[Synapsid]

For all who have been following ROCKMAN's posts on future control of oil and refining:

He has posted a long article on the topic at Ron Patterson's site PeakOilBarrel. He may update this article from time to time, too, but being a modest fellow and never known to toot his own horn, he hasn't said anything about it here. Look for "Locking Up Oil" at the site top, next to "Home."

[ROCKMAN]

A little bit of dot connecting. Recall some time ago I mentioned the Chinese proposal to spend $1 billion to rehab an idle refinery on Costa Rica’s Caribbean coast. Why that interest in a refinery in a country with no oil production? Instead of shipping Mexican oil to Valero in the US and letting an American company capture that part of the value stream China could take it to the closer CR refinery and not only supply their products needs but send excess back into Mexico. Mexico currently sends about 25% of its oil sales revenue back to US refineries to satisfy its product demands. Also notice the advantage of being able "to get rid of" some American refined products. Thank goodness the US consumer won't be faced with such an excess of supply. LOL.

“Reuters - Valero Energy won a tender launched by Costa Rica to supply the country with 14.25 million barrels of ultra low sulfur diesel (ULSD), jet fuel and motor gasoline. The 67 cargoes should be delivered starting in November over the coming 12 months. Valero is in a good position to offer low prices for its stored fuels going to Latin America, allowing the U.S. company to win the tender.

"Valero will be long with heavy naphtha next year, so this tender will be perfect to get rid of that," a Valero trader said. An independent trader said that the Valero's offer was almost impossible to beat, but he declined to reveal the prices agreed. Valero has several refineries which allow the company to convert heavy crude into the high sulfur finished products that Latin America needs. The refinery company has been known to buy Mexican crude from, and sell finished fuels to, Mexico's state-run PEMEX. It has also been getting crude from Petroleos de Venezuela (PDVSA) and selling refined products.”

[ROCKMAN]

Not sure exactly how this ties into the future control of hydrocarbons, including unrefined bitumen, but if China is pushing it there must be some connection. In general I suppose their move into various commodity futures markets just reflects they’re becoming a Big Dog in most of the global trades.

“Reuters - The world's first futures in road-paving material bitumen generated strong investor interest after launching on the Shanghai Futures Exchange on Wednesday, as China continues its drive to offer hedging in commodity markets. Although bitumen makes up just under 4 percent of the country's total fuel consumption, trading of the futures in the heavy tar-like refinery fuel will be closely scrutinized as it is expected to act a trial run for planned crude oil futures, with both requiring similar clearing, settlement and risk control measures.

Regulators have also been considering allowing trade in futures contracts for iron alloys and a slew of agricultural products, as Beijing looks to boost its influence over global prices. “People consider the bitumen contract to be closely related to the forthcoming crude oil futures contract," said an analyst at Everbright Futures in Shanghai.

Total trading volumes in the most-active February bitumen contract stood at 318,682 lots, way above Wednesday's trading in a thermal coal futures contract that debuted on the Zhengzhou Commodity Exchange in late September. Thermal coal, which also saw a strong launch, remains the fourth most heavily traded contract on that exchange. Trading in the bitumen contract, aimed at refiners, dealers and end users, will be restricted to Chinese entities and foreign banks which have set up a local trading entity. Companies such as Royal Dutch Shell and South Korea's SK Group - both major bitumen producers in Asia - and traders like Mercuria Energy and Trafigura were expected to be likely users via these entities.

The Shanghai exchange's first energy contract, for fuel oil, launched in 2004. But trading went cold after China in 2008 levied a hefty consumption tax on the fuel, used mostly to generate electricity and power ships. The tax hike forced many power plants to switch to natural gas, shrinking the fuel oil market.”

[ROCKMAN]

Bits and pieces

NOC’s acquire more future foreign oil production: “Reuters – Indian state-run explorer Oil and Natural Gas Corp said its overseas arm has agreed to buy an additional 12 percent stake in a Brazilian oil block from Brazil's Petrobras for $529 million. Petrobras had earlier agreed to sell its 35 percent stake in the block to China's Sinochem Group for $1.54 billion, but the deal was subject to pre-emption rights of ONGC and Royal Dutch Shell.”

Canada trying to allow more acquisition of their oil by foreign countries. Shame on those Canadians messing around with "our oil": “Reuters - During visits to China and South Korea next week, a senior Canadian official will promote investment in Canadian oil and gas firms despite strict limits Ottawa imposed in 2012 on foreign purchases in the energy sector. In a high-profile speech last week, a former Conservative minister said the rules were deterring investors and noted foreign purchases of Canadian energy firms had plunged this year. Natural Resources Minister Joe Oliver will visit South Korea and China next week and he said one of his objectives would be to make clear Canada still welcomed foreign investment.”

How increased Bakken oil production is affecting Argentina’s import policies: “Reuters - Argentina is studying authorizing crude imports from Nigeria to help counter a long decline in oil and natural gas output that has hurt its trade balance. South America's No. 2 economy has tough import barriers and strict currency controls meant to stem capital flight, making it tricky for oil companies to meet their needs. The imports would bolster output at Oil Combustibles and Royal Dutch Shell's respective San Lorenzo and Dock Sud refineries, which currently operate below capacity”

The connection: increased Bakken production is being railed to east coast American and Canadian refineries. This new dynamic has decreased the purchase by those refineries of Nigerian Bonnie Light by at least 50% causing Nigeria to seek new markets. New markets that might persist if/when Bakken production decreases.

[ROCKMAN]

China to fund Cambodian oil refinery: The Export-Import Bank of China on Wednesday signed an agreement to fund a $1.67 billion loan to build a Cambodian oil refinery. The Cambodian petrochemical firm and several Chinese companies signed a Memorandum of Understanding in April to jointly build the five million tonne oil refinery project in Cambodia.

And why is China making nice? Cambodia - Next Oil and Natural Gas Frontier. From:
http://www.asiaecon.org/exclusives/ex_read/76

The Kingdom of Cambodia has recently discovered a bounty of untapped wealth. It seems that off the coast of Cambodia, in the Gulf of Thailand, there are billions of dollars’ worth of oil reserves. Multiple studies have been conducted to estimate the amount of oil in the off the Cambodia coast. Institutions such as the UN, World Bank and Harvard University have concluded that there might be as much as 2 billion barrels of oil and 10 trillion cubic feet of gas in the Cambodian reserves. Given the current prices on oil and gas, these reserves could provide Cambodia with an extra US $6 billion every year for the next twenty years. This would more than double the GDP, which according to 2006 estimates stands at US $5.122 billion.

The country has designated six exploration blocks, only one of which, Block A, has been explored. The US-based firm Chevron conducted the exploration of Block A and is said to have hit oil in five out of six wells4. Chevron is leading an international pack of oil companies interested in gaining access to Cambodia’s resources. Energy companies from France, China, Japan, South Korea, Kuwait, Thailand, Malaysia and Singapore are said to be bidding for exploration licenses and production agreements.

[pwallmann]

http://www.platts.com/latest-news/oil/beijing/shell-exits-taizhou-jv-refinery-project-with-27505786

Saw this yesterday Rock, just wondering if you had any thoughts on the suggestion that there might be significant variance between planned JV's/projects and completed projects. They only discuss domestic JV's and refining so perhaps this just fits your story where China is outsourcing it's refining capacity to producing nations via these JV's.

From a CNPC "source" (take that for what it's worth):

$this->bbcode_second_pass_quote('', '&')quot;Many of these [projects] will probably not go ahead. Those that are well into the planning phase and that have started construction will likely be completed but the outlook for the other projects is not so positive," the source said, adding most of the expansions had already occurred and investment was now geared towards the upgrading of fuel specifications.

[ROCKMAN]

China continues to be Venezuela's bff: “China appreciates Maduro and the new Venezuelan government for continuing Chavez’s friendly policy with China and giving priority to developing bilateral relations”, President Xi said. Xi gave a red-carpet welcome ceremony to the Venezuelan leader who is currently on his first state visit to the Asian nation.

Venezuelan oil giant Petroleo de Venezuela SA signed a $1.4 billion deal with China Petrochemical Corp to develop Venezuela’s Junin 1 heavy oil bloc, which will produce 200,000 barrels a day. China Development Bank also announced a $5 billion loan for Venezuela’s social development. The Export-Import Bank of China will also lend Venezuela’s state petrochemicals company Pequiven $390 million for the construction of a port.

[pwallmann]

http://uk.reuters.com/article/2013/10/22/china-russia-energy-idUKL5N0IC10F20131022

China/Russia deals:

$this->bbcode_second_pass_quote('', 'T')he agreements, announced during a visit by Prime Minister Dmitry Medvedev to Beijing, brought Igor Sechin, CEO of state oil major Rosneft, closer to his goal of exporting more than 1 million barrels per day of oil to China.

[ROCKMAN]

Sounds like the deal closed: China National Petroleum Corporation (CNPC), the country's largest oil and gas producer and supplier, said Monday that the company's future crude oil import from Russia will hit 46.1 million tonnes annually. According to of a long-term agreement released by the CNPC, its yearly crude oil import from Russia through the Sino-Russian pipeline, the eastern line, will increase from the current 15 million tonnes to 30 million tonnes in 2018. The agreement for additional crude oil supply via the eastern pipeline will last 25 years and could be extended for another 5.

It's such a short haul from the Russian fields to China's border such a venture seemed inevitable.

[ROCKMAN]

Not the end of life as we know it but apparent we're not the center of the oil universe as we once thought: It was a case of “close, but no cigar” for Houston as it lost to Istanbul late Wednesday in its bid to host the 22nd Annual World Petroleum Congress (WPC) in 2017. Houston received 45 percent of the vote, compared with 55 percent for Istanbul. WPC is a five-day forum held every three years that encompasses all aspects of the global petroleum industry. If Houston feels like it is always a bridesmaid, and never a bride, there is good reason. Houston had already lost in a close contest with Moscow to host the 2014 WPC amid worries some delegates had about obtaining visas to the U.S. The last time that a U.S. city hosted the event, Ronald Reagan occupied the White House.

[Humungus]

$this->bbcode_second_pass_quote('ROCKMAN', 'S')ounds like the deal closed: China National Petroleum Corporation (CNPC), the country's largest oil and gas producer and supplier, said Monday that the company's future crude oil import from Russia will hit 46.1 million tonnes annually. According to of a long-term agreement released by the CNPC, its yearly crude oil import from Russia through the Sino-Russian pipeline, the eastern line, will increase from the current 15 million tonnes to 30 million tonnes in 2018. The agreement for additional crude oil supply via the eastern pipeline will last 25 years and could be extended for another 5.

It's such a short haul from the Russian fields to China's border such a venture seemed inevitable.

[ROCKMAN]

H - Yep...using the 7.2 bbls per ton conversion rate. I have to think the oil trade between one of the biggest oil producers and a country that seemed destined to become the largest oil consumer is inevitable just given the logistical aspects.

[ROCKMAN]

Not a big leap when you look at the map. The shortest instance between the largest producer and a growing consumer tends to be a straight line.

Reuters - Mongolia has agreed to establish a working group with China to oversee the construction of new road, rail and pipeline infrastructure connecting the two countries with Russia, a member of a Mongolian government delegation to Beijing said. The official, speaking to Reuters on condition of anonymity, said landlocked Mongolia aimed to become a "transit corridor" to facilitate trade between its two giant neighbours and reduce the costs of delivering Russian commodities like oil and natural gas to energy-hungry Chinese markets. The topic was high on the agenda during talks between Mongolian Prime Minister Norov Altanhayag and his Chinese counterpart, Li Keqiang, last week, according to the official, who is a senior adviser to Mongolia's economics ministry. Speaking by phone from the Mongolian capital, Ulan Bator, he said the working group would probably be set up soon and that Mongolia was open to allowing Chinese firms to invest and build the infrastructure. "Given the capacity that both countries can bring to the table, China is expected to be heavily involved in terms of financial resources and technology," he said

[tim89]

the chinese will take much more, because they know other won`t afford that (I mean they are so a big customer, others are not so interesting for russia e.g.)

[ROCKMAN]

Given how PEMEX is continuously strapped for capex maybe they are considering someone else to build the refinery. Maybe pay for it in yuan rather than pesos.

Reuters – “Plans by Mexico's state-run oil monopoly Pemex to build a new $10 billion refinery in the eastern state of Hidalgo do not appear in the company's updated five-year business plan, but a Pemex spokesperson said on Saturday that the project has not been formally canceled. First announced in 2008, the construction of the new Tula refinery with a planned processing capacity of 250,000 barrels per day (bpd) of crude oil has been plagued by delays. To date, only a wall enclosing the perimeter of the project has been completed at Tula, 51 miles (82 km) north of Mexico City. In September, Pemex announced a $3.5 billion expansion of the existing refinery at Tula, the country's second biggest, near the planned the location for the new refinery. The existing Tula refinery can process 325,000 bpd.”

Now for my speculation: For some time China has been trying to get between the US and “our” Mexican oil imports. Currently they are importing a very tiny amount of Mexican oil in a pilot project. But despite the huge chunk of revenue the govt gets from those PEMEX exports to the US they repatriate about 25% of the income to US refineries for the products PEMEX cannot supply due to the lack of infrastructure. The Chinese national bank recently signed an agreement to loan a Canadian company $15 billion to build a refinery to crack oil sands production and ship it to their west coast. It wasn’t publicly acknowledged but I doubt the bank is making the investment just for the interest payments. Such deals often grant the capex source with the right of first refusal to buy the refined products. In the case of Mexico China could fund, build and manage a big new refinery in Mexico, provide the gov’t with cheaper products (maybe selling just at cost) and shipping product/oil to China. And thus usurping the a large portion of US oil imports

Again, just speculation. But as far as strategic business plans go it does seem to make sense. As much sense as the other refinery JV’s China has already established with other major oil exporters.

[ROCKMAN]

The Growing Rift With Saudi Arabia Threatens To Severely Damage The Petrodollar From: http://www.infowars.com/the-growing-rif ... trodollar/

In the grand scheme of things this aspect may have a greater impact on the future US economy than China’s effort to tie up future oil production.

"The number one American export is U.S. dollars. It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars. The linchpin of this system is the petrodollar. For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars. But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly. For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a “major shift” in relations with the United States. In fact, the Saudis are so upset at the Obama administration that “all options” are reportedly “on the table”. If it gets to the point where the Saudis decide to make a major move away from the petrodollar monopoly, it will be absolutely catastrophic for the U.S. economy.

The biggest reason why having good relations with Saudi Arabia is so important to the United States is because the petrodollar monopoly will not work without them. For decades, Washington D.C. has gone to extraordinary lengths to keep the Saudis happy. But now the Saudis are becoming increasingly frustrated that the U.S. military is not being used to fight their wars for them. The following is from a recent Daily Mail report:

Upset at President Barack Obama’s policies on Iran and Syria, members of Saudi Arabia’s ruling family are threatening a rift with the United States that could take the alliance between Washington and the kingdom to its lowest point in years. Saudi Arabia’s intelligence chief is vowing that the kingdom will make a ‘major shift’ in relations with the United States to protest perceived American inaction over Syria’s civil war as well as recent U.S. overtures to Iran, a source close to Saudi policy said on Tuesday.

Prince Bandar bin Sultan told European diplomats that the United States had failed to act effectively against Syrian President Bashar al-Assad and the Israeli-Palestinian conflict, was growing closer to Tehran, and had failed to back Saudi support for Bahrain when it crushed an anti-government revolt in 2011, the source said. Saudi Arabia desperately wants the U.S. military to intervene in the Syrian civil war on the side of the “rebels”. This has not happened yet, and the Saudis are very upset about that. Of course the Saudis could always go and fight their own war, but that is not the way that the Saudis do things. So since the Saudis are not getting their way, they are threatening to punish the U.S. for their inaction. According to Reuters, the Saudis are saying that “all options are on the table now”…

[ROCKMAN]

The Growing Rift With Saudi Arabia Threatens To Severely Damage The Petrodollar From: http://www.infowars.com/the-growing-rif ... trodollar/

In the grand scheme of things this aspect may have a greater impact on the future US economy than China’s effort to tie up future oil production.

"The number one American export is U.S. dollars. It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars. The linchpin of this system is the petrodollar. For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars. But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly. For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a “major shift” in relations with the United States. In fact, the Saudis are so upset at the Obama administration that “all options” are reportedly “on the table”. If it gets to the point where the Saudis decide to make a major move away from the petrodollar monopoly, it will be absolutely catastrophic for the U.S. economy.

The biggest reason why having good relations with Saudi Arabia is so important to the United States is because the petrodollar monopoly will not work without them. For decades, Washington D.C. has gone to extraordinary lengths to keep the Saudis happy. But now the Saudis are becoming increasingly frustrated that the U.S. military is not being used to fight their wars for them. The following is from a recent Daily Mail report:

Upset at President Barack Obama’s policies on Iran and Syria, members of Saudi Arabia’s ruling family are threatening a rift with the United States that could take the alliance between Washington and the kingdom to its lowest point in years. Saudi Arabia’s intelligence chief is vowing that the kingdom will make a ‘major shift’ in relations with the United States to protest perceived American inaction over Syria’s civil war as well as recent U.S. overtures to Iran, a source close to Saudi policy said on Tuesday.

Prince Bandar bin Sultan told European diplomats that the United States had failed to act effectively against Syrian President Bashar al-Assad and the Israeli-Palestinian conflict, was growing closer to Tehran, and had failed to back Saudi support for Bahrain when it crushed an anti-government revolt in 2011, the source said. Saudi Arabia desperately wants the U.S. military to intervene in the Syrian civil war on the side of the “rebels”. This has not happened yet, and the Saudis are very upset about that. Of course the Saudis could always go and fight their own war, but that is not the way that the Saudis do things. So since the Saudis are not getting their way, they are threatening to punish the U.S. for their inaction. According to Reuters, the Saudis are saying that “all options are on the table now”…

[ROCKMAN]

NuStar Cuts Venezuela Oil Pact for Asphalt Plants, Eyes Canada

Really just a small deal but does shed some light on how new long term trade deals with exporters like Venezuela could adversely affect US consumers years down the road. And caused by the current boom in US and Canadian oil production. Canada’s increase may have some long legs but many question how well the US surge can sustain itself. China has already signed up a significant amount of long term Vz production. With other importers moving away from Vz it could provide China with more leverage in their trade efforts. It will probably be on the order of 10+ years before the net consequences are felt in the US.

Reuters - U.S. oil company NuStar Energy said on Friday it had agreed to sever a crude supply contract with Venezuela's state-run PDVSA 15 months early, a move sources said would allow it to use cheaper Canadian crude for its East Coast asphalt plants. While the 30,000 barrel per day (bpd) supply contract is equivalent to only about 4 percent of total U.S. imports from Venezuela, the decision to end the contract is the latest sign of how growing North American oil production is reducing imports and giving refiners more options. But two trade sources said the best option for NuStar was to replace the Venezuelan supplies with Canadian heavy naphthenic crudes that can be transported by rail to the East Coast, reducing costs for the company.

The deal will significantly reduce financial liability for NuStar Energy LP and will allow NuStar the additional refining flexibility to meet current market demand. For its side, PDVSA can increase heavy crude supplies to its second biggest costumer, China - the company is paying with crude billionaire debts contracted by the Venezuelan government - and tender the surplus of heavy crudes such as Bachaquero. According to trading information, PDVSA is monthly sending to China four VLCC (very large crude carrier) of fuel oil, seven medium-size cargoes of jet fuel, three medium-size cargoes of ultra-low sulfur diesel and variable volumes of Boscan crude.

[ROCKMAN]

NuStar Cuts Venezuela Oil Pact for Asphalt Plants, Eyes Canada

Really just a small deal but does shed some light on how new long term trade deals with exporters like Venezuela could adversely affect US consumers years down the road. And caused by the current boom in US and Canadian oil production. Canada’s increase may have some long legs but many question how well the US surge can sustain itself. China has already signed up a significant amount of long term Vz production. With other importers moving away from Vz it could provide China with more leverage in their trade efforts. It will probably be on the order of 10+ years before the net consequences are felt in the US.

Reuters - U.S. oil company NuStar Energy said on Friday it had agreed to sever a crude supply contract with Venezuela's state-run PDVSA 15 months early, a move sources said would allow it to use cheaper Canadian crude for its East Coast asphalt plants. While the 30,000 barrel per day (bpd) supply contract is equivalent to only about 4 percent of total U.S. imports from Venezuela, the decision to end the contract is the latest sign of how growing North American oil production is reducing imports and giving refiners more options. But two trade sources said the best option for NuStar was to replace the Venezuelan supplies with Canadian heavy naphthenic crudes that can be transported by rail to the East Coast, reducing costs for the company.

The deal will significantly reduce financial liability for NuStar Energy LP and will allow NuStar the additional refining flexibility to meet current market demand. For its side, PDVSA can increase heavy crude supplies to its second biggest costumer, China - the company is paying with crude billionaire debts contracted by the Venezuelan government - and tender the surplus of heavy crudes such as Bachaquero. According to trading information, PDVSA is monthly sending to China four VLCC (very large crude carrier) of fuel oil, seven medium-size cargoes of jet fuel, three medium-size cargoes of ultra-low sulfur diesel and variable volumes of Boscan crude.

[ROCKMAN]

The US exports democracy and China imports oil. From Iraq-Business News:

Iraq Beats Kuwait to Chinese Refinery Deal Reuters reports that China’s state-owned Sinochem Corp plans to use Iraqi crude oil for 40 percent of the capacity of its new refinery, in what the article describes as “the latest example of Iraq beating Middle Eastern rivals in the competition for new markets in Asia“.
The deal could replace a preliminary agreement to use more expensive oil from Kuwait, and make Sinochem one of Baghdad’s top oil buyers next year, when the company starts its first wholly-owned refinery. Sinochem would still likely buy some crude from Kuwait, he added.

Sinochem’s 240,000-bpd Quanzhou plant is expected to process about 100,000 bpd of Iraqi crude after completing test runs due to start in December. It may still need to honour, at least partially, a non-binding agreement from 2007 with Kuwait to buy 240,000 bpd Kuwaiti oil for the plant. Traders said that Sinochem had never formalized the supply deal with Kuwait. Sinochem, one of Baghdad’s long-standing Chinese customers, is already buying 200,000 bpd of Basra Light crude, most of which now goes to Chinese refineries owned by Sinopec.