China and Asean sign key trade deal

China yesterday signed an agreement with the Association of South- east Asian Nations that promises to open up key services sectors as the two partners move towards creating what could be the world’s biggest free trade zone.

The accord, which comes into effect in July, was signed during a meeting between Wen Jiabao, Chinese premier, and 10 Asean leaders attending the regional group’s annual summit in the central Philippine city of Cebu.

Some 18 months ago China and Asean inked a deal freeing up trade in goods that lowered tariffs on more than 7,000 products.

The deal is seen as a vital step towards the establishment by 2015 of a China-Asean free trade area (FTA). Such a zone would unite China’s 1.2bn people and south-east Asia’s 500m citizens in a single market.

It also highlights Beijing’s increasing influence as a regional power.

South-east Asian companies should get greater access to rapidly growing Chinese sectors – such as banking, information technology, real estate, health, engineering, education, transport and construction – thanks to the new agreement.

It may also help cut Asean members’ huge trade deficits with China, allaying fears that expanding economic ties with Beijing is disadvantageous for smaller economies.

In his remarks with Asean leaders, Mr Wen said the agreement “will mark a key step forward in the building of the China-Asean free trade area and lay the foundation for full and scheduled completion of the China-Asean FTA”.

Asean leaders said they were looking to the deal to help them gain entry to sectors that were off limits to foreigners in China.

“Many businessmen in the Philippines and other south-east Asian countries are hoping the deal will allow them to provide business and consumer services in connection with the Beijing Olympics in 2008 and the Shanghai World Exposition in 2010,” said Samie Lim, a member of the Asean Chamber of Commerce and Industry’s governing councils.

“China already has the hard infrastructure in terms of roads, hotels and other facilities. We want to provide the soft infrastructure – people and services.”

Asean’s 10 member countries formally agreed this weekend to bring forward to 2015 the establishment of a south-east Asian common market. But analysts have warned that the grouping faces big challenges in achieving that goal.

*Mr Wen will make an ice-breaking visit to Japan in April, Japanese officials said yesterday, while China warned that the two countries’ wartime past could still derail efforts to heal ties. Mr Wen and Shinzo Abe, Japan’s prime minister, used the Cebu summit to narrow down a time for the first top-level Chinese trip to Japan in more than six years.

But the Chinese foreign ministry said Mr Wen had warned Mr Abe about his handling of Japan’s past as an aggressor and its bloody occupation of much of Asia before and during the second world war.

South Korean-Thai negotiations to resume

Jan. 12–CEBU, Philippines — South Korean and Thai economic ministers agreed yesterday to resume controversial talks on rice and other agricultural products which prevented Thailand from joining the Asean-Korea free trade agreement last year.

Commerce Minister Krirk-krai Jirapaet said he had held brief but candid talks with the Korean Trade Minister Kim Hyun-chong to move forward from the sticking point that had led to Thailand holding back from entering the region-wide economic agreement.

“Both sides have openly discussed what we can and cannot accept. Rice is a sensitive item for South Korea, but also a significant farm product. We agreed to have the director-general of the Foreign Trade Department tackle the issue so that we can move forward with negotiations over trade in services and investment,” Mr Krirk-krai said at the sidelines of the 12th Asean summit yesterday.

Thailand did not join other Asean members in signing the agreement last year since the pact was considered to yield little benefit to rice farmers. Other products including shrimp, chicken, and canned fruit, which are major export items to Korea, would also enjoy few benefits from Seoul’s pledged tariff cuts.

Thailand wants Korea to consider increasing its retail rice trade quota to 30,000 tonnes, as agreed originally at a World Trade Organisation meeting, and to allow Thai rice to enter the Korean market.

Korea is Thailand’s eighth-largest trade partner, with bilateral trade value between the two countries totalling nearly US$7 billion.

Mr Krirk-krai did not elaborate on how soon the Thai and Korean officials would dismantle the obstacles and reach a compromise.

Talks on services had made some progress, but in the area of investment, espe

dhcially on the threshold issue, few developments had been made, sources said.

The 10-member Asean has rapidly moved forward with FTA negotiations with China, which started in November 2001, having reached a framework agreement within one year and instigated an early harvest programme covering trade in goods in July 2005.

The Asean-China FTA, a zero-tariff market of 1.7 billion people, has been targeted to come into force in 2010 for the six original Asean members — Thailand, Malaysia, Singapore, the Philippines, Indonesia and Brunei — and in 2015 for the other four — Burma, Cambodia, Laos and Vietnam.

Thailand still has a deficit of nearly two billion baht in trade with China under the Asean-China FTA.

Asean talks with Japan have moved slowly as Tokyo is also pursuing bilateral trade pacts with all Asean members.

“Asean and Tokyo have to work out how both sides can strike an Economic Comprehensive Partnership. This means: will the ECP be based on the progressive bilateral pacts with some Asean countries or the ongoing talks with less developed Asean members?” a source said.

Asean trade talks with India have gone nowhere, but the regional grouping does plan to kick-start negotiations with the European Union within this year.

Credit: Bangkok Post, Thailand

Achara Ashayagachat. Knight Ridder Tribune Business News. Washington: Jan 12, 2007. pg. 1

Mexico: new president could open the door to foreign investment

After winning the presidential election by the narrowest margin in Mexican history and enduring two months of public protests and legal challenges, conservative candidate Felipe Calderon has officially been declared the successor to Mexico’s leader, Vicente Fox, Anne Feltus reports.

That is good news for energy companies that have experience operating in deep waters around the globe. Like Fox, Calderon recognises that the country’s energy future depends on its ability to exploit its deep-water oil and gas potential and that the national oil company is not up to the task.

Oil income accounts for more than 40% of federal revenues and for years that income has come primarily from the giant Cantarell complex in the Gulf of Mexico. Total reserves of the five fields that comprise Cantarell rank as the second-largest in the world, smaller only than Saudi Arabia’s Ghawar oilfield.

Discovered in 1976, and producing since 1979, Cantarell reached peak production of 2.13m barrels a day (b/d) in 1994 then began to decline. In an effort to prolong its life, state-owned Pemex began pumping nitrogen into the field to increase its pressure and employed production-boosting techniques such as horizontal drilling. Cantarell is expected to yield about 1.9m b/d of oil this year, but production is projected to drop rapidly to between 1.43m and 0.52m b/d by 2008.

To meet future domestic demand and continue participation in the international market, Mexico must find significant new oil reserves and the industry consensus is that those deposits are most likely to be in deep water. Pemex made its first deep-water oil discovery in Campeche Sound in 2004.

Two more discoveries followed before the Noxal 1 well, drilled in 3,000 feet of water off the coast of Veracruz, struck paydirt in March 2006. Initially, it was hailed as a major oil discovery that would yield as much as 10bn barrels and would reinvigorate the Mexican industry by helping offset Cantarell’s decline. However, further drilling has revealed only 245bn cubic feet (cf) of gas and no significant oil reserves.

Pemex will continue its exploitation of the Mexican Gulf’s deep water, but deep-water development is expensive and Pemex is heavily in debt. More importantly, it lacks experience of deep-water drilling, which is technologically challenging. Compounding the problem, Mexico prohibits foreign companies from investing in oil exploration. Mexican law limits participation by private and foreign oil companies to provision of oilfield services on a contractual basis.

The Fox administration’s efforts to ease these restrictions were blocked by the opposition-dominated Congress. If the election had swung in favour of Calderon’s opponent, Andres Manuel Lopez Obrador, the impasse would probably have continued. However, now that the election results have been confirmed, Calderon is expected to begin opening the doors to foreign investment. Already, one deep-water veteran, Brazil’s Petrobras, has indicated that it is ready and eager to enter.

Petroleum Economist. London: Oct 2006. pg. 1

Petroleos Mexicanos

Mexico: Pemex under pressure to reform as Canterell declines

The country’s new government should relax the financing constraints on state-owned Pemex, the International Monetary Fund (IMF) says in a new country report. Under the existing financing arrangements, in which raising oil-sector investment requires either fiscal-policy tightening or the issuance of public debt, too much strain is being put on the public-sector balance sheet, the report says.

At the same time, Pemex is denied access to technologies and advantages that other oil companies obtain through joint ventures, because foreign ownership of hydrocarbons resources is prohibited in Mexico. In addition, argues the IMF, unlike international oil companies, Pemex is unable to adjust its annual capital budget at short notice to reflect changes in international crude and products prices.

Proposals to reform Pemex’s governance and to allow risk-sharing with the private sector deserve new consideration, says the report. Risk-sharing with private-sector investors would ease the pressure on the public-sector balance sheet, help reduce national debt and would mean that the state would have a lower share of its assets invested in the oil sector.

Mexico could emulate other countries that have put national oil companies (NOCs) on a more commercial footing. The IMF points to the example of Brazil’s NOC, Petrobras, as an illustration of how an NOC can use private-equity finance to underpin rising capital expenditure.

The urgency of reform is underscored by growing doubts about Pemex’s capacity to orchestrate a sustained increase in oil output, as its main fields continue their irreversible decline. The IMF says Pemex will find it difficult to develop sufficient oil to compensate for losses from the Cantarell field. Cantarell is the world’s second-largest producing field and accounted for 60% of Mexico’s oil production last year.

Pemex expects Cantarell’s output to fall by 50% by 2010 from the present level of 1.86m barrels a day (b/d). However, the problem is not restricted to Cantarell: 23 of Mexico’s 32 most important fields are in decline. Mexico’s oil production is expected to average 3.25m b/d in 2006 – down from 3.31m b/d in 2005. Proved oil reserves declined to 14bn barrels in 2005 from about 17bn barrels in 2002.

Enhanced oil-recovery (EOR) programmes should boost output at mature fields. For example, Pemex says EOR at the Jugo-Tecominoacan field in southern Mexico will boost production from 22,000 b/d to a peak of 88,000 b/d by 2008. However, gains on this scale will not deliver production increases on the scale of Cantarell.

Significant investment and new technology will, therefore, be required to exploit complex geological structures and deep-water resources, the IMF says. Some estimates suggest the deep waters of Mexico’s segment of the Gulf of Mexico could hold as much as 53bn barrels of oil. Yet Pemex has little experience in deep-water exploration and production, and lacks the necessary technology and funds. From 2000, Pemex boosted annual investment to over $10bn, from less than $1bn a year during the 1990s. But the extra spending has failed to staunch sliding output, adding weight to calls for reform.

Petroleum Economist. London: Nov 2006. pg. 1

Guess what?

This blog is not for you.

Petroleum Economist News Oct 2006

Western Europe

Denmark Dong has agreed to sell its gas storage facility at Lille Torup to Energinet.dk. The sale, to be completed on 1 May next year, will bring it DKr2.0bn ($340m) plus a possible additional payment after 2030. Dong agreed to sell the facility to gain the European Commission’s approval for the merger of a number of Danish energy companies (PE 5/06 p40).

France Seismic firms Compagnie Generale de Geophysique (CGG) and Veritas are to merge to form CGG-Veritas, to be held about-65% by CGG shareholders and 35% by Veritas shareholders. The combined fleet will amount to 20 vessels, including 14 high-capacity 3-D vessels.

Germany EuroHub said last month that “for the time being” it will suspend operations at its physical gas hub between Emden, Oude Statenzijl and Bunde. The firm, owned by the Netherlands’ Gasunie, Germany’s E.On, BEB and Wingas, and Norway’s Statoil, said interest in its services was decreasing following the development of virtual trading points in Germany and the Netherlands.

Ireland Challenger Minerals, wholly owned by GlobalSanteFe, is to farm in to Providence’s licence options (03/8 and 03/1) over Celtic Sea areas. Challenger will pay 26.7% of this year’s seismic costs to gain a 20% interest, with Providence’s holding falling to 75% and the remaining 5% being held by Midmar. Challenger has the option of taking an additional 20% on the same terms by the end of October. Providence, listed in Ireland and the UK, says the areas hold five discoveries and another prospect. Last month, it awarded the contract for seismic work to Gardline Geosurvey, saying work will start in October. Lundin plugged and abandoned its 13/12-1 exploration well into the Inishbeg structure, 75 km off the northwest coast. Inishbeg had been flagged as a large and shallow Triassic gas structure. Island Oil & Gas (operator), Lundin and Endeavour have been awarded six part-blocks in the Donegal basin of the Irish Sea. The work programme includes acquiring 2-D seismic and reprocessing existing seismic data. Serica was awarded two blocks and one part-block in the Slyne basin, off the west coast. Serica, holding 100% of the areas, will reprocess existing 3-D seismic and will drill a well if it elects to go into the second phase of the licence. The blocks lie in 200-300 metres of water, some 40 km south of Shell’s Corrib gasfield.

Italy UK firm Independent Resources is planning to build an underground strategic storage facility for gas at Rivara, near Bologna – on the route of pipelines carrying gas from north Africa to Europe. The firm says the facility will have a capacity of 3.2bn cm, equivalent to 20% of the country’s present capacity. A nine-month environmental-impact study has been carried out and clearance is being sought for a Euro200m ($253m) appraisal and development programme. Start-up is targeted for 2010.

Netherlands Wintershall says it will bring its L/5-C gasfield on stream by end-year through a reconstructed and reinstalled platform, which had been used on the K/10-V field for 10 years. Reconstruction of the facility gave environmental advantages and saved costs and time, the firm says. From L/5-C gas flows to the firm’s L/8-P4 platform, 8 km away, for landing through existing pipelines. The firm’s partners are the state’s Energie Beheer Nederland and Petro-Canada. Total is to bring its L/4-G gasfield on stream through a subsea well. Gas will flow to the L/4-A platform, on which a new deck extension has been built, for landing at the Uithuizen terminal. Production, of about 1m cm/d, has been bought by Gasunie. Interests are Total, 55.66%, Energie Beheer Nederland, 40%, and Lundin, 4.34%.

Norway The southern part of Langeled pipeline, which will start contract deliveries of gas from Sleipner to the UK’s Easington terminal on 1 October, has been completed at NKr3bn ($457m) below the NKr20bn budget, Hydro says. The pipeline is due to be opened mid-month by the Norwegian and UK prime ministers. Hydro says the Ormen Lange field development, which is due to start flowing gas through Langeled in October 2007, is ahead of schedule and on-budget. Three pipelaying barges – Saipem’s S7000, the Acergy Piper and Allseas’ Solitaire – are working on the northern part of Langeled, which should be completed this autumn. Hydro was drilling an appraisal well last month into its Astero oil prospect, north of the Fram field in the North Sea. The firm said the discovery well, drilled in May last year, showed Astero to be “commercially interesting”. Statoil says its Gullfaks field – in production for 20 years and, according to original expectations, due to have been shut down by now – should be flowing for at least another 20 years. The firm was drilling the 50th well there last month and has plans to explore more than 50 possible tie-back structures in the area. Statoil made a gas discovery last month in the Barents Sea, with a well drilled as part of its drive to find gas for a possible expansion of the Hammerfest LNG facility. The 7122/6-7 well, drilled about 60 km east of the Snohvit field, found gas in several layers and was logged and sampled. The firm says it will carry out more drilling in the Snohvit area in 2007 and 2008. Meanwhile, the Polar Pioneer drilling facility goes to Eni for an appraisal well in the Goliat oil structure. Marathon submitted a plan for development and operation (PDO) last month for its Volund oil and gas discovery, near Alvheim in the North Sea. The firm plans to use subsea wells tied back to Alvheim, at a cost of about NKr2bn. First oil is targeted for first-quarter 2007, from reserves of 44m barrels of oil and 0.8bn cm of gas. Hydro says it will submit a PDO by year-end for a joint development of the Camilla, Belinda and Fram B gasfields. The fields will flow from subsea facilities to the Gjoa production semi-submersible, with gas piped through a new line connecting to the UK’s Flags pipeline, which lands at St Fergus. Condensate will be sent through a new link into the Troll Oil II line, for landing at Mongstad. Recoverable reserves are put at 18bn cm of gas and 25m barrels of condensate. Statoil has contracted the Transocean Leader semi-submersible drilling unit for 30 months starting at the end of 2008, at a cost of $378m.

Portugal Brazil’s Petrobras (50%) has signed an agreement with local firms Galp (30%) and Partex (20%) covering planned exploration in deep-water areas off the western coast. Petrobras, with its experience of deep-water operations in Brazil, will lead an initial study of existing geophysical data.

Spain Foster Wheeler has won the detailed engineering, procurement and construction contract for the 20,000 b/d delayed-coker at BP’s Castellon refinery, for which it is also supplying the technology and has completed the design work. Start-up of the facility is due in 2008.

Sweden Storrun Vindkraft, which holds the rights to build a 30 MW wind turbine at Krokum, in the mid-part of the country, is to be acquired by Denmark’s Dong. The seller, Borevind, has the right to buy back 20% of the venture. Dong says approvals for the turbine are in place, but work is needed on the project framework. It plans to take a final investment decision in mid-2007 and to complete the facility at end-2008.

Turkey Botas has awarded a three-year maintenance and supervision contract covering the Turkish section of the Baku-Tbilisi-Ceyhan pipeline to Wartsila. The firm supplied the 18 gas-fuelled pumping units at the pipeline’s four pumping stations on Turkish territory.

United Kingdom ConocoPhillips has discovered a new gas-condensate field at the boundary of Blocks 30/6 and 30/7, in the central North Sea. The firm said last month that it made the find with its 30/6-6 well, drilled about 9 km west of its Judy field in 81 metres of water. The well was immediately sidetracked to delineate the find, confirming a gross hydrocarbons column of more than 600 metres. The firm’s partners, Eni and BG, both said the discovery was substantial and would be developed, BG estimating that it held recoverable reserves of 100m-275m barrels. Use of Judy infrastructure could make for a low-cost project. Interests are ConocoPhillips, 36.5%, Eni, 33.0%, and BG, 30.5%. Venture is to sell 75% of its 100%-owned Ensign discovery to North Sea Gas Partners (NSGP) – the venture it launched in April with US investors led by ArcLight Capital Partners. Venture also said that NSGP is to farm-into its Amanda and Agatha prospects, near Ensign, by paying the full cost of a well on each to gain a 50% share of each. With Venture holding a 33.3% interest in NSGP, the deals will reduce its combined holding in Ensign to 50% and its combined holdings in Amanda and Agatha to 66.7%. NSGP was set up with funds of $300m (including $100m from Venture), with Venture acting as operator in return for a management fee and an enhanced share of dividends after a threshold return is achieved. Lundin is to acquire interests from Total in three blocks – two in UK waters, one in Norwegian waters – covering the undeveloped Peik gas-condensate field. The firm will pay $45m and estimates that the three interests will give it a total of 40% of the field, when a unitisation agreement is drawn up. Peik, with reserves of about 20m boe, is likely to be developed as a subsea step-out from a nearby platform. Norway’s Hydro will sell 0.5bn cm of gas to Russia’s Gazprom for marketing in the UK, over one year starting on 1 October. The gas will be delivered through the southern part of the Langeled pipeline, running from Sleipner to Easington, which is due to come into use this month. US firm Excelerate Energy has won planning consents for its gas-port project at Teesside, under which the firm’s Energy Bridge vessels will pump regasified LNG directly into the national transmission system. Onshore infrastructure is due to be completed in December.

Eastern Europe and CIS

Armenia Iran wants to build a second gas pipeline to the country, which would primarily supply Armenia, but could also use the territory for transiting gas to third countries. An initial 141 km pipeline connecting the two countries will be completed later this year.

Azerbaijan Production from the Shah Deniz gasfield was due to start at the end of September and will rise during the course of the year, according to BP. Initial output is put at 8.8bn cm/y. The gas will be transported through the new South Caucasus Pipeline and will reach Turkey by the end of this month. Ukraine and Azerbaijan are studying plans to co-operate in transporting Caspian gas to Europe. A parliamentary group will be set up to work on the idea, which is designed to help Azerbaijan find new routes to Europe for its gas and help Ukraine diversify away from Russian gas. AIOC, which is developing the Azeri-Chirag-Guneshli contract area, says oil output almost doubled to 14.3m tonnes in the January-August period, up from 7.4m tonnes in the same period of 2005. Natural gas output rose to 1.69bn cm in the January-August period, up from 0.98bn cm the year before.

Balkans Russia’s Lukoil has signed a preliminary agreement with Slovenia’s Petrol, a products retailer, to set up a marketing venture in the Balkans. Petrol will contribute its service stations in Slovenia, Croatia, Bosnia and Serbia to the new venture, in which it will hold a 51% share. Lukoil’s contribution will include Beopetrol in Serbia and its Lukoil Macedonia division. The venture is expected to be created by year- end.

Belarus Gazprom and Beltransgaz have signed a deal allowing ABN Amro to conduct an independent valuation of the Belarusian gas company’s assets in order to settle a dispute over their true value. After valuation of the assets – which Gazprom estimates at $1bn, but Beltransgaz values at $5bn – the companies will gather them into a joint venture.

Bosnia Herzegovina A government commission has shortlisted 11 firms to enter a second round of negotiations on a Euro2bn project to build eight power plants. The commission included in the shortlist all companies that recorded profits of over Euro100m in 2005, including Verbund, EVN, Enel, and CEZ. Hungary’s Mol and Croatia’s Ina have signed a long-awaited deal with the government to buy a 67% stake in Energopetrol. Mol will subscribe to new Energopetrol shares, worth $39m, leaving the state holding a stake of 22% in the fuel retailer.

Bulgaria The privatisation agency has shortlisted four firms in the tender for a 214 MW heating plant in the town of Plovdiv. The candidates – Czech CEZ, Austria’s EVN, France’s Dalkia International, and a consortium of Gazprom and Bulgaria’s Overgaz – were to be invited to file offers to buy 100% of the utility on 9 October.

Croatia The government says it will float at least 15% of the shares of Ina on the bourses in Zagreb and London in November. In 2003, the state sold 25% plus one share in Ina to Mol for $0.51bn.

Czech Republic The government is reportedly considering some state asset sell-offs to help fix the deficit-ridden budget. Up for grabs could be some of its 68% stake in power company CEZ, which is estimated to be worth some $15bn.

Kazakhstan KazMunaiGaz (KMG), the state-owned oil company, plans to list on the London and Kazakhstani stock exchanges within a few months. Credit Suisse, ABN Amro and Visor Capital, a local investment bank, have won a mandate to handle the IPO, which the company hopes will raise $2bn. KMG has created a special subsidiary, KMG Exploration and Production, for the listing. The new entity has been allocated KMG’s main onshore fields in western Kazakhstan, which produced 4.6m tonnes of oil in first-half 2006. Alexander Gladyshev has been hired to head KMG E&P’s investor relations team. Gladyshev earlier served in a similar role at Yukos. The country has signed an agreement to co-operate in the peaceful use of atomic energy with Japan. Sumitomo and Kansai Electric Power are already involved in a joint venture with Kazatomprom, the state-owned nuclear power company, to mine uranium in the south of the country. Last year, Itochu signed a 10-year contract to import uranium. The country is seeking investors to help boost uranium production, consequently, more Japanese deals could follow. If all targets are fulfilled, the country would be the world’s biggest uranium producer by the end of the decade. The state-owned power grid operator, KEGOC, says the power sector needs investment of $3.5bn-5.0bn to modernise existing generating facilities and build new ones before 2015. Of the total, about $1.8bn should be invested in the modernisation of existing power plants. The investment would increase power output by 10 TWh by 2010 and by 15 TWh by 2015. Max Petroleum says the first shallow exploration well it drilled on the Zhana Makat prospect flowed oil at around 180 b/d. The hole was drilled to a depth of 1,000 metres and “a 23-metre oil column” was encountered in sands from a depth of 812 metres. The firm is conducting further tests to optimise production. Total says talks with KazMunaiGaz over its possible participation in the development of the Kurmangazy oilfield have been suspended and the French firm is looking at other possibilities in the country. Total won a closed tender to acquire a minority stake in the field, which is being jointly developed by KazMunaiGaz and Rosneft.

Latvia Ventspils Nafta, which operates the country’s crude export terminal, says the pipeline link from Russia, which has been unused since Moscow cut supplies in 2003, will have a good chance of reopening once the state’s 38.6% stake in the company is sold at auction on 5 October.

Lithuania The Mazeikiai refinery received crude from Venezuela for the first time last month, as part of its efforts to diversify sources of oil after Russia cut off supplies by pipeline because of a leak (see p28). Mazeikiu Nafta, the refinery operator, says further purchases of Venezuelan crude are possible, but provided no further details.

Moldova The government has reached agreement with Ukraine on resuming the transit of Russian electricity supplies to the country. The transit of Russian power across Moldova was halted in May when the contract between Ukrainian electricity exporter Ukrinterenergo and Russia’s UES expired and the sides failed to agree new transit tariffs.

Romania Dexia Bulgaria, owned by Switzerland-based Wintershall Erdgas Handelshaus Zug, plans to invest around $11.5m to build a gas pipeline under the Danube from neighbouring Bulgaria.

Russia TNK-BP has agreed to build a pipeline to link the Upper Verkhnechonsk field in the Irkutsk region of eastern Siberia with Talakan, a deposit controlled by Surgutneftegaz in the Sakha republic. From Talakan, oil will be fed into an export pipeline to the Pacific Ocean. Transneft, the state-owned pipeline operator, launched the eastern Siberia project earlier this year. Oil producers have been invited to commit volumes to the system, which will eventually carry up to 80m t/y of Russian oil to Asia-Pacific. Lukoil produced 1.89m b/d of oil in the first half of 2006, 5.6% more than in the same period in 2005. First-half gas output climbed by over 265%, to 5.14bn cm, thanks largely to output from the recently commissioned Nakhodkinskoye field in western Siberia. Nakhodkinskoye yielded 4.1bn cm in the first half of the year. Lukoil processed 0.94m b/d of oil at its refineries during first-half 2006. Throughput at the company’s domestic plants increased by 7.3% to exploit the favourable products margins created by record high crude-oil export taxes. Gazprom has signed an agreement extending by 15 years its long-term gas-supply contract with Germany’s E.On Ruhrgas and pledging additional deliveries through a new export pipeline across the Baltic Sea, which the companies plan to build in partnership. The deal commits Gazprom to supply 300bn cm of gas to E.On between 2020 and 2035. E.On will lift around 4bn cm/y of gas through the new Baltic pipeline, which is due to start up in 2010-2011. Gazexport, the foreign trading arm of Gazprom, delivered 93.42bn cm of gas to Europe in the first seven months of 2006, fractionally more than the 92.14bn cm marketed in the region in the same period of 2005. Western Europe boosted imports of Russian gas during the period to 66.32bn cm, up from 65.95bn cm earlier. Exports to Eastern Europe totalled 27.10bn cm, up from 26.20bn cm in the first seven months of 2005. Transneft, the crude pipeline monopoly, plans to issue a Eurobond in October to help finance construction of the 4,000 km East Siberia-Pacific Ocean oil pipeline, the first phase of which is estimated to cost $8bn. The cost of the entire pipeline, which will run from Irkutsk region to Primorsky region, on the Pacific coast, has not yet been announced. The atomic energy agency has laid out three visions for developing the country’s nuclear power industry, the most bullish of which will see nuclear’s share in the consumption balance rise to 25-30%, up from 16%, by 2030. Meanwhile, the governor of Tomsk region says a new nuclear power plant with four generating units will be built in the Siberian town of Seversk by 2020. UES plans to restrict power supplies to 16 regions in the coming winter months in an effort to avert possible widespread power outages. UES introduced restrictions in three regions last winter, when severe cold weather triggered increased electricity demand for heating and strained the dilapidated power infrastructure. Gazprom is holding talks with Gaz de France and its own trading arm in the UK to sign long-term deals for gas supplies coming through the new North European Gas Pipeline to Germany. The pipeline, due on stream early next decade, will initially carry 27.5bn cm/y. Peter O’Brien, vice-president of Rosneft, says the state-owned company may use its gas reserves to produce liquid fuels if it cannot agree terms for using Gazprom’s pipeline network. Lukoil expects to boost domestic refinery throughputs in the medium term by 50%, to 75m t/y, by expanding capacity at the Volgograd and Norsi refineries. In the longer term, it plans to boost its processing capacity to 100m t/y.

Serbia and Montenegro The government was due to begin the auction of a stake in oil firm Naftna Industrija Srbije, which is valued about $2bn, early this month. Among interested bidders are Lukoil, OMV and Mol.

Ukraine Naftogaz Ukrainy says it has paid off the final $10.5m debt to Turkmenistan that the state-owned firm owed for gas supplies. The issue of Naftogaz’s debt to Turkmenistan has, until now, prevented an extension being agreed to the five-year gas supply deal signed in 2001 between the two countries. The government plans to spend $4.5bn to modernise its Soviet-era network of gas pipelines that supply Europe with much of its gas. The four-year reconstruction project will help increase gas transit volumes and the reliability of transit services.

Uzbekistan State-owned Uzbekneftegaz has teamed up with Lukoil, China National Petroleum Corporation, Korea National Oil Corporation (KNOC) and Petronas Carigali to explore in the Aral Sea. The group plans to invest $99.8m during an initial three-year exploration programme. Seismic will start in April 2007. With the exception of KNOC, all of the companies are already involved in Central Asian oil and gas projects. KNOC is close to finalising a contract for the Zhamboul block in the Caspian Sea offshore Kazakhstan.

Africa

Angola Another licensing round will open towards the end of the year, according to state-owned Sonangol’s exploration director, Severino Filomeno Miranda Cardoso. He was reported as saying that 12 areas will be offered, of which three – Blocks 46, 47 and 48 – are newly designated areas to the west of Blocks 31 and 32, where multi-field developments are being planned. Also offered will be Blocks 19, 20 and 21 in the central part of the offshore, the shallow-water Blocks 11 and 12, and four onshore blocks in the Kwanza basin. Sonangol has launched its first offshore development as operator. The firm has ordered a subsea production system for the Gimboa field, in Block 4/05, from Aker Kvaerner for $68m. Water-depth at Gimboa is 700 metres.

Chad The government told Malaysia’s Petronas and Chevron that they will have to surrender their interests – respectively, 35% and 25% – in the Doba basin oil development, which flows 170,000 b/d of crude to an export terminal at Kribi, Cameroon. It has alleged the two firms owe $450m in taxes, which they deny. The country has just set up a state-owned oil company, Societe des Hydrocarbures du Tchad, and has been seeking a higher share of oil proceeds to finance military expenditure. Last month, talks were under way and a government commission had been set up to renegotiate contracts. ExxonMobil, which operates the development and has a 40% share, says it expects “contract sanctity to be valued”.

Congo (Brazzaville) The UK’s Soco is to farm out half of its 75% interest in the shallow-water Marine XI block to Lundin and Raffia. Soco continues as operator and says PGS is due to start a 1,200 square km 3-D seismic survey in early October. Previous exploration has resulted in four small oil discoveries, the largest of which could hold 30m-60m barrels. Interests will become Soco, 37.5%, Lundin, 18.75%, Raffia, 18.75%, Societe Nationale des Petroles du Congo, 15%, and Africa Oil & Gas, 10%.

Egypt Egyptian General Petroleum Corporation is offering six blocks for exploration – four onshore in the Western Desert and two offshore in the Gulf of Suez. Bids must be in by 7 November. A partnership between Sipetrol (operator, 50.5%) and Oil Search (49.5%) was drilling the Shahd-1 well in the East Ras Qattara licence of the Western Desert last month.

Equatorial Guinea Marathon and its partners in the EG LNG venture are moving towards the construction of a second train. Marathon awarded a Feed contract for Train 2 to Bechtel in August and says discussions with owners of gas reserves in Equatorial Guinea, Nigeria and Cameroon are being held, in readiness for a decision on the train in 2007. The Feed contract covers a train of 4.4m t/y – up from the 3.4m t/y of the first train. The country could serve as a regional gas hub, commercialising stranded reserves in the Gulf of Guinea, Marathon says. Meanwhile, the US firm forecasts that the first train will start shipping LNG in the middle of 2007, ahead of the fourth-quarter 2007 target. Interests in EG LNG are Marathon, 60%, Sonagas (the state’s gas company, to which the share held by the state’s GEPetrol has been transferred), 25%, Mitsui, 8.5%, and Marubeni 6.5%.

Gabon Addax has taken over all of Pan Ocean’s operations in the country, with the completion last month of its acquisition of Pan Ocean Energy for C$1.605bn ($1.431bn). Pan Ocean has been developing a number of small onshore fields and has shallow-water exploration acreage. Addax says the acquisition will increase its end-2006 total production to nearly 120,000 b/d, with an average of over 130,000 b/d in sight for 2007.

Mauritania According to Hardman, a participant in the troubled Woodside-operated Chinguetti field, the wells in Phase 1 of the development plan are “not likely to recover significantly more than 50% of the original proved and probable reserves estimate of 123m barrels”. Production has declined to 37,000 b/d, from 66,000 b/d when the field came on stream in February. A 4-D seismic programme is due to start early next year.

Nigeria Just after the Brass LNG project had gained a full set of shareholders again (PE 9/06 p39), the government said it wants to cut company holdings to give 3% to the UK’s Centrica and 2% to BG. Total, which in August agreed to take up the 17% formerly held by Chevron, would see its holding cut to 12.5%, while ConocoPhillips would see its 17% cut to 16.5%. Total is reported to be meeting with the authorities before deciding on its response. BG, BP and Suez LNG Trading have initialled sales agreements covering 2.0bn cm/y each. Other interests in Brass LNG – Eni’s 17% and state-owned NNPC’s 49% – are unchanged. The oil industry contractor, Willbros, said last month that it will sell its operations in the country, where it has an order-book of $400m. Several of the firm’s staff have been held hostage recently. The firm says new owners could continue operations with less risk to personnel and property than itself.

Uganda Hardman’s Mputa-1 well, drilled early this year, was tested in August, flowing 820 b/d of 33[degree]API crude from an upper zone and 300 b/d of 32[degree]API crude from a lower zone. The firm says the find, in the onshore Block 2, is “potentially commercial”. Block 2 is held by a 50:50 partnership between Hardman and Tullow.

North America

Canada Canadian Natural Resources (CNR) has paid $4.2bn for the local unit of Anadarko, acquiring proved reserves of 48m barrels of oil and 1.56 trillion cf of gas, which produce 9,300 b/d of oil and natural gas liquids and 358m cf/d of gas. The deal also includes 1.5m net undeveloped acres in northeastern British Columbia and northwestern Alberta; seven major gas facilities; 2,800 miles of pipelines; and 1,500 future drilling locations. Closure of the deal will give CNR production of up to 0.61m boe/d. Chevron Canada, with Western Oil Sands as a 20% partner and Shell Canada contemplating an equity option, plans to drill up to 100 appraisal wells to define the “ultimate recovery potential” of its 75,000 acres of oil-sands leases, which are estimated to hold 7.5bn barrels of oil in place. A final economic decision on whether to proceed with the Ells River project, targeting 100,000 b/d by 2015, is due in November. Harvest Energy Trust became the first income trust to enter the refining field, buying Newfoundland’s Come-by-Chance facility for C$1.6bn ($1.4bn) from Swiss trader Vitol. The newest of Canada’ 16 refineries, it processes 115,000 b/d of imported crude, exporting 90% of its products to New England and New York. The deal extends Harvest’s economic life to 16 years from 9.5 years. It expects to produce about 67,000 boe/d in 2007. Crescent Point Energy Trust is taking over Mission Oil & Gas for C$0.76bn, gaining control of a possible 1bn barrels oil find in the Bakken area of southeast Saskatchewan. The trust will gain 5,500 boe/d of production, boosting output to 26,500 boe/d, build its proved and probable reserves to 111.6m boe and its undeveloped land base to 317,000 net acres. EnCana has filed plans with regulators for a scaled-down Deep Panuke gas project offshore Nova Scotia, lowering expected production to 300m cf/d from the 400m cf/d planned when the development was put on hold in 2003. It tentatively plans to start delivering gas to Atlantic Canada and New England in 2010. The project’s forecast operating life has been extended to 13.3 years from 11.5 years. A final decision to proceed will not be made until late 2007, after regulatory approval. The value of mergers and acquisitions totalled C$13.9bn in the first half of 2006, C$4.1bn more than a year earlier, according to Sayer Energy Advisors. The second quarter saw five deals valued at C$1bn or more, representing two-thirds of the first-half value. Income-trust transactions amounted to C$7.8bn. Acquisition prices averaged C$20.34/boe for proved-plus-probable reserves, 33% more than the same period of 2005. Bruce Power, operator of six nuclear plants supplying 20% of Ontario’s power, has filed an application with federal environmental regulators outlining plans for four 1 GW units costing C$8bn-10bn. Final decisions will wait for completion of the environmental assessment, which could take three years. Penn West Energy Trust has identified 6bn-7bn barrels of recoverable bitumen after evaluating its 370,000 acres of leases in Peace River, northwestern Alberta. The Seal project, producing 4,000 boe/d, is expected to reach 20,000 boe/d within five years at production costs of C$7-8/b. Canadian Oil Sands Trust has concluded a $197m take-over of Canada Southern Petroleum, ending a bidding contest with Petro-Canada and Canadian Superior Energy. Canada Southern’s major assets cover 184 square miles of Arctic islands, including 0.93 trillion cfe of marketable gas, 13.7 trillion cfe of reserves, seven significant discovery licences and one production licence. The trust has no immediate plans to develop the resources.

Kereco Energy has acquired Chamaelo Exploration for C$332m, increasing its production by 40% to 15,000 boe/d. The assets include 14.03m boe of proved-plus-probable reserves – 53% natural gas and 47% crude and gas liquids – plus 130,000 net acres of undeveloped land valued at C$26.2m. The transaction works out at C$27.08/boe of reserves and C$66,416/boe/d of production.

United States Arizona Clean Fuels has an additional 18 months to begin construction work on its planned $2.7bn, 150,000 b/d refinery near Yuma, Arizona. Last month, the Arizona Department of Environmental Quality reissued the Class 1/Title V air permit for the facility, originally granted in April last year, with additional testing and certification requirements. The firm, which already holds an operating permit for the refinery, is seeking finance. ExxonMobil (25%, operator), with partners Newfield Exploration, BP, Petrobras, Dominion and BHP Billiton have abandoned their $210m Blackbeard West wildcat well, widely regarded as a pointer to the future of ultra-deep-water gas exploration in the GoM. The Blackbeard well was drilled to a record 30,067 feet and encountered only “thin gas-bearing sand”. High pressure prevented the well from reaching its primary targets. ExxonMobil is reviewing data before deciding whether to drill more test wells. Western GoM Lease Sale 200 attracted $341m in high bids, the strongest response in the region since 1998. Postponed three times because of court rulings, the sale had 541 bids on 381 blocks. Six of the top 10 bids were placed on the ultra-deep-water Keathley Canyon, with BP offering $21m for KC 58. Petrobras paid $23.7m for two blocks and led the overall bidding at $45.5m for 34 blocks, followed by BP at $37.5m for 31 blocks. Cabot Oil & Gas is leaving the GoM shelf region after selling its assets to privately held Phoenix Exploration for $340m. The deal involves 20% of Cabot’s North American production of 248m cfe/d and 5.4% of its proved reserves of 1.33bn cfe. Nexen expects initial production of 12,000-15,000 boe/d from its deep-water Aspen field in the Gulf of Mexico following a “successful” delineation well. Aspen, 150 miles south of New Orleans in 3,150 feet of water on Green Canyon, is expected on stream this quarter. Nexen, operator and 100% owner, found 160 feet of net pay in drilling to a depth of 20,691 feet. Chevron has penetrated a pool of petroleum on its Jack 2 prospect, in the Walker Ridge area of the GoM about 270 miles southwest of New Orleans, which could boost the nation’s reserves by more than 50%. A test well on the field, which was discovered in 2004, indicates it could hold 3bn-15bn barrels of oil and NGLs, which would make it the biggest domestic oil discovery since Prudhoe Bay. The well was drilled to a total depth of 28,175 feet, the deepest successful well test to date in the GoM. Chevron has a 50% stake in Jack 2; Statoil and Devon Energy own 25% each. BP has agreed to acquire Greenlight Energy, which develops large-scale wind-power projects across the country, for $98m, excluding working capital and tax adjustments. BP America has made an oil discovery on the Kaskida prospect, in about 5,860 feet of water on Keathley Canyon Block 292 of the GoM. Whiting Petroleum has acquired 1.4m boe in Michigan from a private seller for $26m. The acquisition includes 65 producing properties, a gathering line, gas-processing plant and 30,437 net acres of leasehold held by production. Regency Energy Partners has completed its $358.8m acquisition of TexStar Field Services, which has 1,476 miles of gas-gathering pipelines and four gas-processing plants. Alternative Energy Sources plans to acquire Flex Fuels USA and its affiliate, ACN Energy Consulting, in a stock-for-stock transaction. Flex Fuels has developed methods of producing cellulosic ethanol made from biomass and other types of waste. Lyondell Chemical has acquired Citgo’s 41.25% stake in the 268,000 b/d Lyondell-Citgo refinery on the Houston Ship Channel for $2.1bn. Westar Energy plans to construct a $300m gas-fired peaking power plant in Lyon County, Kansas. The plant’s initial phase, which will have a generating capacity of up to 300 MW, will begin operations in summer 2008. Additional capacity will be added in phases, bringing the total to 600 MW. Woodside Natural Gas is planning a project designed to supply gas from Australia to California without construction of an onshore LNG import terminal or offshore platform. The OceanWay project would consist of two delivery buoys, more than 20 miles offshore Los Angeles, which would receive LNG transported on specially designed ships that would convert it back into gas. The gas would be delivered to shore through dual undersea pipelines. OceanWay would initially process about 0.4bn cf/d of gas, with plans for increasing the capacity in phases to 0.8bn cf/d and then 1.2bn cf/d. French seismic services company Geophysique has agreed to acquire Houston’s Veritas for $3.1bn in cash and stock. The acquisition will create the world’s largest surveyor of oil and gas fields. Citing market conditions, BP has halted its plans to build a $0.65bn LNG-import plant on Pelican Island, near Houston. UGI Utilities has completed its acquisition of the gas utility assets of PG Energy, a subsidiary of Southern Union, for $0.58bn. Arch Coal has agreed to acquire a 25% equity interest in DKRW Advanced Fuels, the principal developer of the Medicine Bow Fuel and Power coal-to-liquids project in the Carbon basin of southern Wyoming, and to invest $25m in the company. An investment group that includes Kinder Morgan’s chairman and chief executive, Richard D Kinder, company co-founder Bill Morgan, other members of management and the board of directors and investment companies Goldman Sachs Capital Partners, American International Group, Carlyle Group and Riverstone Holdings, will take Kinder Morgan private in a cash deal worth $15bn plus $7bn in debt. W&T Offshore has acquired Anadarko’s GoM shelf subsidiary for about $0.75bn. Anadarko recently acquired Kerr-McGee, which had already agreed to sell the shelf subsidiary to W&T Offshore. Western Refining has agreed to acquire Giant Industries for $1.22bn. The transaction would create the fourth-largest publicly traded independent refiner and marketer in the country. The acquisition includes three refineries, a chain of retail stations, a fleet of crude oil trucks and wholesale petroleum products distribution. Brookfield Power of Canada is acquiring two 107 MW hydro-electric plants in West Virginia from Alloy Power and West Virginia Alloy. Noble’s semi-submersible drilling unit, Noble Amos Runner, has established a new world record for the deepest conventionally moored rig by mooring in 7,650 feet of water in Green Canyon Block 955 in the GoM. Noble is drilling a well at the site, about 200 miles south of Houma, Louisiana, for Kerr-McGee Oil & Gas, a subsidiary of Anadarko. Earth Biofuels subsidiary Earth Ethanol has agreed to acquire a 50% interest in South Louisiana Ethanol (SLE) from HPS Development. SLE owns a former ethanol production facility in Plaquemines Parish, about nine miles southeast of New Orleans. Earth Ethanol plans to reconstruct the facility. When the reconstruction is completed in third-quarter 2007, the facility’s production capacity is projected to be at least 65m gallons a year. Duke Energy Indiana and Vectren Energy Delivery of Indiana plan to build a 630 MW power plant in Edwardsport, Indiana, using gas converted from coal. Construction of the plant, which will cost an estimated $1.3bn-1.6bn, could begin as early as mid-2007. Duke Energy plans to spin off its gas transmission and field services units into a separate, publicly traded gas company capitalised at over $15bn. The new Houston-based company, GasSpinCo, will be in place by 2007. GS AgriFuels plans to construct a multi-stock, multi-fuels production facility in Memphis, Tennessee. The proposed plant will have an initial production capacity of 10m gallons of biodiesel and 5m gallons of ethanol, methanol and/or biomass-derived synthetic diesel. Production should start in 2007. Geokinetics has completed the acquisition of Grant Geophysical for $125m in cash. Grant Geophysical conducts seismic operations in North America, Latin America, Asia and the Middle East. FPL Group subsidiary Florida Power & Light plans to build a coal-fired power plant in Glades County, Florida. The first 980 MW unit is scheduled to begin operations in 2012, and a second unit will go on line in 2013. The proposed FPL Glades Power Park will cost between $2bn and $3bn. Dynegy is combining its operating assets and establishing a joint venture with LS Power. LS Power will receive 340m Dynegy shares, $100m in cash and a $275m Dynegy note and will hold a 40% stake in the combined company. The new group will assume $1.8bn in LS Power debt; Dynegy will have a 50% ownership interest in the venture. Wisconsin Power and Light plans to build the Cedar Ridge Wind Farm in Fond du Lac County, Wisconsin. The 80-100 MW project is expected to cost $140m-175m and to start operating in either 2007 or 2008.

Latin America

Argentina The government has agreed to consider a new pipeline project that would increase gas exports to Chile. The plan would involve construction of a 475 km pipeline in Chile to connect the existing Gas Andes and Pacifico lines that transit Argentine gas across the Andes. The addition of the new link would increase capacity from 10m cm/d to 19m cm/d. Argentina reduced exports to Chile in 2004, in the wake of a domestic fuel shortage and a 10% fall in production. The country now says it wants to increase exports to Chile, but will also increase the price of the gas it sells.

Bolivia President Evo Morales says state-owned YPFB will begin drilling for oil and gas next year, marking its re-entry to the country’s upstream. Morales did not say how much the firm would spend to drill. Earlier this year, YPFB said it would work with Venezuela’s PdV on an exploration project in the north of the country. The company also claims that Russia’s Gazprom wants to partner it in an upstream venture. The energy sector needs new investment of up to $1bn so that it can supply neighbouring Argentina with more natural gas, according to planning and development minister Carlos Villegas. The country recently signed a contract to increase exports to Argentina from 5m cm/d to 27.7m cm/d.

Brazil US independent Devon Energy will drill three new exploration wells in the country starting this month. The company says the wells will further delineate the Polvo field, in the BM-C-8 block in the Campos basin. Devon intends to produce up to 50,000 b/d of oil from Polvo by July 2007. A fixed drilling rig, in 105 metres of water, will have 10 production and three water injection wells and will be linked to a 1.5m b/d FPSO. Devon has spent $200m-300m on the block so far, in which it holds a 60% share, with South Korea’s SK holding the remainder. Repsol YPF has emerged as favourite to partner Petrobras in the development of the Mexilhao gasfield, in the Santos basin. Petrobras earlier announced plans to spend some $2bn to produce up to 9m cm/d of gas by 2009, but had refused to name its partner. Petrobras says it will only work with a partner on condition that the Brazilian company retain operatorship and a majority stake. Mexilhao, in the BS-400 block, and a nearby field in the BS-500 block, have formed the basis of Petrobras’ plans to increase gas production by 2011 to around 70m cm/d from just over 10m cm/d. Total combined reserves in the blocks are some 14.8 trillion cf, making them the country’s largest discovery. Petrobras and its partner, White Martins, a unit of Praxair, have begun production from Brazil’s first gas-liquefaction plant, in the city of Paulinia. The $50m plant will produce 14,500 cf/d of LNG, to be transported by trucks throughout southern Brazil. The venture, known as Gas Local, may double capacity in future, according to Petrobras. The company plans to build an LNG network in the country as a means of transiting gas to areas that are not accessible by pipeline.

Colombia China’s Sinopec and India’s ONGC entered a joint venture to buy half of Omimex de Colombia, a subsidiary of the US’ Omimex Resources. The fee paid for the stake has not been disclosed.

Jamaica Brazil’s Petrobras is considering exploring the island’s offshore, says the government. The country’s industry, technology, energy and commerce minister, Phillip Paulwell, says Jamaica expects progress with Petrobras in October. The country has licensed eight of 20 offshore blocks. Two companies – Australia’s Finder Exploration and Canada’s Rainville Energy – hold five and three blocks, respectively.

Mexico State-owned Pemex says it will bid for three ultra-deep-water drilling rigs, according to contract driller Transocean. Two of the rigs will be for water depths of 7,500 feet, with a third able to operate in 10,000 feet. Transocean says Pemex intends to buy up to nine ultra-deep-water units. Pemex announced its first significant deep-water discovery, Noxal-1, earlier this year (see p26).

Peru The country’s anti-trust regulator, Indecopi, should rule later this month on Hydro Quebec’s sale of a stake in local transmission company Transmantaro. The Canadian company agreed in May to sell its 56.7% share in Transmantaro to ISA and EEB, of Colombia, for $67m. ISA says that it and EEB will also try to win a further 15% stake in the company through a tender. Bids for that stake, costing $15.2m, were due last month. Transmantaro runs a 600 km, 220 kV line that connects Mantaro and Socabaya, Peru’s southern and central grids.

Venezuela A new reform of the tax regime will increase the rate on oil developments and eliminate several tax breaks, local reports said. Income tax on oil activities – including the four Orinoco belt projects – will increase from 34% to 50%. Harvest Natural Resources has amended a joint venture it has with state-owned PdV to include three new oilfields. The companies will now control the Isleno, Temblador and El Salto oilfields, Harvest said. The venture will continue to operate the three other fields in the South Monagas unit in the southeast of the country. PdV controls 60% of all the fields, and Harvest holds the remainder. The country will increase oil exports to China to 200,000 b/d by the end of 2006, according to Rafael Ramirez, oil minister and president of PdV. Exports are 150,000 b/d. Meanwhile, Ramirez says PdV will develop older oilfields in the Zumano area, in Anzoategui state, with China’s state-owned CNPC. CNPC is already involved in a project with PdV to certify oil reserves in the Orinoco heavy-oil basin. PdV signed a contract with Belarusneft, the state energy company of Belarus, to certify reserves in the Junin-1 block, in the Orinoco belt. The two companies also signed a deal covering joint exploration in the region. A wide-ranging memorandum also covered development of natural gas projects in Venezuelan cities.

Middle East

Dubai The Dubai Multi Commodities Center (DMCC) says it will launch its gasoline futures contract in first-half 2007. The company says an active spot market in gasoline futures has emerged in Jebel Ali, helped by rising imports of gasoline in Iran. Meanwhile, trading of DMCC’s Fujairah 380 CST fuel oil futures contract on the Dubai gold and commodities exchange will begin at the end of this month.

Iran A downturn in the country’s oil sector triggered by UN sanctions is a bigger threat to the international economy than the prospect of Iran withholding exports in response to sanctions, former Opec president and Algerian oil minister Sadek Boussena said last month. Any sanctions that the West imposes on Iran for its nuclear programme would cause a fall in investment into the country and its oil sector and could see Iran unable to add spare capacity to its production capabilities. Oil exports of 2.5m b/d account for some 92% of the country’s revenues. GSP, a Romanian oilfield services company, said last month that Iranian forces had attacked and occupied one of its drilling rigs in the Mideast Gulf. Local reports said the action followed a contractual dispute over the facility. GSP claims that it leased the rig, Orizont, to Oriental Oil, of Dubai, which in turn sublet it to Petroiran, a subsidiary of state-owned NIOC. When its contract with Oriental ended, GSP took possession of the rig, prompting the attack from the Iranian authorities. Petroiran was using the rig to develop the Hangam field, in the Strait of Hormuz, some 20 km from Qeshm island. Japan’s Inpex says it is still waiting for NIOC to tell it that the Azadegan field has been completely de-mined before work can begin to develop it. The field contains an estimated 26bn barrels of oil. Inpex and NIOC signed a 75:25 joint venture to develop the field in 2004, but work has not begun while the field is cleared of mines laid during the Iran-Iraq war. Earlier this summer, Inpex denied NIOC had threatened to revoke the agreement unless work had begun by September 2006. Inpex now says that the field is 90% free of mines, but will continue to wait for NIOC’s go-ahead. Investment on the field will be $2bn-4bn. Iran says production of 260,000 b/d should be on stream by 2012. Oil minister Kazem Vaziri Hamaneh said last month that he was pleased with progress made in negotiations with the EU over the issue of the latter’s nuclear programme. Hamaneh also reiterated that Iran would not withhold exports of oil for political reasons. “I’ve said repeatedly that during Saddam’s war with Iran, Iran didn’t stop one day of its exports,” he said. “Our policy is not to use oil as a tool.” Total says it will abide by any international judgement for sanctions against the country over its nuclear programme. The company’s chief executive, Thierry Desmarest, said the company “will always respect all the decisions made at the level of the French government, the EU and the UN”. Total is hoping to join Japan’s Inpex in development of the $2b Azadegan field, in the southeast. Hydro-Zagross, a subsidiary of Norway’s Hydro, has signed a $107m E&P contract on the Khorramabad block, in the west of the country. Hydro-Zagross must spend $49.5m initially on exploration and another $58m to develop any discovery. China’s state-owned Sinopec and India’s state-owned Oil and Natural Gas Corporation (ONGC) will soon sign a contract to develop the Yadavaran oilfield, in the south. Sinopec will hold 51% of the field, with ONGC taking 29% and the rest held by local companies. Sinopec originally signed a memorandum about the field in 2004. A gas export pipeline to Armenia will be on stream by the end of this year, according to local reports. The 160 km line will export 36bn cm/y to Armenia for the next 20 years.

Iraq Production from the country’s northern fields increased in August, taking total average output during the month to 2.285m b/d, up by 42,000 b/d on July. Production from the northern fields averaged 308,000 b/d. The oil ministry said the rise followed repairs to pipelines connecting the Kirkuk oil production centre and the major refining and pumping hub in Baiji. Pumping to the Turkish port of Ceyhan is continuing, say local reports and State Oil Marketing Organisation last month issued a tender to lift 6m barrels of Kirkuk crude. The al-Ahdab oilfield will be the first to be developed in the new regime, oil minister Hussein al-Shahristani said last month. Al-Ahdab is close to the giant East Baghdad oilfield. Shahristani did not say when the field would be developed.

Jordan Iraq will supply the country with 10,000 b/d of crude at preferential prices, following an agreement signed by the two countries last month. The oil, which will account for 10% of Jordan’s demand, will reach the country by truck. Before the US-led invasion of the country, Iraq supplied Jordan with 100,000 b/d of cheap crude.

Saudi Arabia Saudi Aramco has found a new gasfield south of the giant Ghawar field, in Eastern Province. The country’s oil minister, Ali al-Naimi, says the Kassab-1 field has production capacity of 16.2m cf/d, and is 50 km from the infrastructure of Ghawar. Enhanced oil recovery and other technological advances could increase the world’s recoverable oil reserves by 4.5 trillion barrels, according to the chief executive of Saudi Aramco, Abdullah Jumah, He told a seminar at last month’s Opec meeting that the oil industry was too conservative in its estimates of oil reserves and claimed that the world had so far consumed only 18% of total reserves, “not including oil shale”.

Yemen Four suicide bombers and one security guard died during co-ordinated terrorist attacks on oil facilities in the southeastern province of Hadhramout and the northeastern province of Marib, according to local reports.

Asia and Australasia

Australia

The DBP consortium, which owns Western Australia’s main gas pipeline, from Dampier to Bunbury, is to invest A$0.7bn ($0.53bn) on another expansion project. The line connects gasfields on Australia’s Northwest Shelf to customers in southern Western Australia. Construction on the latest upgrade will begin early next year and should increase capacity by around 100 terajoules/d to more than 700 tj/d. The new capacity should be on line by end-2008. Shareholders in the DBP consortium are Diversified Utility & Energy Trusts (60%), Alinta (20%) and Alcoa of Australia (20%).

Australia/Japan Japan’s Osaka Gas will sign shorter-term contracts for LNG from Australia’s North West Shelf project when its 20-year deal expires in 2009, according to local reports. The Japanese firm takes 0.8m t/y of LNG from the project. In future, says the company, its contracts will probably be for five or 10 years. The North West Shelf project has capacity of 11.9m t/y from four trains and supplies several Japanese companies. The Woodside Petroleum-led project is signing contract renewals with its partners.

China State-owned PetroChina says it found 250m tonnes of oil in the Daqing field, in the northeast of the country, in the first six months of 2006 – more than twice the amount it found in the whole of 2005. The company says the new reserves could help to slow the field’s output decline – production fell by 2% last year, to 22.26m t/y. The newest reserves are in four blocks, one in Taidong Qijiabei area in Heilongjiang province, where reserves are 73m tonnes. The second block, in the Talaha Changjiaweizi area of Heilongjiang, holds proved reserves of 60m tonnes. A field in Gulong Maoxing, also in Heilongjiang, holds proved reserves of 96m tonnes. The fourth field, in Woerxun area, in the Hailaer basin in Inner Mongolia Autonomous Region, has proved reserves of at least 30m tonnes. PetroChina has not disclosed the total reserves of Daqing, the country’s oldest oilfield. The West-East gas pipeline will operate at around 84% of its capacity in 2006, according to state-owned CNPC. CNPC’s subsidiary, PetroChina, operates the pipeline, which has nameplate capacity of 12bn cm/y. The company plans to increase capacity to 17bn cm/y by 2010. The 4,000-km line came on stream in 2003 and transits gas from Xinjiang Uygur Autonomous Region, in western China, to Shanghai and other eastern cities.

China/Vietnam The two countries will accelerate exploration of the shared Beibu Gulf, according to a statement. The communique, signed during a summit between the countries’ leaders in Beijing, also discussed ways of settling border claims in the Beibu Gulf.

India State-owned ONGC will drill 138 exploration wells this year, according to the ministry of petroleum. The new wells will add 147.5m toe to the country’s reserves, the ministry says. So far, the company has drilled just 24 wells. The government has transferred many of its powers as a hydrocarbons regulator to the Directorate General of Hydrocarbons (DGH), the oil ministry said last month. The government claims that the move will help the DGH to “oversee ever increasing E&P activities in India”. Among the powers that the DGH has assumed are monitoring of upstream activities, including coal-bed methane development.

Indonesia The state-owned energy company, Pertamina, plans to increase refining capacity in the country by 20% by 2012, the firm said last month. Capacity is 1.04m b/d. Pertamina says its expansion programme will begin next year and modify refineries to handle more sour crude. Most of the country’s refineries are designed to handle expensive sweet crude. Total investment in the projects will come to more than $1bn. The Bontang LNG plant, in East Kalimantan, will use coal and not natural gas as its source of power in an effort to save more gas for exports. The energy ministry says converting the plant could save 220m cf/d of gas – equivalent to 22 LNG cargoes a year. The conversion will cost $0.6bn and be on line by 2009.

Japan Russia’s Gazprom shipped its first cargo of LNG to Japan in August. The announcement followed news that Tokyo Electric Power had signed a deal to import LNG from Gazprom. Gazprom does not yet produce LNG and bought the 145,000 cm cargo, which it sold to Chubu Electric Power, from Mitsubishi for an undisclosed sum. A statement from Gazprom said it planned to “build up its presence in the Asia-Pacific region both by commencing long-term pipeline gas deliveries and through the supply of LNG”.

New Zealand The government plans to run tenders to find companies willing to hold oil on its behalf, so that the country can meet its obligations as a member of the IEA. The government will ask companies to hold these stocks in New Zealand, Australia, the UK, Netherlands, or the US. The tenders will close towards the end of this month. The IEA demands that its members hold in reserve the equivalent of 90 days of net imports from the previous calendar year, meaning the country must add some 3.29m barrels to its stocks.

Papua New Guinea Local Oil Search has signed an MOU with a subsidiary of the UK’s BG to investigate the potential for an LNG plant in the country. The study will focus on gasfields close to the Hides and Kutubu licences, the fields to be used for exports to Australia. Oil Search says it has some 1bn boe of natural gas, of which 40% has been committed to Australia.

Singapore Vopak is to increase the capacity of its 1.04m cm Sebarok storage terminal, constructing 216,000 cm of new capacity for fuel oil. The firm says the expansion will be ready for use by the end of 2007.

South Korea The country’s five oil refiners will invest a total of $10.4bn by 2010 to increase capacity for high-end, low-sulphur products, such as diesel and kerosene, according to the ministry of commerce and industry.

Vietnam Prime minister Nguyen Tan Dung has signed a bill to restructure the state-owned oil and gas company, PetroVietnam. The new company will operate as a parent-subsidiary corporation, with the state owning 100% of the parent company’s legal capital. Four of the subsidiaries will be limited liability companies, also wholly owned by the state. The restructuring will also allow PetroVietnam to operate in the financial services sector, in addition to its businesses in the energy industry. Earlier this year, the country launched a major expansion of its oil and gas sector, opening 17 offshore exploration blocks to tender. Importers of gasoline have been making mandatory tests for acetone content since the end of August and have told suppliers that they will reject shipments found to contain acetone. The new restrictions followed studies showing that acetone was responsible for widespread mechanical failures in Vietnam.

Asian FTA would simplify rules: Japan needs wider agriculture trade

Apr. 11–Thai business leaders have welcomed a Japanese proposal to create an East Asian Free Trade zone to integrate economies in the region, but they were sceptical about whether Japan would liberalise its sensitive agricultural sector.

If Japan’s idea comes true, they said, it would help countries in the region overcome the “spaghetti bowl” effect of proliferating bilateral free trade agreements with different trade rules.

Last week, Japan proposed the formation of a vast Asian economic free trade zone that would cover about half the global population and rival the European Union and North American Free Trade Agreement (NAFTA) markets.

The 16-nation zone would include China and India, the world’s two fastest growing major economies, along with the 10-member Association of Southeast Nations (ASEAN) and Australia, Japan, New Zealand and South Korea.

Japan proposed starting negotiations in 2008 and concluding the pact in 2010.

But Pornsilp Patcharintanakul, the deputy secretary-general of the Board of Trade, questioned whether Japan is ready to liberalise agricultural products, a politically sensitive topic in Japan.

“Is Japan already to give, in particular, its farm sector,” he asked, noting that many Asian countries are large agricultural exporters.

Mr Pornsilp, who follows the country’s free trade agreement policies closely, referred to the negotiations for a closer Thai- Japan economic partnership, which excluded major Thai farm products such as rice, sugar and tapioca.

The agreement was suspended when the Thaksin government dissolved parliament in late February.

Mr Pornsilp added that it was unlikely that two years would be long enough for negotiations about the East Asian free-trade zone because the economic developments of member parties were different.

But he anticipated common regulations under a new zone would make trading easier for the 16 nations. East Asian countries, Australia and New Zealand have formed over a dozen free trade pacts.

But senior officials at the Commerce Ministry were unsure how Japan’s East Asian Economic Zone differed from an original proposal from Malaysia a few years ago, which comprised of 10 South East Asian nations and three far East Asian countries: China, Japan and South Korea.

“Since the first East Asean Summit [late last year], we started talking about other countries joining the community such as India, Australia and New Zealand. So what’s Japan proposing and why,” the senior official asked.

An earlier report said the push stemmed from Japan’s tense relations with its biggest trading partner China and its worries that it is slipping behind in securing bilateral free-trade pacts with countries in Asia.

Meanwhile, the 25-country European Union has been supporting negotiations for a single South Eastern Europe free trade pact to replace the existing plethora of bilateral free trade agreements.

The negotiations will enlarge and modernise the existing Central European Free Trade Agreement between Bulgaria, Romania, Croatia and the former Yugoslav Republic of Macedonia in the future, to cover other countries of the Western Balkans and Moldova and conclude by 2006.

Credit: Bangkok Post, Thailand

Woranuj Maneerungsee. Knight Ridder Tribune Business News. Washington: Apr 11, 2006. pg. 1

More effort needed; Free trade in South-East Asia

Nominally a free-trade area for more than a year, there is not much sign of economic integration in ASEAN

ON THE face of things, the ASEAN Free-Trade Area (AFTA), which covers the ten countries of the Association of South-East Asian Nations, is going from strength to strength. From the beginning of last year, the six long-standing members (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) reduced their tariffs on one another’s goods to a maximum of 5%. They now plan to deepen AFTA by integrating the four newer members (Cambodia, Laos, Myanmar and Vietnam), tackling non-tariff barriers and expanding its scope to new areas such as investment. They also hope to conclude collective free-trade agreements with China, India and Japan. As proof of the group’s success, the ASEAN secretariat, in Jakarta, says trade among its members roughly doubled in the decade from 1993.

But there is less to this rosy picture than meets the eye. For starters, ASEAN’s trade with the rest of the world has grown just as fast as trade among its members (see chart). Trade with China has actually grown much faster and more consistently. Growth in trade within ASEAN, by contrast, has been patchy, with spurts in some years and declines in others.

In other words, AFTA is not quite what it is cracked up to be. Several of its members refused to lower tariffs on certain critical products to meet last year’s deadline. Malaysia, for example, still insists on protecting its state-owned carmaker, Proton, to the dismay of Thailand, which has a fast-growing automotive industry. The Philippines did lower tariffs on petrochemicals as required, but later thought the better of it and raised them again. Rice, the region’s biggest crop, is excluded from the pact altogether.

But these omissions are mere details compared to the failure to implement the tariff cuts that have already been agreed. No one knows what proportion of trade within ASEAN actually takes advantage of the Common Effective Preferential Tariff, as the AFTA-mandated rates are known. Some estimates put the figure as low as 5%. An official at the ASEAN secretariat says he thinks the share is bigger, but admits he cannot prove it, since the member countries have not bothered to provide the secretariat with the relevant data.

Denis Hew, of Singapore’s Institute of South-East Asian Studies, blames the low uptake on several factors. Many businessmen are reluctant to complete the arduous paperwork involved, he says, or simply do not realise that concessionary tariffs exist. For countries with low tariffs in general, such as Singapore, the difference between the CEPT and the ordinary rate might not be that great. And in the countries with high tariffs, like Myanmar, the authorities are reluctant to cut into their own revenue by promoting the exploitation of the CEPT. At any rate, the all-important “form D” often appears to be in short supply.

To be fair, ASEAN’s leaders are trying to address these problems. At a summit last year in Bali, they pledged to streamline customs procedures and to adopt shared product standards. To make the task more manageable, they decided to press ahead in 11 “priority sectors”, from fisheries to aviation. They even agreed to set up a monitoring group, to check whether members are living up to their commitments, and a dispute-settlement procedure.

Indeed, at the same summit, ASEAN leaders promised to build an “economic community” by 2020. But the phrase is misleading: unlike the countries of the European Union, ASEAN’s members will not countenance any reduction in sovereignty for the sake of deeper economic integration. They even rejected the suggestion of McKinsey, a consultancy, to beef up the secretariat–a building of echoing atriums and empty corridors, peopled by bureaucrats on short-term secondment from national governments. Nor do they envisage a customs union, with a shared external tariff, since that would force either low- or high-tariff countries to make dramatic changes in economic policy.

What with the different external tariffs, and the lack of any single authority empowered to negotiate for the group as a whole, those proposed collective free-trade agreements with other countries will obviously take a long time to conclude. ASEAN is aiming only to have a deal in place with China by 2010, India by 2011 and Japan by 2012. In the meantime, several members are pressing ahead with bilateral trade agreements that pre-empt and, in the eyes of some, undermine collective negotiations. Singapore has already concluded trade agreements with Japan, Australia, New Zealand and America.

This divergence over trade pacts points to a deeper rift within ASEAN. Countries that already have relatively open economies, such as Singapore and Thailand, view the grouping as a means to increase the competitiveness of their exports, and so to attract more foreign investment. According to this view, the pooled natural resources, shared industrial base and collective consumption of ASEAN should give even China a run for its money. The investment, by and large, would still come from beyond ASEAN, and most of the goods produced would end up overseas too.

But formally, at least, ASEAN is designed to promote trade and investment among its members, not with outsiders. Thus the six old-timers, for example, have agreed to accord one another’s citizens the same rights as domestic investors by 2010, but will not grant outsiders equivalent treatment until 2020. In fact, the reverse would be much more useful. No wonder the likes of Singapore and Thailand are concentrating on their own market-opening measures–depriving ASEAN of its best integrators in the process.

The Economist. London: Jul 31, 2004.Vol.372, Iss. 8386;  pg. 52

Asia: Every man for himself; Trade in Asia

Slow progress on regional trade liberalisation in East Asia is prompting a spate of bilateral deals

TRADE in paper and ink, at the very least, must be booming in South-East Asia, given the number of commercial agreements the countries of the Association of South-East Asian Nations (ASEAN) are busily signing. On November 4th, at a summit in Phnom Penh, they are due to unveil a framework deal to achieve free trade with China by 2013. At the same time, they will make a declaration about strengthening trade with Japan, hold their first summit with India (with trade high on the agenda) and publish a report about integrating the economies of “ASEAN+3″, which ropes in China, Japan and South Korea. Last week, America announced a new scheme to promote free-trade agreements with individual ASEAN members. Singapore and America hope to conclude the first such deal later this year. Singapore already has a free-trade agreement with Japan, while Thailand and the Philippines are negotiating ones of their own. And on January 1st next year, the ASEAN Free Trade Area (AFTA) will come into full force among the six original members of ASEAN: Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Ironically enough though, this frenzy of deal-making may actually signal a loss of momentum towards free trade in the region. To varying degrees, South-East Asian governments all accept the logic of cutting tariffs and promoting trade. As a relatively open, stable and low-cost manufacturing base, ASEAN used to attract much export-oriented investment. But the Asian crash of 1997, and the instability that followed, reduced the region’s appeal, while investors stampeded off to ever more welcoming China. Since then, ASEAN governments have accelerated their effort to forge a common market among their 500m citizens, both to lure back foreigners and to discipline their domestic industries. AFTA, which caps intra-ASEAN tariffs at 5%, marks the culmination of this effort. Despite their consensus on the benefits of free trade, however, AFTA’s members do not trust one another enough to streamline the current system, nor to negotiate collective deals with outsiders. Hence the bewildering array of overlapping protocols and compacts.

Take AFTA itself. Trade among its members has doubled over the past ten years, thanks in large part to tariff cuts. The main logic of cuts and the pact ought to be to consolidate the region’s industries and thus make them more competitive internationally. Yet the few exceptions to the tariff-cap regime are generally used to protect the most inefficient businesses. Malaysia, for example, refuses to bring tariffs on imported cars down until 2005 (and even then, only to 20%), in order to shield Proton, a local car maker. The Philippines caused a kerfuffle earlier this year by announcing that it would not lower tariffs on petrochemicals as scheduled, and might even add other products to the list. Textile manufacturers in Indonesia are now urging their government to do the same for them. And despite the fact that ASEAN’s poorest citizens spend much of their income on rice, and the world’s two biggest exporters of the crop (Thailand and Vietnam) are ASEAN members, rice will remain subject to higher-rate tariffs until at least 2020.

What’s more, efforts to draw up shared procedures and standards for imports lag far behind tariff cuts–even though such non-tariff barriers constitute the biggest drag on trade in the region, according to a recent World Bank study. Nor is there is any independent agency, akin to the European Union’s commission, to adjudicate disputes between members. Indeed, AFTA has no enforcement mechanisms whatsoever: when Myanmar closed its border with Thailand for five months earlier this year, it did not even occur to the Thai government to invoke AFTA.

Some countries are growing impatient at these shortcomings. Singapore, for one, is pursuing multiple bilateral trade agreements, even with countries with which ASEAN is supposedly negotiating collectively, like Japan. Other ASEAN countries are following suit. Indeed, the group implicitly admitted that it couldn’t agree on how to liberalise trade further earlier this year, when it decided to let individual members, or groups of members, press ahead without the rest. So Singapore, again, is now lobbying for an open-skies deal between willing AFTA members.

Even the new China pact will entail special exemptions and varying timetables for the different ASEAN members, albeit under a shared framework. Anyway, the deal comes more at China’s initiative than ASEAN’s. China first floated the idea two years ago–and sweetened it by offering to lower tariffs on agricultural imports from ASEAN within three years as a gesture of goodwill.

Of course, the deal is in ASEAN’s best interests anyway: trade with China has grown threefold over the past decade, with ASEAN running a healthy surplus. This boom is helping to lessen South-East Asia’s dependence on exports to America, Europe and Japan, which are stuck in the doldrums. The prospect of duty-free exports to China will doubtless persuade some of those flighty investors to return to ASEAN. The proposed free-trade area, after all, would be the world’s biggest, with some 1.7 billion consumers.

The hope is that the benefits of even the initial “early harvest” of Chinese tariff cuts to be announced in Phnom Penh will inspire ASEAN to redouble the pace of integration and trade liberalisation. For much the same reason, America is also including duty-free privileges for certain imports from nearby bits of Indonesia in its planned deal with Singapore. But the effect, some fear, could be the reverse: such deals might deepen the divisions within ASEAN, and weaken its ability to bargain collectively with outsiders.

The Economist. London: Nov 2, 2002.Vol.365, Iss. 8297;  pg. 65