Aruba souring on Citgo upgrader: Update
Adds Citgo Aruba response.
Aruba is losing patience with Venezuelan state-owned PdV subsidiary Citgo's slow-moving, ambitious plan to transform the rusty skeleton of Valero's former 235,000 b/d oil refinery into a heavy crude upgrader.
"Under the current circumstances the chances that Citgo can carry out the deal are slim," Aruba Prime Minister Evelyn Wever-Croes told Argus. The project is "very important" to diversifying the island's tourism-based economy, but if Citgo fails to have it up and running by an October 2020 deadline, the government would be willing to terminate the deal and find another partner, she said.
The $1.1bn downstream project "makes business sense" to the senior government officials and oil industry executives interviewed by Argus on the tiny Dutch Caribbean island. Under a 2016 long-term lease signed by Venezuela's former PdV chief executive Nelson Martinez with the Aruban government, Citgo Aruba Refining would refurbish the San Nicolas installations and build a 110km natural gas pipeline from Venezuela's Tiguadare gas treatment facility to run the complex, which includes two cokers. Around 209,000 b/d of diluted crude oil (DCO) from Venezuela's Orinoco heavy oil belt would be upgraded into 125,000 b/d of 22.5° API Maya-like synthetic crude with 1.2pc-1.5pc sulfur. The stripped-out naphtha would be recycled back to Venezuela, and sulfur and coke sold. The estimated refurbishment cost of $600mn-$700mn seems high to some officials, but it is dwarfed by the $8bn cost of a greenfield upgrader, one said.
What the project lacks is financing and stakeholder confidence in Citgo's ability to fulfill the directly awarded contract, which Aruba's year-old government inherited from the previous administration. So far Citgo has plowed in little money and has not completed a Phase 2 inspection or control budget cost estimate, even after work was supposed to pick up following the stunning November 2017 arrests of Martinez and former Venezuelan oil minister Eulogio Del Pino on unrelated corruption charges. In August Citgo committed a sparse $35mn for Phase 2, before the final refurbishment phase kicks off in second quarter 2019.
"The contract is not very favorable to us," said Richard Eman, chairman of the board of RdA, the government entity that owns the refinery. The agreement has inadequate safeguards for Aruba, making it difficult to sever before October 2020, he said. "There is a lack of confidence in Citgo because it has not produced, but they have time to prove us wrong."
A Citgo Aruba official told Argus this afternoon that Phase 2 started in early September and "entails detailed inspection of units, piping, buildings and relevant equipment to come to a Class 2 cost estimate of the actual refurbishment," reiterating the message that Venezuelan energy minister and PdV chief executive Manuel Quevedo recently conveyed to the Aruban government. Phase 2 will be completed in March 2019 and involve around 471 workers, of which some 85pc will be local, the Citgo Aruba official said, reconfirming "the commitment of PDVSA to the development and successful completion of this strategic project."
PdV officials say privately that they "understand the island's concerns." The Venezuelan company regularly blames US financial sanctions for thwarting financing options. Aruba had tried to secure a waiver from the US Treasury's Office of Foreign Assets Control (Ofac) on Citgo's behalf, but it was rebuffed because Washington wants to block money flowing back to Caracas. That leaves the heavily indebted island with little choice but to hope Citgo delivers within two years.
In the meantime, Citgo is using Aruba as a terminal, routinely unloading DCO tainted by excessive water into storage tanks to allow it to settle before reloading it for export to the US and Asia, a local shipping source said. Around three 500,000 bl cargoes of DCO and occasionally Boscan crude or fuel oil come through Aruba from Venezuela each month.
In contrast to fellow Dutch Caribbean islands Curacao and Bonaire, Aruba was relatively unscathed by debt-related liens that US independent ConocoPhillips levied on PdV's local assets in early May, because the oil cargoes coming to Aruba and the 15-year refinery and terminal lease plus a 10-year optional extension belong to Citgo, not PdV. But the episode caused delays, and left Aruba waiting for the other shoe to drop.
That shoe could be Crystallex. The now-defunct Canadian mining company, like ConocoPhillips, is seeking to enforce an international arbitration award for the takeover of its Venezuelan assets. Crystallex in August secured an order from a US federal court in Delaware to attach the shares of PdV Holding, the parent of Citgo Petroleum and Citgo Aruba Refining. The case is now winding its way through appeal, but Crystallex has said it is already preparing to auction Citgo.
The Aruba project would be an afterthought if not a liability to parties eyeing Citgo's 750,000 b/d of US refining capacity. If a new Citgo owner sought to retain the Aruba assets, the US ruling would have to be ratified by a local court, a Dutch Caribbean attorney says.
Aruba would jump at the chance to replace Citgo with a robust and unencumbered counterparty. But the project still relies on Venezuelan crude and gas supply, which a truncated PdV would be reluctant to sell to a newcomer that had scooped up its prized US asset.
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UK eyes new environmental guidance for oil, gas: Update
UK eyes new environmental guidance for oil, gas: Update
Adds comment from Shell London, 29 August (Argus) — The UK government will develop new environmental guidance for oil and gas firms, in the light of a recent Supreme Court decision that ruled consent for an oil development was unlawful, as the scope 3 emissions — those from burning the oil produced — were not considered. The ruling means that "end use emissions from the burning of extracted hydrocarbons need to be assessed", the government said today. The government will consult on the new guidance and aims to conclude the process "by spring 2025", it said today. It will in the meantime halt and defer the assessment of any environmental statements related to oil and gas extraction and storage activities until the new guidance is in place, including statements that are already being assessed. The Supreme Court in June ruled that Surrey County Council's decision to permit an oil development was "unlawful because the end use atmospheric emissions from burning the extracted oil were not assessed as part of the environmental impact assessment". The government also confirmed that it will not challenge judicial reviews brought against the development consent granted to the Jackdaw and Rosebank oil and gas fields in the North Sea. A judicial review in the UK is a challenge to the way in which a decision has been made by a public body, focusing on the procedures followed rather than the conclusion reached. Environmental campaign groups Greenpeace and Uplift launched legal challenges in December seeking a judicial review of the government's decision to permit Rosebank. Norway's state-owned Equinor and London-listed Ithaca hold 80pc and 20pc of Rosebank, respectively. Greenpeace in July 2022 separately filed a legal challenge against the permitting of Shell's Jackdaw field. "This litigation does not mean the licences for Jackdaw and Rosebank have been withdrawn", the government said. The Labour government, voted into office in July , pledged not to issue any new oil, gas or coal licences, but also promised not to revoke existing ones. Equinor is "currently assessing the implications of today's announcement and will maintain close collaboration with all relevant stakeholders to advance the project. Rosebank is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security", the company told Argus today. Shell is "carefully considering the implications of today's announcement... we believe the Jackdaw field remains an important development for the UK, providing fuel to heat 1.4mn homes and supporting energy security, as other older gas fields reach the end of production", the company told Argus . North Sea oil and gas production "will be a key component of the UK energy landscape for decades to come", the government said today. The UK government introduced a climate compatibility checkpoint in September 2022, designed to ensure that oil and gas licensing fits UK climate goals. The UK has a legally-binding target of net zero emissions by 2050. The checkpoint, though, does not take into account scope 3 emissions. These typically make up between 80pc and 95pc of total oil and gas company emissions. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Baghdad issues ultimatum to KRG to drive output down
Baghdad issues ultimatum to KRG to drive output down
Dubai, 29 August (Argus) — The federal Iraqi government has issued an ultimatum to northern Iraq's Kurdistan Regional Government (KRG) to reduce its crude output to "the minimum required", or face the possibility of not receiving its share of the budget. The move, communicated today by a senior official at Iraq's state marketer Somo, represents the latest attempt by Baghdad to pressure the KRG into cooperating to help bring Iraqi output below its Opec+ production target. KRG was asked "on several occasions" to cut its production according to the budget law "to the minimum required for their local refineries" — around 50,000 b/d, the official said. "Otherwise, the KRG will have to pay [the federal government] all the revenues they receive, for the extra barrels beyond what their refineries need". Iraq has emerged as the Opec+ group's biggest overproducer, failing to meet its target in any of the first seven months this year. The country, along with Kazakhstan and Russia, which are overproducing too, submitted updated plans to the Opec secretariat last week outlining how it intends to compensate for the extra volume. Iraqi officials said that a lack of visibility on KRG production are complicating efforts. Output has been gradually recovering in Kurdistan this year, even though the 400,000 b/d export pipeline that links fields in the north to the Turkish Mediterranean port of Ceyhan has been shut-in since March 2023 because of a dispute between Baghdad and Turkey. Crude production from the region collapsed below 100,000 b/d in the months following the pipeline closure, but has risen steadily, particularly from fields operated by foreign companies, as they find new outlets for their crude. Foreign operators operating in Kurdistan said they rely on trucking crude to local refineries to stay in business, but Kurdish crude is also being smuggled — by truck — across the border to neighboring Turkey, Iran and Syria, Argus understands. Different accounts Crude output from Iraqi Kurdistan is currently averaging around 350,000 b/d , a spokesperson for the Association of the Petroleum Industry of Kurdistan (Apikur) told Argus. Apikur is an industry body representing the foreign operators in the northern region . Argus assessed KRG production at 200,000-250,000 b/d on average in the first half of the year. But the federal government disputes those numbers, insisting that production from Kurdistan is around 150,000 b/d. "Any more than that will put huge pressure on the KRG," the official said. Assuming refining capacity of 50,000 b/d, the official labelled the higher estimates as "illogical." He pointed to the fact that about 500 trucks are already needed on a daily basis to export the region's 100,000 b/d, and that the state of the roads and service stations does not allow for the double amount of vehicles. Earlier attempts by the federal government to scale back Iraqi Kurdish production have failed, but the official thinks that Baghdad's latest ultimatum will have the desired impact. "These are serious steps," the official said. If KRG production remains above the 50,000 b/d needed for domestic refining, and it does not deliver the proceeds to Baghdad, it will not receive its share of the budget, which it is heavily dependent on to support its economy. Getting back on track Iraq's latest compensation plan put its overproduction in January-July at 206,000 b/d, compared with 197,000 b/d in January-June. Opec+ secondary sources estimated that output rose by 57,000 b/d on the month to 4.251mn b/d in July, some 251,000 b/d above the Opec+ target. The official said Iraqi production should fall to required levels from September. Somo canceled a spot cargo of 1mn bl this month, and Iraq is "working on deferring two similar shipments, before the end of the month," the official said. "That means we will be down around 3mn bl, or 90,000 b/d". He added that a 50,000 b/d decrease in domestic crude consumption resulting from increased gas imports from Iran and stronger domestic gas output will also help with the country's compliance. He said Iraq's August output levels will be down on the month, but dependent "on the position of the KRG". By Nader Itayim and Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Greek regulator approves 2025 gas tariff increases
Greek regulator approves 2025 gas tariff increases
London, 29 August (Argus) — Greek energy regulator RAEWW has approved 2025 gas transmission tariffs previously proposed by transmission system operator Desfa, with some alterations. The annual tariff for entry to the Greek grid is set at roughly €0.35/MWh for 2025, around 4pc higher than in 2024 (see data & download) . Exit tariffs at domestic and international points will be €0.59/MWh, a nearly 21pc increase on the year, while the LNG regasification tariff is set at €0.30/MWh, nearly 35pc higher than in 2024. Before annual capacity auctions in July, Desfa had proposed some differentiation in entry and exit tariffs for different interconnection points, but RAEWW has instead opted for equalising entry and exit fees regardless of the point. Multipliers for shorter-term capacities are set at around 1.38 for quarterly products, 1.48 for monthly products and 2.97 for daily products. These are the same multipliers which have been used for the past two years. RAEWW set the allowed revenue for transmission services at €149.2mn. A much larger portion of the allowed revenue will come from exit points, at around €90.5mn compared with €58.7mn at entry points. The regulator set an allowed revenue of €23.6mn for LNG services. It noted the Revithoussa LNG terminal has consistently exceeded its allowances since 2019, peaking at 312pc in 2023 as use of the terminal soared. RAEWW has also opened a public consultation on proposed changes to the rulebook of Greece's Henex exchange, which would create a new "trading-only" type of participant. The new category of participant does not need to be a registered user of the transmission system, but must have concluded a contract with exclusively one other participant who is registered, and guarantee that it will fulfil its obligations arising from any concluded trades. If the registered system user loses its registered status, then the trading-only participant also does. Any termination of contract between the two parties must immediately be reported to Henex. Interested parties can email responses to the consultation to RAEWW until 20 September. By Brendan A'Hearn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
UK plans new environmental guidance for oil and gas
UK plans new environmental guidance for oil and gas
London, 29 August (Argus) — The UK government will develop new environmental guidance for oil and gas firms, in the light of a recent Supreme Court decision that ruled consent for an oil development was unlawful, as the scope 3 emissions — those from burning the oil produced — were not considered. The ruling means that "end use emissions from the burning of extracted hydrocarbons need to be assessed", the government said today. The government will consult on the new guidance and aims to conclude the process "by spring 2025", it said today. It will in the meantime halt and defer the assessment of any environmental statements related to oil and gas extraction and storage activities until the new guidance is in place, including statements that are already being assessed. The Supreme Court in June ruled that Surrey County Council's decision to permit an oil development was "unlawful because the end use atmospheric emissions from burning the extracted oil were not assessed as part of the environmental impact assessment". The government also confirmed that it will not challenge judicial reviews brought against the development consent granted to the Jackdaw and Rosebank oil and gas fields in the North Sea. A judicial review in the UK is a challenge to the way in which a decision has been made by a public body, focusing on the procedures followed rather than the conclusion reached. Environmental campaign groups Greenpeace and Uplift launched legal challenges in December seeking a judicial review of the government's decision to permit Rosebank. Norway's state-owned Equinor and London-listed Ithaca hold 80pc and 20pc of Rosebank, respectively. Greenpeace in July 2022 separately filed a legal challenge against the permitting of Shell's Jackdaw field. "This litigation does not mean the licences for Jackdaw and Rosebank have been withdrawn", the government said. The Labour government, voted into office in July , pledged not to issue any new oil, gas or coal licences, but also promised not to revoke existing ones. Equinor is "currently assessing the implications of today's announcement and will maintain close collaboration with all relevant stakeholders to advance the project. Rosebank is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security", the company told Argus today. North Sea oil and gas production "will be a key component of the UK energy landscape for decades to come", the government said today. Argus has also contacted Shell for comment. The UK government introduced a climate compatibility checkpoint in September 2022, designed to ensure that oil and gas licensing fits UK climate goals. The UK has a legally-binding target of net zero emissions by 2050. The checkpoint, though, does not take into account scope 3 emissions. These typically make up between 80pc and 95pc of total oil and gas company emissions. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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