Oil demand is falling for the first time since the 2008-09 global financial crisis as a result of a mild winter, high crude prices and the European economic crisis, according to fresh estimates from the International Energy Agency.

The industrialised nations’ watchdog said oil demand dropped by 300,000 barrels a day in the final quarter of 2011. Such a fall is rare: over the last decade, oil demand has posted drops only in the financial crisis of mid-2008 to mid-2009.

The IEA revised down its outlook for growth in 2012 to 1.1m b/d from 1.3m b/d amid signs of weakness in the world economy.

It also warned of the geopolitical risk posed to oil markets by rising tensions with Iran.

Global oil demand in 2011 was 89.5m b/d, the IEA said.

David Fyfe, head of the IEA’s oil industry and markets division, said the year-on-year fall in demand was largely due to the exceptionally cold winter of 2010-11 compared to this winter’s milder temperatures. But it was still surprising.

“Even in the 2008-9 crisis we only had a couple of quarters of absolute contraction, so it is quite rare,” he said. “We’re flagging that there are clearly downside risks to the global economy and to oil demand.”

The IEA’s latest monthly oil market report comes against the backdrop of a looming showdown between Iran and the west over Tehran’s nuclear ambitions.

Oil prices jumped $4-$5 a barrel at the new year as the European Union prepared to impose a ban on Iranian oil imports and Tehran threatened to close the Strait of Hormuz, a crucial conduit for oil exports from the Gulf.

The agency characterised the oil market as finely balanced between fears of supply disruptions due to the coming Iranian embargo and concerns about an economic slowdown that will weaken demand for oil.

The price of crude has been relatively stable since last spring within a range of $100 to $120 a barrel. But the IEA said the stability was “more apparent than real.”

It said markets were caught between a “rock” – the growing likelihood of a sharp economic slowdown, or even outright recession, in 2012 – and a “hard place” – possible geopolitical turmoil triggered by the west’s face-off with Iran.

“That is scarcely a source of comfort,” the report said.

Oil markets in Europe and Asia, hit badly last year by the loss of Libyan supply, worry that sanctions against Iran will seriously affect the availability of crude.

The leaders of Japan, China and South Korea have been seeking assurances from Middle Eastern producers like Saudi Arabia that they can make up any shortfall.

Europe, which imports about 600,000 b/d of Iranian crude, is also on the hunt for replacement supplies.

These concerns come at a time of tightness in physical oil markets.

Last year, non-Opec supply grew by only 50,000 barrels a day, the third lowest performance in the last decade – largely due to a series of unscheduled disruptions in places like the North Sea, Canada and China. That was compounded by the unrest in Libya, which knocked out its exports.

While members of the Opec cartel, especially Saudi Arabia, increased production to compensate, and the IEA released emergency stocks, this was not enough to make up for the Libyan shortfall.

The IEA said crude stock levels in industrialised countries remain below the five-year average for a fifth consecutive month.

European refiners faced a “difficult task” in finding substitutes for Iranian supply, and some market dislocation was inevitable, the agency warned.

But the gradual phase-in of any EU import ban and the “considerable latitude in implementation” built into the US sanctions “will serve to minimise unwanted market disruptions,” it added.

Sourced & published by Henry Sapiecha

SAUDI ARABIA RAISES PRODUCTION WITH LITTLE VARIANCE IN PRICE EFFECT

Saudi Arabia is by far the world’s largest oil exporter. Thus, when it raises its production, oil prices usually fall. Yet, when Ali Naimi, Saudi oil minister, said last week Riyadh was pumping more than 10m barrels a day, prices barely moved a few cents.

Oil traders were in disbelief at the number. The International Energy Agency estimated that in October the kingdom pumped 9.45m barrels a day and Opec itself put Saudi production at 9.47 b/d in the same month. The level of production that Mr Naimi stated suggested a huge increase, in only a few weeks. Moreover, the 10m b/d is a psychological barrier – a level the kingdom has not reached since the aftermath of the second oil crisis in 1979.

The level of Saudi oil production has triggered a heated debate among oil traders, analysts and government officials.

The discussion is twofold: on the one hand, about the level itself; on the other, about why it has boosted its output at a time when many are betting that oil demand growth is slowing down, not accelerating.

The discussion is critical to understand the direction of oil prices in 2012.

The 10m b/d figure is controversial in the market.

Some oil traders do not believe the number at all. Two of the largest top-five independent oil trading houses have told me that their own numbers suggest a much lower production level. The traders largely dismiss the 10m b/d figure as a bargaining tactic ahead of the Opec meeting on Wednesday.

Yet, other sources suggest that Saudi Arabia has indeed boosted production sharply over the past few weeks, potentially towards the 10m b/d mark.

The Lloyd’s List Intelligence Apex database, which tracks tankers around the world, puts Saudi Arabia’s oil exports at nearly 7.4m b/d. Add local demand of about 2.7m b/d and you get to the 10m b/d. In addition, Lloyd’s List Intelligence estimates suggest that Riyadh boosted month-on-month exports sharply, from 6.7m b/d in October to 7.4m b/d in November. Other tanker trackers have yet to publish their numbers, but the talk in the market is that they also have witnessed a big increase in tankers sailing from Saudi oil export terminals.

So if the numbers are right – a big if for many traders – what do they say about the health of the global oil market?

The International Energy Agency puts global oil demand this quarter at 91.4m b/d, up from 90.9m b/d from the previous quarter due to the onset of the Northern hemisphere winter and the surge in heating demand. The seasonal increase in demand could well explain an output hike.

But I think there is more. China’s oil demand, which only a month ago appeared to be slowing down to a halt, could be accelerating in reality. Chinese refiners processed a record amount of crude oil in November to offset diesel shortages and oil imports surged last month to the second-highest monthly volume on record, hitting 5.52m b/d, just short of an all-time high of 5.67m b/d in September 2010, according to estimates by Thomson Reuters based on official Chinese data.

The bottom line is that Saudi Arabia could very well be telling a lot of naysayers and sceptics in the market that global crude oil demand is a lot healthier than many assume.

Sourced & published by Henry Sapiecha

Capital Drilling, the emerging and developing drilling company, has recently been awarded another three new contracts. They are for BHP Billiton in Ethiopia, and two for Kinrtoss Gold, one in Ghana and the other in Mauritania. Commenting, Jamie Boyton, Executive Chairman, said: “I am very pleased to announce [these] contract wins, which follow closely on the heels of contracts recently awarded in Chile with BHP and the Solomon Islands with Allied Gold. The contracts represent the expansion of existing relationships with blue chip and major mining companies and further strengthens the long term visibility of our revenue profile. Having concluded successfully our first energy contract with Oil Search in Papua New Guinea we are looking forward to working in Ethiopia and continuing to grow the energy division. The contract with Kinross continues our drive in the significant market of West Africa.”Capital Drilling Energy has been awarded a contract with BHP Billiton, the second contract with the mining major this year, which will initially involve the deployment of one rig to carry out exploration drilling for potash in the Danakil Depression of the Afar National Regional State in northeast Ethiopia. The contract is expected to run until late 2011 and represents the group’s second energy contract. The rig required for the contract is currently in mobilisation and represents an addition to the group’s fleet.Capital Drilling Africa has been awarded a contract with Kinross Gold in Ghana where it recently acquired the Chirano gold mine through the takeover of Redback Mining. Capital Drilling Africa has been contracted to supply two diamond rigs for development drilling, with the contract expected to commence in early Q3 2011 for a minimum 12 month contract. The rigs required will be sourced from the existing fleet.

Capital Drilling Africa has been awarded a further contract with Kinross Gold in Mauritania which represents an expansion of activity at the Tasiat gold mine, where the group currently has five diamond rigs operating. The new contract is for an additional air core rig to be utilised in exploration drilling, which has been sourced from within the existing fleet.

Capital Drilling, which has a Premium Listing on the Main Market of the London Stock Exchange, provides specialised drilling services to mineral exploration and mining companies in emerging and developing markets, for exploration, development and production stage projects. ThecCompany currently owns and operates a fleet of 78 drilling rigs with established operations in Tanzania, Zambia, Egypt, Mauritania, Mozambique, PNG, Eritrea and Chile. The group’s corporate headquarters is in Singapore and it has its administrative offices for South America in Santiago, Chile.

Sourced & Published by Henry Sapiecha

Liquid salt could help clean up tar sands

The United States imports approximately one million barrels of oil per day from Canada, which is about twice the amount that it gets from Saudi Arabia. A large percentage of that oil comes from tar sand deposits, in which bitumen (a tar-like form of crude oil) is found combined with sand. The tar sands – also known as oil sands – are hugely controversial, as many people state that the process used for extracting the oil from the sand is too ecologically-unfriendly. A new technique being pioneered at Penn State University, however, could drastically reduce the environmental impact of that process.

The current method of separating sand and bitumen involves adding warm water to the two, then agitating the mixture. Unfortunately, it requires a lot of water, which is diverted from nearby rivers. Once the separation process is complete, the now-polluted water is pumped into open air tailings ponds. From there, it can potentially leach its way back into the water table. There’s also another risk – despite the presence of bird-scaring devices, in 2008 approximately 1,600 ducks died when they landed in one of the ponds.

Instead of warm water, the Penn State method utilizes room temperature ionic liquids (ILs), which consist of salt in a liquid state – a solvent such as toluene may also be added. When the ILs are introduced to a sand/bitumen mixture and stirred, the resulting combination settles into three distinct layers: a bottom layer of oil-free sand, a middle layer of ILs, and a top layer of bitumen. The bitumen can then be removed and refined, the ILs can be reused, and residual ILs in the sand can be removed using a relatively small amount of water (which can also be reused), after which the sand can be returned to the environment.

Not only is much less water used, but because nothing needs to be heated, there are also substantial energy savings.

The researchers state that the ionic liquids could also be used to clean up beaches devastated by oil spills. Sand could be cleaned and redeposited on the spot, supposedly containing even less hydrocarbons than it did before the spill ever occurred.

We’ll be watching this one with interest …

Sourced & published by Henry Sapiecha

Hibernia GBS

Barry FitzGerald

November 8, 2010 – 2:18PM

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