN]

a - I'll go research it again but I thought I recalled 2 mmbopd going through it now. But the exact volume isn’t what’s critical IMHO. And the point wasn’t a potential disruption of the SUMED flow but a diversion of a portion of it to the proposed Chinese refinery. As I understand the situation the SUMED oil still belongs to the various exporting countries. Egypt is just acting as a transit agent. Those exporters can continue selling every bbl of oil to EU refiners or, if it makes them a better revenue stream, send some of it to the Chinese refinery and sell products instead.

You don’t need those extra ships you mention if all the oil isn’t ultimately being sent to the EU. No details but I have no doubt that if the big Egyptian/Chinese refinery is built some of the exporting countries will be locked into the deal. As in the other JV’s why would China invest tens of $billions in new refineries if they haven’t secured long term oil supplies?

I just decided we need a catchy name for the phenomenon of Chinese tying up future oil supplies. Similar to the idea of ELM. My first offering is CHAI…Chinese Hydrocarbon Acquisition Initiation. Be it direct ownership of offshore Angolan oil, production agreements with Iraq, long term purchase contracts with Venezuela, refinery JV with the Saudis, financing a big refinery to process Canadian oil sands with the products delivered to the Pacific Basin, building the largest refinery ever on the continent in Africa in S. Africa, spending $1 billion to revitalize a refinery (just down the coast from Mexico’s offshore oil production) in Costa Rica which has virtually no oil production, the Kazakhstan oil pipeline: China's first direct oil import pipeline allowing oil import from Central Asia for the first time, the Kazakhstan NG pipeline the Chinese will spend $7.5 billion to build that will ultimately deliver about 1/4 TCF per year, signing the first every free trade agreement with Iceland, a country with Arctic drilling rights already established, a refinery JV with Russia with the construction of a new Chinese refinery just down the coast from the huge Siberian oil reserves being developed, building 3 new refineries in Nigeria, an exploration JV with Viet Nam to pursue offshore oil potential in the S, China Sea, assisting the Brazilians in expanding their refinery infrastructure, building an oil pipeline to China from Persian Gulf oil sources through Myanmar, possibly building a $40 billion canal through Nicaragua that could move huge volumes of LNG from the Caribbean to Asia, etc, etc.

When we run down the CHAI list it does become rather impressive IMHO. CHAI may not be as appetizing as ELM so I’ll be glad to entertain another acronym. But given Chinese aggressive moves to tie up future oil reserves it isn’t difficult for me to imagine CHAI becoming a bigger negative factor for oil importers as ELM.

[agramante]

Well, my algebra can be iffy sometimes, but doesn't this equation hold:
GNE - CHAI = ANE ?
(Actually, it doesn't quite equal, because it leaves out India.)

[ROCKMAN]

a - Very good. But I'll leave it to westexas to define the equation. But he might not bother since he may be pissed with me for making up new crap. LOL. He's very selfish and doesn't like sharing the spotlight. But since he's a friend I don't hold it against him.

But there is some meaningful math there. The biggest problem with bringing CHIA-T (I decided "Chinese Hydrocarbon Acquisition Initiative - Total" sounds better) into the equation is trying to quantify it. We know about the long term contracts, direct ownership and various JV's but usually not enough detainlsto predict how much the volumes add up. I sense the Total will be rather significant in several years...maybe more so then ELM. Just can't make a projection like westexas can with ELM.

[ROCKMAN]

Pstarr – I occasionally search for new Chinese deals as what I highlight below. I don’t recall Chinese deals involving oil sourcing with non-govt entities but I’ll keep looking. But I have seen them do deals with service sector companies.

“Do other nations enter into such relationships?” You mean like cutting a deal with the US govt’s oil company? Or England’s national oil company? LOL. And that where the US and other democracies are so hamstrung. ExxonMobil has deep pockets and a great desire to acquire future oil production. But a corporation will have limits as to the risk they take. They are also stuck with a classic and rather inflexible method of calculating rate of return:

A hypothetical: Project X will produce 500 million bbls of oil and yield a ROR of 1%. XOM would love to book those reserves but how could they justify it to the board with such a low ROR? But one a Chinese NOC might snap it up. Won’t make them much of a ROR but their economy would benefit from having that oil resource. Is XOM going to accept a subpar ROR just for the benefit of the US economy? Are you holding your breath now? LOL. I’ll repeat what has pissed off a few back in my TOD days: the US oil patch ain’t your momma. We aren’t responsible for the state of the US economy…just ours. Yes…not very patriotic but how many other industries sacrifice profit for the flag? And at the moment I don’t see many US citizens (except for our military and their families) voluntarily sacrificing much for the flag either when it comes to energy.

“How does the US manage its relationships with oil suppliers?” Are you asking how the US govt manages such relationships? Don’t see much management. The most visible relationship I’ve seen lately is the US govt telling the Alberta govt to eat poop over the Keystone XL P/L permit. The only other relationships that come to mind is the petroleum products the US is exporting to other govts like Mexico which exports the oil to the US that is used to make those products. AFAIK the US govt has no JV’s with any oil exporter.

The closest you can come to that situation is the US govt not barring foreign companies/NOC’s from acquire interest in US oil/NG production:

“At the same time, joint ventures have been the preferred strategy for foreign companies looking to access US shale plays. In early 2013, Sinochem, a Chinese company, entered into a $1.7 billion joint venture with Pioneer Natural Resources to acquire a stake in the Wolfcamp Shale play in West Texas. This investment highlights a renewed trend toward foreign joint ventures. Since 2008, foreign companies have entered into 21 joint ventures with U.S. acreage holders and operators, investing more than $26 billion in tight oil and shale gas plays,” according to the EIA. Investment in shale plays in the United States totaled $133.7 billion between 2008 and 2012, as part of 73 deals. Joint ventures by foreign companies accounted for 20% of these investments said the EIA.”

If you mean how do US corporations, like refiners, manage their relationships. Pretty straight forward IMHO: the exporters tell our refiners what the oil will cost them and our guys say “Thank you” and wire transfer the monies.

Can't publish anything under my name...my owner doesn't like publicity. My connection to him is too well known. So the Rockman publishes here and will keep updating. But if anyone here has the ambition to publish they are free to use my posts as well as request of little ghost writing if it helps. Obviously I think this a critical issue that's being ignored by the MSM and the govt. Really pisses me off. Not much I think we can do the change the situation very much. But the public deserves to know IMHO.

Speaking of Chinese JV’s I’ve mentioned before how future oil production can be tied up by just simple loan deals. Found a report that gives a bit more detail than usual:

“The Russian state oil company, Rosneft, intends to sign a major contract to supply China with more than $60 billion of crude oil, a deal that could signal a small shift away from Western Europe toward Asia. Russia has been gradually opening its oil spigot to China in recent years. While the overall volume of Russia’s oil output has remained level, the country has decreased sales to recession-plagued Europe.”

IOW, as I offered before, even if global oil production doesn’t decrease significantly soon there may still be importers that lose access to some oil they had assumed would be available to them. This time it looks like the loser will be the EU.

“Even a modest shift could have a significant effect on Europe, raising prices across the region. Russia is now the largest oil producer in the world, pumping about 10 million barrels a day, slightly more than Saudi Arabia.” Just what the PIGGS didn’t need right now.

“Currently, Russia exports about a fifth of its oil output to Asia. It pipes oil directly to China after a trans-Siberian pipeline was completed in 2010 that overcame decades of tension along the long and remote border between Siberia and Manchuria.”

Blood is thicker than water. But oil can become thicker than any of it.

“Mr. Putin told Mr. Zhang that he hopes two Russian gas companies, Gazprom and Novatek, will similarly strike deals to export energy to China.” Given the recent battles over Russian NG supplies another situation those EU et al NG buyers could have done without.

“Energy analysts said Rosneft has also been negotiating with Chinese companies to form joint ventures to drill in the Russian sector of the Arctic Ocean above eastern Siberia. The Rosneft deal would become the latest in a series of financial transactions between Russian energy companies and China.”

Some of those details: “Rosneft first took a loan of $6 billion from Chinese state banks as prepayment for oil exports in 2005. The company, in turn, used the money to finance its takeover of the largest production unit of Yukos oil company, after the imprisonment of the founder, Mikhail B. Khodorkovsky, an episode criticized by Western governments but not the Chinese.” Not criticized by China? Almost as if China knew there might be something in the deal for them.

“In 2009, Chinese banks lent $25 billion to Rosneft and the state oil pipeline monopoly, Transneft, to complete the trans-Siberian pipeline, called the East Siberian-Pacific Ocean pipeline. Under the terms of the deal, the banks would be repaid with 2.5 billion barrels of oil exported to China over 20 years from 2010 until 2030. Both sides have benefited. The volume of oil amounted to 4 percent of China’s oil demand over that period. On the Russian side, the loan helped stabilize Russia’s balance of payments crisis in the recession that began in 2008.

"The latest Chinese deal will most likely allow the Russian government to delay a planned privatization of 19 percent of Rosneft’s shares, which faced political opposition. It also suggests closer financial ties with China, which could help Russia weather its current economic slump.” Makes me wonder how much of the capex China is using to make nice with Russia is coming from the interest payment we send them in US $’s.

[pwallmann]

Just a terminology question: on something like the Export Data Browser, is "oil consumption" then the end product equivilent consumed (and thus why we can have consumption in excess of production from the refinery gains)? I ask because I'm not sure how you'd consider the JV developments from either Net Export/ELM perspective.

Would you consider this JV'd crude domestically consumed (by the producer) or perhaps we'd consider it production by China? I suppose this is just a different way of interpreting the same data. The first being the traditional physical perspective (where we're concerned with the quantity of oil coming from a given geographical area) the second being from a more economic perspective (where we're looking at the quantity of oil that each country has a claim to).

From a global perspective I suppose it doesn't matter. But as you've made clear it is essentially oil off the market and needs to be accounted for in the economic sense.

[ROCKMAN]

Pw – I think I follow and I’ll make up my on definitions…right or wrong. First, I wouldn’t say oil is consumed. It’s produced, sold/bought, imported/exported, refined, etc. but never consumed. So I look to a future of X bbls produced. Where that oil ends up is the key to the importance of ELM and CHAI-T. Examples make it clearer. The Saudis will be producing and exporting, let’s say, 9 mmbopd…just as they are today. Folks are back and forth about declines and new field additions. In the example that’s off the table. And X years down the road they still producing 9 mmbopd. But at that time they are refining 1 million per day and consuming those products. Consuming products…not oil. So that’s leaves only 8 mmbopd that could be purchased in the open market. The EU once imported that 1 mmbopd and refined/consumed the products which might be 1.1 mmbopd of product…not oil.

But X + 1 years the KSA begins refining 500,000 bopd at that Red Sea refinery JV with China. But the KSA is still producing 9 mmbopd. That 500k bopd used to go to EU refineries and the products, not the oil, is consumed in the EU. And the products from the RS JV are sold to the EU. Thus the amount of product consumed in the EU hasn’t changed even though they are importing 500k bopd less at the time and CHAI-T is in full effect. But they have still lost out to ELM.

Looking at it from this perspective we’re essentially talking accounting as much as oil production. Where the ledger starts getting messy is when China exerts its right of first refusal and ships all the RS JV product to China.

So the ledger sheet at that time appears unchanged in a variety of categories: 9 mmbopd is still being produced by the KSA, 9 mmbopd are still be refined. And the same volume of refinery product, a bit larger than 9 mmbopd, is still being consumed. But what has changed is that the EU is consuming less refined products…the products of 1.5 mmbopd.

But if one were projecting a charting of KSA production it remains unchanged. It one projects future refinery runs it remains unchanged. If one projects future consumption of refined products it remains unchanged. This why I started questioning so much focus on gross plateaus. Interesting to see the big picture. But within the KSA oil production plateau ( a good thing), the amount of crude oil refined plateau (a good thing) and the amount of refined product consumed plateau (a good thing) is hidden the fact that ELM and CHIA-T have reduced the amount of refined products available for consumption by the EU by a tad more than 1.5 mmbpd…not a good thing for the EU citizens.

Now expand that model to all oil exporters and consider which economies will lose product consumption if ELM and CHAI-T are functioning full force. Pretty safe bet China and the KSA won’t be product losers but actually gainers. But someone will be losing. What’s worse is that even if one predicts an increase in global oil production a combination of ELM (especially by Brazil along with the KSA) and CHIA-T there may still reduce the amount of refined products available to some of the consuming economies.

And again my favorite analogy: what’s important is how fast the other guy runs…not how fast the bear runs. Likewise what’s important isn’t how much refined products are created but how much the other guy will consume of those products. Yep...globally potentially looking rather static. But locally someone is going to end up a pile of bear crap. And if you're trying to survive in one of those economies you really won't care if globally everything looks OK.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'C')ut off financial support to Egypt? Gotta watch for those unintended consequences. Think of the Suez Canal (In 2011, 17,799 ships transited the Suez Canal from both directions, of which 20 percent were petroleum tankers and 6 percent were LNG tankers) and the less well known SUMED Pipeline.The 200-mile long SUMED Pipeline provides an alternative to the Suez Canal for those cargos too large to transit through the Canal. The crude oil flows through two parallel pipelines that are 42-inches in diameter, with a total pipeline capacity of around 2.4 million bbl/d. Oil flows north through Egypt and is carried to a terminal on the Mediterranean.

Egypt might not export a significant amount of oil but they do have the hands around the throats of many other oil importing countries via that transit oil. We certainly don’t have to worry about Egypt attacking any other country. But I doubt anyone could occupy Egypt by force and keep that oil moving. Sounds like being a friends is a better approach then being adversaries. And I have no doubt the Chinese have already pledged their support to the new govt. Nothing personal against the Brotherhood...just good business.

[ROCKMAN]

Tanada – That’s as I also understand it. But I think you understand my point: it isn’t about tanker vs. pipeline transport but that a certain volume of oil, be it piped or shipped, will not pass through Egypt as it does now if the Chinese buy it/do a JV with the folks who own that oil and run it through their new high efficiency Egyptian refinery. First, transport cost of the oil is decreased because it isn’t shipped as far. And now instead of getting the current oil price they get product prices. And imagine what might happen to EU product prices if they suddenly lose a volume of oil they formerly bought and now have to compete with not just China but also all those Persian Gulf oil producers that today have to imports products.

Thus is the same potential scenario that may happen in Mexico. Instead of Mexico exporting oil to Texas refineries and then having to pay a higher price to import products back they can ship a certain volume to a refinery China builds in Mexico. And, at least initially, China might sell all the product to Mexico and the US market because that’s when the profit may be. Or sell some to Mexico and the rest to Costa Rica, et al. Or sell what they are obligated to offer Mexico and ship all the rest to China. That’s the great thing about controlling any commodity: the option to max the utility to ones benefit.

[sparky]

.
The Suez is only important for Europe , its closure is hardly a life or death matter ,
the tankers of above Suezmax size carry most of the oil for the great refineries of the North sea around the Cape
the time and fees saved go a long way to balance the cost
pretty much the same for the containers ships

a change in insurance classification of risk would see most traffic avoid the Suez waterway
a real blow to Egypt finances
as such it would constitue a juicy target to anyone with a chip on his shoulder with the power that be
Egypte need Suez way more than the rest of the world

[ROCKMAN]

Sparky – You’re missing the point. The potential danger to the EU has nothing to do with a halt of oil through the canal or the SUMED pipeline. Just the opposite: all the current flow and perhaps much more may continue to make its way into Egypt. The risk to the EU is that much of it won’t make it to them. IOW much of that oil will be diverted to the largest refinery in Egyptian history that will be built by the Chinese. The products may still make it to the EU (at least initially) but not the refinery profits.

If the Persian Gulf producers sign long term supply contracts with the Egyptian/Chinese refinery you won’t need to sail those ships around the horn: there won’t be the oil for them to haul.

The EU needs the oil and products much more than Egypt may eventually need the EU. If China eventually ships all the product back home neither China, Egypt or those Persian Gulf producers will need the EU to even buy one bll of those products.

[Keith_McClary]

Alberta sinking billions into pipeline plan to send oil east
(Asked for a licence when I tried to cut'n'paste. That's a new one on me.)