Blog Archives

Recap: Worldwide Field Development News Jul 27 – Aug 2, 2012

This week the SubseaIQ team added 7 new projects and updated 29 projects. You can see all the updates made over any time period via the Project Update History search. The latest offshore field develoment news and activities are listed below for your convenience.

N. America – US GOM

McDermott to Deliver New Junction Facilities for GOM

Aug 2, 2012 – McDermott has received a contract by the Discovery system for offshore facilities in the Gulf of Mexico. The project is to deliver new junction facilities for Discovery’s Keathley Canyon connector pipeline system with a 3,300-ton, four-leg platform in 350 feet (107 meters) of water. The unmanned platform will provide pipeline junction facilities for incoming deepwater pipelines from the Hadrian South and Lucius fields and four outgoing shallow-water pipelines to shore. Fabrication is expected to commence this summer in Louisiana with offshore installation commencing in 3Q2013.

Project Details: Lucius

Apache Continues to Drill Parmer Appraisal Well

Aug 1, 2012 – Stone Energy reported that the Parmer appraisal well, which was spud during the second quarter of 2012, is expected to reach total depth in the third quarter of 2012.

Project Details: Parmer

Eni Gearing Up to Spud Phinisi in 2013

Aug 1, 2012 – Eni plans to commence drilling on the deepwater Phinisi well in the first quarter of 2013 using the Deepwater Pathfinder (UDW drillship). The water depth of the site is 6,837 feet (2,084 meters) and is targeting oil and gas.

Project Details: Phinis

MidEast – Persian Gulf

CNPC Pulls Out of Iran’s South Pars Project

Jul 30, 2012 – China National Petroleum has pulled out of developing Phase 11 of Iran’s offshore South Pars gas field, reported Dow Jones newswires. The firm, which had delayed the project for more than 1,130 days, has already withdrawn all of its workers from the southern Iranian port city of Assaluyeh, the onshore part of South Pars gas field in the Persian Gulf, Mehr said, citing information from the oil ministry.

Project Details: South Pars

Asia – SouthEast

ExxonMobil Finds More Pay Offshore Vietnam

Jul 30, 2012 – ExxonMobil has encountered additional hydrocarbons in its third well offshore Da Nang, Vietnam. The well 118-CVX-3X, on the Ca Voi Xanh field, was drilled by the Seadrill West Aquarius (UDW semisub). The well has been plugged, and the rig has left the site.

Lundin Drills Duster in Tiga Papan Well

Jul 27, 2012 – Lundin Petroleum has completed the Tiga Papan-5 well in Blocks SB307 and SB308 offshore Sabah, Malaysia. The Tiga Papan-5 well targeted an un-appraised fault block of mid-Miocene aged sands at the Tiga Papan unit, which was successfully tested in 1982 by the Tiga Papan 1 well. The well penetrated the target reservoir interval but proved to be water-bearing. The well will be plugged and abandoned as a dry hole. Offshore Courageous (350′ ILC) jackup will now move to drill the Barangan prospect located in Block SB303.

Project Details: Tiga Papan

Europe – North Sea

ProServ to Provide Subsea Services for Flyndre/Cawdor Development

Aug 2, 2012 – Proserv has received a contract from Maersk Oil UK to provide electro-hydraulic multiplex subsea control systems along with its associated topside and subsea interface systems for the development of the Flyndre and Cawdor project. Maersk Oil is developing a 16-mile-long (25-kilometer-long) subsea tie-back to the Clyde platform, which the fields will connect to. The development is scheduled to commence production in 2013.

Project Details: Flyndre and Cawdor

Second Well at Bacchus Comes Online, Increases Production

Aug 2, 2012 – Apache has completed a horizontal well on the Bacchus field which has increased production to 12,900 bopd. The well, Bacchus West, penetrated Jurassic-aged Fulmar reservoir sandstones and logged 889 feet (271 meters) of net pay in three sections. The well currently is producing about 8,500 barrels of oil per day. The first well on the field, Bacchus South, commenced production in May 2012 and reached levels of about 6,000 bopd. Currently the well is producing nearly 4,400 barrels per day. Bacchus is subsea tied-back to the Forties Alpha platform. The Rowan Gorilla VII (450′ ILC) jackup will relocate to the Aviat shallow gas discovery for appraisal drilling.

Project Details: Forties

Dana Successfully Appraises Platypus

Aug 2, 2012 – Dana Petroleum reported that the Platypus gas appraisal well in the Southern North Sea has recorded a test flow rate of 27 MMcf/d on a 96/64-inch choke. The ENSCO 80 (225′ ILC) jackup drilled the well to a total measured depth of 14,175 feet (4,321 meters). A drill stem test was completed and the well is being suspended for use as a future production well. Platypus is located in Block 48/1a in the UK southern North Sea. It was discovered in 2010 when well 48/1a-5 encountered the gas bearing Lower Leman Sandstone reservoir.

Project Details: Platypus

PetroMarker to Perform EM Survey on Grouse Prospect

Aug 1, 2012 – Faroe Petroleum has selected PetroMarker a contract for an EM survey on their Grouse prospect. Grouse is located in UK License P1853, which lies north of the Shetlands, in an area close to existing infrastructure. The EM survey will be executed with the newly mobilized Normand Baltic at the end of June.

Project Details: Grouse

Wintershall Comes Up Dry at Kakelborg Prospect

Aug 1, 2012 – Wintershall, operator of Production License 370, has completed the drilling of wildcat well 33/6-4 on the Kakelborg prospect in the Norwegian North Sea. The well, which is dry, did not encounter reservoir rocks in the Lista formation. The objective of the well was to prove petroleum in reservoir rocks from the Paleocene Age. The well was drilled to a vertical depth of 5,950 feet (1,814 meters) below the sea surface, and terminated in the Jorsalfare formation in the Shetland group in the Upper Cretaceous. Well 33/6-4 was drilled by the Borgland Dolphin (DW semisub) drilling facility.

Project Details: Kakelborg

Ithaca Grabs Greater Stella Area Contract

Jul 30, 2012 – Ithaca Energy is moving forward with development on the Stella and Harrier fields by awarding Technip a contract to carry out all subsea engineering work in the Greater Stella Area. The EPIC (engineering, procurement, installation and construction) contract includes the detailed design and pipelay of a 20-mile (32-kilometer), 10-inch oil export pipeline and a 38-mile (61-kilometer), 10-inch gas export pipeline to the fields’ production platform, along with various other subsea work. The contract is scheduled to be completed in the second half of 2013. The Greater Stella Area development is located on the UK Continental Shelf around 175 miles (282 kilometers) east-southeast of Aberdeen, Scotland, in a depth of approximately 300 feet (91 meters).

Project Details: Stella/Harrier

Statoil Spins Bit at Geitungen

Jul 27, 2012 – Statoil has commenced exploratory drilling on well 16/2-12 targeting the Geitungen structure. The main objective of well 16/2-12 is to prove the presence of oil-bearing Jurassic sandstones similar to the Johan Sverdrup discovery. The planned total depth of the well is 6,759 feet (2,060 meters) and will be drilled by the Ocean Vanguard (mid-water semisub). Drilling should take about 40 days.

Project Details: Geitungen

Africa – Other

Papa Goes the Distance for Ophir

Aug 2, 2012 – BG Group has made a Cretaceous gas discovery at the Papa-1 well in Block 3 offshore Tanzania. The well encountered a 292-foot (89-meter) gas bearing column in the Upper Cretaceous; and based on the preliminary data available, the operator estimates that it holds 0.5-2.0 Tcf in place. A detailed core and petrophysical analysis will confirm the scale of the discovered resource. The well was spud on May 29, 2012 in 7,172 feet (2,186 meters) of water and was drilled by the drillship Deepsea Metro I (UDW drillship) to a total depth of 18,189 feet (5,544 meters) subsea in 57 days.

Project Details: Papa

Eni Finds Additional Gas in Area 4 Offshore Mozambique

Aug 1, 2012 – Eni announced that a discovery has been made in the eastern part of Area 4, offshore Mozambique, at the Mamba North East 2 exploration prospect. The new discovery adds at least 10 Tcf of gas in place to Area 4, confirming at least 62 Tcf of gas in-place already discovered, bringing the resources, exclusively located in Area 4, to at least 20 Tcf plus of gas in place, stated the operator. Mamba North East 2, where Eni will conduct a production test, was drilled in 6,542 feet (1,994 meters) of water and reached total depth of 17,602 feet (5,365 meters). The well is located approximately 6 miles (9 kilometers) east of Mamba North East 1 and approximately 14 miles (23 kilometers) from Mamba South 1, 37 miles (60 kilometers) off the Capo Delgado coast. The well encountered 656 feet (200 meters) of gas pay in stacked multiple high-quality Oligocene, Eocene and Paleocene sands. The discovery has proved the existence of hydraulic communication with the Oligocene reservoir in Mamba North East 1 and with those of the Eocene age in Mamba North East 1 and Mamba South 1, through a unique gas column of 1,509 feet (460 meters). Lastly, Mamba North East 2 has identified a new exploration play in the Paleocene located exclusively in Area 4.

Project Details: Mamba South/North

Africa – West

Tap Oil Gazes at Starfish in Ghana

Aug 1, 2012 – Tap Oil announced plans to commence drilling on the Starfish prospect in 1Q13. Starfish is considered a well-defined, large ‘Jubilee style’ Upper Cretaceous fan play at comparable burial depths to the producing Jubilee reservoir. It has recoverable oil potential of 500 million to 1.2 billion barrels at the P50 to P10 range.

Project Details: Starfish

Chevron Tags $2B for Development of Offshore Lianzi Project

Jul 30, 2012 – Chevron announced that its subsidiary will proceed with the development of the Lianzi field located in a unitized offshore zone between the Republic of Congo and the Republic of Angola. Located 65 miles (105 kilometers) offshore in approximately 3,000 feet (900 meters) of water, the Lianzi field will be developed via a subsea tie-back to the existing Benguela Belize Lobito Tomboco (BBLT) platform located in Angola Block 14. The $2 billion development will include a subsea production system and a 27-mile (43-kilometer) electrically heated flowline to transport the oil from the field to the BBLT platform. First oil is expected in 2015. Once completed, the project is expected to produce a maximum of 46,000 barrels of oil equivalent per day. Chevron Overseas Congo Limited is operator of the Lianzi field and has a 31.25% interest, along with Total (36.75%), ENI (10%), Sonangol (10%), SNPC (the Republic of Congo National Oil Company 7.5%), and GALP (4.5%).

Project Details: BBLT

Chariot Spuds Nimrod Prospect

Jul 30, 2012 – Chariot Oil & Gas has commenced exploratory drilling on the Nimrod prospect offshore Namibia. The company said that the well is the second in its four-to-five well drilling program in the region. The well is being drilled by the Ocean Rig Poseidon (UDW drillship). The firm has previously reported that Nimrod is estimated to contain around 4.9 billion barrels of potential gross mean prospective resources. The drilling location is around 50 miles (80 kilometers) offshore Namibia in 1,180 feet (360 meters) of water and has an estimated total drilling depth of approximately 11,000 feet (3,353 meters). Drilling and logging operations are expected to take approximately 60 days.

Project Details: Nimrod

S. America – Other & Carib.

Borders & Southern Plugged, Abandoned Stebbing Well

Aug 1, 2012 – Borders & Southern announced that well 61/25-1 (Stebbing) has been successfully plugged and abandoned, bringing an end to the Company’s current two well drilling program. The Leiv Eiriksson (UDW semisub) drilling rig will now be assigned to Falkland Oil and Gas for its two well program at Loligo, after which it will be demobilized.

Project Details: Loligo

China urges restraint in Sudan dispute


China, the biggest investor in oilfields in the new nation of South Sudan, called for “calm and restraint” as a transit fee dispute threatened to cut off crude exports from the African producer.

News wires  23 January 2012 01:24 GMT

South Sudan said on Friday it planned to halt oil production within two weeks after its northern neighbour Sudan started seizing southern crude to compensate for what Khartoum called unpaid transit fees, Reuters reported.

“The Chinese side hopes that the two governments will fulfil their commitment to protecting the legal rights of Chinese enterprises and those of other partners,” Chinese Foreign Ministry Spokesman Liu Weimin said in comments posted on the ministry’s website on Saturday.

Sudan and South Sudan together made up 5% of China’s crude oil imports in 2011, or about 13 million barrels, ranking seventh among China’s oil suppliers.

Chinese customs data does not differentiate imports from South Sudan, which seceded in July, taking with it about two-thirds of the formerly united country’s oil output.

“Oil is the economic lifeline shared by Sudan and South Sudan,” Liu said.

“We urge the two sides to remain calm and restrained, avoid taking any extreme action and continue working together with mediation by the African Union and other parties to resolve their dispute through negotiation at an early date and to benefit the two countries and their peoples,” he said.

China’s foreign ministry used nearly the identical wording when the transit fee dispute first surfaced in November, Reuters reported.

It has sought to maintain good relations with Khartoum, a long-time ally, and South Sudan, home to investment by state-owned Chinese oil giants China National Petroleum Corporation and Sinopec.

China’s oil imports from Sudan grew by 3% in 2011, but average monthly volumes dropped to 998,000 tonnes from August onwards, compared with 1.14 million tonnes per months in the first seven months of the year.

Published: 23 January 2012 01:24 GMT  | Last updated: 20 minutes ago

Related stories


Shell ‘hits shale gas’ in China


Anglo-Dutch supermajor Shell has found shale gas in China, marking the country’s first discovery of the resource that has transformed the US energy landscape, according to a report.

News wires  06 December 2011 11:29 GMT

An official with Shell’s partner PetroChina, a unit of state-owned China National Petroleum Corporation, said drilling results from two wells drilled by Shell had been positive.

“Shell has two vertical wells and they got very good primary production,” Professor Yuzhang Liu, vice president of PetroChina’s Research Institute of Petroleum Exploration and Development, told Reuters on the sidelines of the World Petroleum Congress (WPC) in Doha.

“It’s good news for shale gas,” said Liu, who regularly represents PetroChina at industry events around the world.

China currently has no commercial shale gas production and the inaugural find could cap imports in a market that natural gas producers are hoping will drive demand.

Some industry executives doubt the explosion of shale gas in the US could be replicated elsewhere due to difficult geology, the lack of water availability or land access issues.

Liu accepted the rock formations in China were “different” from those in the US but denied this meant they were more challenging or less bountiful.

In less than decade, shale gas has transformed the US from gas shortage to a point where companies are planning to export liquefied natural gas, fundamentally altering the dynamics of the international gas market.

Many gas producers who were targeting the US for supplies were forced to rethink their plans and China, with its booming energy demand, was seen as the answer to their need for a new market.

A Chinese “shale gale”, as the revolution was termed in the US, could jeopardise that market too.

Shell declined to confirm the find but said in a statement:”Shell will complete drilling activities by the year end… as planned.”

Chief executive Peter Voser has previously said he has “great expectations” for Chinese shale but was cautious in his comments to the WPC on Tuesday.

“We are going through the exploration phase there and are exactly now analysing what potential is available now in China,” he told a news conference.

In 2009, PetroChina and Shell agreed jointly to evaluate shale gas reserves of the Fushun-Yongchuan block in the Sichuan basin.

Earlier this year, industry sources said Shell had started drilling two shale gas exploration wells in Fushun.

A US Energy Information Administration report in April said China had 1275 trillion cubic feet of technically recoverable shale gas resources – by far the largest in the world – followed by the US with 862 Tcf and Argentina with 774 Tcf.


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West wary of Burma investment

Western companies are still thinking twice about investing in Burma despite recent political reforms, leaving the way clear to Indian, Thai and Malaysian companies to invest in the South East Asian nation.

Andrew Hobbs 24 November 2011 09:02 GMT

Burma, also known as Myanmar, closed its biggest oil and gas exploration tender in years in August, a few months after it cautiously started political reforms, and the government is now processing the bids, Reuters reported.

Industry sources in Burma told Reuters the tender had attracted about 50 bids, with regional companies said to be the main contenders.

So far only Thailand’s PTT Exploration and India’s ONGC Videsh have publicly expressed interest in this tender, with ONGC saying it is evaluating data, Reuters reported.

US companies are barred from new investments in Myanmar under government-ordered sanctions and Chinese oil companies were lukewarm to the bidding for 18 onshore oil and gas prospects, due to concerns over the blocks’ prospects, Reuters reported.

Coupled with this, bilateral ties between Burma and China have been strained since September, after Rangoon shelved a China-backed dam in the north of the country.

CNOOC said it had not put in a bid, while no comment was received from Sinopec or China National Petroleum Corporation, Reuters reported.

Facts Global Energy consultant HS Yen said Burma could have received only one expression of interest from Europe.

“They probably have attracted as much as 50 bids, but each field may have been counted as a separate bid, so the number of individual companies bidding are very likely much lower than 50,” Yen said.

“I certainly don’t see a major company that isn’t already present in the country venturing into Myanmar given the risks of doing business there and the small reserves size.”

Total, which leads the $1 billion Yadana gas project in Burmese waters in the Andaman Sea, had not taken part in the tender, a company spokeswoman said.

Total chief executive Christophe de Margerie last month said his company would like to play a bigger role in Burma but first wanted to see concrete signs of increased democratisation.

“We decided that … it was important to be in Myanmar but that we will not invest until things are getting better … I do hope that will happen,” he said.


China takes step towards tapping shale gas potential with first well

Drilling in Sichuan deemed a success as China seeks to emulate US’s adoption of costly and controversial technique

Thursday 21 April 2011 11.38 BST

Jonathan Watts


Drilling for shale gas will be particularly costly in China due to the country’s water shortage. Photograph: Stringer/Reuters

China has begun trials of a controversial drilling technique to exploit the world’s largest reserves of shale gas, as it attempts to cope with the increasing energy demands of a fast-growing economy while reducing its dependence on coal.

In the past two weeks, engineers have completed the country’s first horizontal shale gas well in Sichuan and government officials have begun drafting a national strategy to identify a trillion cubic metres of exploitable resources by 2020.

Supporters say China has the potential to emulate the United States, where extraction of shale gas has tripled the lifespan of US gas reserves and offered a lower-carbon alternative to coal.

“Shale gas is a game-changer for the US and should do the same for China,” said Ming Sung, Asia representative of the Boston-based Clean Air Task Force and an advocate of closer energy links between the two nations. “This should be one of the centre-pieces for China’s energy strategy. As with any new technology development, we must balance benefits versus potential environmental impacts. The experiences of the US are valuable here.”

The extraction method itself is costly, controversial and challenging. Hydraulic fracturing or “fracking” involves the injection of chemically treated water at high pressure through seams of rock, forcing the gas inside to seep out to where it can be captured. Environmentalists warn that this wastes and contaminates millions of tons of water.

For fuel-hungry, drought-plagued China, this poses a conundrum. The energy potential is enormous. The ministry of land and resources calculates the size of shale gas reserves at 26tn cubic metres – more than 10 times the country’s known holdings of conventional natural gas.

This is a tempting alternative for a country that is eager to improve its energy security in the face of rising oil and coal imports. A global shale gas study released this month by the US Energy Information Administration said China’s technically recoverable shale gas reserves were almost 50% higher than those of the number two nation, the US.

But tapping them will be expensive and difficult for a country that is desperately short of water and – until recently – lacking experience in the key technologies.

Engineers from China National Petroleum Corporation (CNPC) took a major step towards rectifying the latter problem on 23 March, when it opened the shale gas well 3km below the surface at Weiyuan in Sichuan province.

The scale of production is a mere 10,000 cubic metres a day, the equivalent to about 10 tonnes of oil, and the financial returns are unattractive given the low price of gas and the high costs of exploitation – 7% of which are for environmental measures. But the pilot project was deemed a success because it proved the effectiveness of drilling equipment – the final thousand metres of the well being bored in just 34 days.

“The success of this well is valuable for the future of horizontal shale gas technology,” said an industry source. “We expect to reach our targets for exploration and development ahead of schedule.”

Executives at CNPC – China’s biggest energy company – have said they aim to produce 500m cubic metres of shale gas by 2015. With other firms such as Sinopec, Royal Dutch Shell and Chevron lining up to enter the business, the government has begun drawing up a national strategy that is likely to be incorporated into the latest five-year plan. Industry insiders are hopeful that it will include tax incentives and subsidies to develop shale gas reserves.

In an effort to wean the economy off coal, China plans to triple the use of natural gas so that it supplies 10% of the country’s energy needs by 2020. Most of this will come from conventional wells and coal-bed methane, but the share from shale is in fact likely to hit 12% by 2020 and continue rising.

The US appears to be a willing partner. President Barack Obama and his Chinese counterpart Hu Jintao signed a joint shale gas initiative in 2009, covering technology co-operation and assessments of reserves.

Liang Digang of the China Research Institute of Petroleum Exploration and Development said many of the technological barriers identified early on have been overcome.

“When China started looking at shale gas two years ago, we did not know how to do it so we spent money and invited foreign companies to join us. Now can do it by ourselves.”

But experts and industry executives downplayed the prospect of China exploiting shale gas reserves as quickly as the United States because the geology of the two nations is different. They said China’s shale is older and, tonne for tonne, produces less than half the gas of shale in the US. Water shortages will add to the costs. One of China’s two biggest deposits in the country – the Turpan Basin in Xinjiang – is a desert.

In the short term, Liang said the costs were likely to curtail China’s shale gas ambitions.

“We should not put too much stress on this right now, but in the long run, it is necessary to develop shale gas as a supplement to our conventional gas supply. The development of this industry is not for the present, but for the future.

 Original Article

Shifting Sands: Saudi Arabia’s Oil Moves East to China

Published April 05, 2011 in Arabic Knowledge@Wharton

The pivotal year was 2009, according to the Paris-based International Energy Agency (IEA). It was then that China consumed more energy than any other country in the world, even the U.S., prompting an expert at the IEA expert to proclaim “the start of a new age in the history of energy.”

For Saudi Arabia, which has the world’s largest oil reserves and is the world’s largest oil exporter, that new age couldn’t begin fast enough. Over the past 10 years or so, the Kingdom had been forging closer trade ties with China, becoming its key source of oil. In 2009, Saudi oil exports to China reached one million barrels per day (bpd), or 20% of its total oil imports and nearly double the number of barrels it exported the previous year; in contrast, U.S. imports of Saudi oil fell to less than one million bpd in 2009 for the first time in over two decades.

According to Tim Niblock, professor of Arab Gulf studies at the University of Exeter in the U.K., the growing Sino-Saudi oil trade is a reflection of the two countries’ “mutually dependent relationship that has advanced fairly steadily since 2000.” The Chinese need Saudi Arabia as a stable, established oil producer — all the more so today as turmoil across the Middle East continues, pushing the price of Brent crude to as high as US$116 a barrel in early March, and the Kingdom calms markets with pledges to increase production to fill any shortfall in supply. The Saudis need China’s burgeoning demand for oil in light of flat, or even decreasing, demand among consumers in developed markets. Even with the Chinese government lowering the official target earlier this year for average GDP growth over the next five years to 7% from 7.5%, the country’s thirst for oil looks unlikely to abate.

But are those ties now being tested? As unrest sweeps across the Middle East and North Africa, the entire region is on the cusp of change in ways that will affect the geopolitics of oil. “The whole political situation is different than what it was a couple of months ago, and it will stay different for a long time,” says Niblock. “It is a major turning point. Inevitably, that will have foreign policy effects. But it is very difficult at this stage to know what the nature of those effects will be, because we’re really only at the beginning of a process.” Equally unclear, then, is where the Sino-Saudi oil relationship goes from here.

Growing Interest

Though diplomatic relations between the two countries were established in 1990, it wasn’t until 2006, when Saudi Arabia’s King Abdullah made China the first destination for his early state visits after succeeding his half-brother to the throne the previous year, that the bilateral relationship began to gel. As a result, “the Sino-Saudi relationship is expanding across all levels,” says Paul Gamble, head of research at Riyadh-based Jadwa Investments. He cites 2009 data showing that China was the source of 11.3% of the Kingdom’s imports, including textiles and heavy machinery, compared with 6.6% in 2004, while Saudi Arabia’s share of China’s imports rose to 11.2% from 4.8% over that time, thanks mostly to oil. In 2010, bilateral trade reached a record high of US$43 billion, a year-on-year increase of 33%, scooting the countries closer to their goal of having their trade reach $60 billion by 2015.

As for oil, Saudi Arabia shipped 36.7 million metric tons of oil to China in the first 10 months of 2010, about 19% of its foreign purchases, according to Chinese government data. Angola, the second-biggest source, sent 33.7 million tons and Iran 17.2 million tons.

It’s not just about trade, however. “One needs to take into account the significant contracts coming China’s way in Saudi Arabia,” says Niblock. Those contracts involve Chinese companies getting a slice of the US$385 billion that the Saudi government is investing in infrastructure, such as highways and railways, under its five-year development plan launched in 2009.

In reverse, Saudi companies are also investing in China. Saudi Aramco, the world’s largest oil company, has two refineries in China, one in Qingdao province that is fully owned and another in Fujian province run as a joint venture with Sinopec, a Chinese petroleum giant, and ExxonMobil of the U.S. Then there’s the US$32 billion oil-processing joint venture in Tianjin in northern China between two other Saudi-Sino giants — Sabic and Sinopec — which went into operation last year to produce 3.2 million tons a year of ethylene derivatives. More such partnerships could be on the way. During the Tianjin venture’s first quarter results announcement, Sabic’s chief executive, Mohammed al-Mady, cited lower labor and materials costs is a big reason why his company is open to making further investments in China.

An Insatiable Appetite

In other parts of the world besides Saudi Arabia, China has deployed a relatively straightforward strategy to secure access to natural resources — it simply opens its check book and uses a combination of inward investments and trade deals. In Brazil, for example, China lent US$10 billion to national oil company Petrobrás to secure future oil supplies. China’s oil giant Sinopec, meanwhile, bought a 40% stake in Brazil’s other major oil company RepsolBrazil for US$7.1 billion. By August last year, China was Brazil’s top foreign investor, with a finger in everything from iron ore and mineral processing to telecoms and electricity grids.

Though China is driven by an overwhelming need for secure oil supplies via the likes of Saudi Arabia, it’s not afraid of also tapping high-risk countries. Iraq is one example. Precarious political stability aside, Iraq has abundant oil reserves and underdeveloped oil fields. In 2009, China National Petroleum Corporation (CNPC) and BP entered into a 20-year service contract with Iraq’s State Oil Marketing Company to develop the war-ravaged country’s Rumaila oil field. Reports in China’s state press from earlier this year say that daily output from Rumaila, currently the world’s fourth-largest oilfield, is 1.03 million barrels and rising. “The scale and the dynamics of this contract have no precedent,” observes David Butter, head of Middle East research at the Economist Intelligence Unit (EIU) in London. “It provides an interesting paradigm in terms of the working relationship between an increasingly confident Chinese oil company and an old-school Western major.”

China is also banking on oil-rich Russia. “China’s oil production is pretty much maxed out and it needs Russian oil,” Laban Yu, an energy analyst at Macquarie Hong Kong, told Bloomberg in September. “In fact, it needs oil full stop and Russia is close and convenient. As part of agreements to supply oil, Russia wants to have stakes inside China in ventures,” including a venture being discussed between CNPC and Russia’s state-owned Rosneft to build a US$5 billion refinery in Tianjin. And to increase exports from Russia, the first oil pipeline between the two countries was opened earlier this year, financed by a US$25 billion loan from China to Russia.

And it’s not only China’s sizeable check book that has made it such an attractive business partner. Its policy of refusing to meddle in the politics of the countries in which it invests has also opened doors in parts of the world shunned by other governments. While such policy “agnosticism” might be a welcome counterweight in some oil-producing markets to what’s seen as meddling U.S. foreign policy, it has been drawing increasing criticism from other trading partners.Iran, which has the world’s second-largest oil and gas reserves, is a case in point. Despite several rounds of arms and financial sanctions by the United Nations Security Council, the U.S. and the European Union over Iran’s contentious nuclear program, China has continued to sign oil deals with it.

But even close partnerships that eschew politics cannot guarantee oil supplies, according to Ben Simpfendorfer, an economist and editor of China Insider web site. “The best security [for supply] Chinese companies can hope for is to buy oil at the highest possible price,” he noted in his 2009 book, The New Silk Road: How a Rising Arab World Is Turning Away from the West and Rediscovering China, citing examples of China’s state-owned oil companies with deep pockets paying above market rates for oil imports around the world.

Drilling Down

Meanwhile, in cash-rich Saudi Arabia, China has needed a different deal-making strategy. “With one of the world’s most developed energy sectors in terms of infrastructure and operating efficiency, Saudi Arabia is not desperate to attract foreign investment to help expand its capacity to produce and export oil,” a blog on the Saudi-U.S. Relations Service web site notes.  Instead, Saudi Arabia wants to find new sources of steady, long-term demand as Western countries decrease their oil consumption of oil.

“Chinese investment in the Saudi energy sector is relatively modest at present, owing to limited opportunities in the upstream segment and Saudi Arabia’s historical preference for tying up with Western firms offering advanced technology,” says David Butter, head of Middle East research at the Economist Intelligence Unit (EIU) in London. “What is interesting is the building of partnerships and joint ventures between Chinese and Saudi companies. That’s as close as the Chinese can get to owning any oil assets,” he adds.

Those partnerships and joint ventures mark an important recalibration of the Kingdom’s oil policy. “Saudi’s economic relationship is certainly shifting,” says Niblock. “Most Saudi oil is going eastward than westward. Its relationship with the East is becoming more important, and probably more so in the future. It’s not just China. Japan and South Korea are importing a lot of Saudi oil, too.” And as more Saudi oil goes eastward than westward, there’s a new layer of complexity in the geopolitics of oil, involving one of Saudi Arabia’s closest ally, the U.S.

In a bid to diversify its energy sources, the U.S. has been reducing its oil imports from Saudi Arabia, now its fourth-largest supplier of oil, behind Canada, Mexico and Venezuela. But Saudi Arabia and the U.S. are tethered together in ways that go beyond oil. That includes interlocking defence and security strategies in the region. The U.S. State Department also confirmed last autumn that it plans to sell as much as US$60 billion in advanced military aircraft, the largest-ever U.S. overseas arms deal. “Neither China nor Saudi Arabia want to politicize their relations because each of them have good reason not to,” says Niblock. “Saudi Arabia because it remains strategically dependent on the U.S. in weaponry and some other key ways; and in conversations I have had with Chinese officials, they say they are worried about the relationship with the U.S. — they realize the Gulf is very important to the United States, and they don’t want to undermine this.”

But other observers wonder whether tensions might be mounting. In a 2008 report titled, “The Vital Triangle: China, the United States and the Middle East,” Washington, D.C.-based Center for Strategic and International Studies (CSIS) noted that China military buildup around the “vital” sea lanes for shipping oil out of the Middle East, for which the U.S. has long provided security is causing unease. “Analysts wonder about the purpose of the Chinese-built deep-sea port in Gwadar, Pakistan, and its implications for a Chinese military presence far beyond the Pacific Ocean. Gwadar is only 45 miles from the Iranian border and 250 miles from the Strait of Hormuz, making it close to the region’s most vital waterways,” the report noted. Nonetheless, the report’s authors conceded that the China’s “capacity to regulate and dominate the 7,000 miles of ocean between Shanghai and the Strait of Hormuz lies, by generous estimate, half a century down the road. In addition, at present, the Chinese have expressed satisfaction with simply ‘free-riding’ off of U.S. control of the aforementioned supply lines.”

In a radio interview shortly before a China-Arab trade forum last September, Yang Guang, director of the Institute of West Asia and African Studies at the Chinese Academy of Social Sciences in Beijing, said he sees no real sign of a geopolitical rebalancing, even though China is increasingly important for Saudi Arabia and its Middle Eastern neighbors. “If you look at the proportion of trade and investment in the Arab world, China still accounts for a very, very limited proportion. The lion’s share of the business is done with U.S. and Europe,” said Yang.

( Original Aritcle )

China joint venture celebrates 25th anniversary milestone


Thursday, 22 April 2010 09:32

In October 1984, the management of Magcobar (now M-I SWACO) and Nanhai West Oil Co. (now China Oilfield Services Ltd.) joined forces to create a drilling fluids joint venture, China Nanhai Magcobar Mud Corp. Ltd. (MCC), with the aim of delivering world class drilling fluid services to the emerging offshore drilling industry in China. Since that time, MCC has grown to become the most successful international fluids company in China, and one of the longest serving commercial joint ventures in China.

Since the first well was drilled with TOTAL in 1984 in the Beibu Gulf, the company has participated in over 1,000 wells in China in the past 25 years, including world-class extended reach wells, record high temperature wells, the deepest wells drilled in China, and is now dominating the emerging deep­water market in the South China Sea.

MCC has established offices, supply bases and laboratories throughout China and successfully deployed some of the leading fluid technologies from M-I SWACO. The UltraDril* water-base system and the FloPro* NT reservoir drill-in fluid have been excellent performers in the reactive shale and complex reservoirs of Bohai Bay, while the Rheliant* flat rheology synthetic-base drilling fluid is becoming the system of choice for deepwater operators in South China. The UltraDril system has now been used on more than 170 wells in China with the Rheliant system being used on more than 90% of the deepwater wells drilled to date in China. The Versaclean* drilling fluid system has been extremely successful for MCC, helping drill record extended reach wells. In recent times, MCC has established a foothold in the highly competitive onshore market with the MegaDril* one-drum solution.

MCC has worked throughout China, from the far west of Tarim Basin, to the northern extremes of Daqing oilfield, to the oldest and most prolific Shengli oilfield in the east, and down to the deepwater frontier in the South China Sea. Clients have included all the major national oil companies in China—the China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (SINOPEC) and China National Offshore Oil Company (CNOOC)—as well as a vast array of IOCs. Current IOC clients include ConocoPhillips, Anadarko, Husky Energy, EOG Resources, Devon, amongst others.

“To become as successful as MCC has, the company has relied heavily on an outstanding team of field engineers and professionals that has continued to grow and evolve over the years,” China Country Manager David Power said. “MCC has continually invested in training and development of our field engineers since first sending engineers to mud school in Houston in 1985. Over the years MCC has trained over 130 Chinese nationals. The professionalism of the MCC team is highlighted by the current 1,700 plus days without a LTI. We currently employ more than 60 national mud engineers, and most have attended M-I SWACO mud schools in Bangkok and Houston. The MCC team is now more than 93% Chinese nationals.”

M-I SWACO recently celebrated the 25 years of continual service to the Chinese petroleum industry with gala banquets in Beijing and Shekou. Top executives from both companies, including Li Yong, COSL President; Zhang Xing Yun, COSL General Manager and Magcobar Board Chairman; David Paterson, M-I SWACO SVP Eastern Hemisphere; Max Richey, M-I SWACO SVP; and Sandy Park, Magcobar Director and M-I SWACO VP Asia Pacific, were joined by various clients and friends of MCC to celebrate this tremendous achievement.

M-I SWACO and COSL management continue to see a very bright future for MCC as China’s petroleum industry continues to surge ahead. Today more and more IOCs are competing for acreage in China and the Chinese government continues to support development of China’s domestic hydrocarbon resources, in particular the deepwater fields of South China. The team at MCC looks forward to many exciting times and rewarding challenges in the coming years.


Shale Gas: A Game-Changer with Global Implications


The following opinion pieces were written by researchers, fellows or scholars. The research and views expressed in these opinion pieces are those of the individual(s), and do not necessarily represent the views of the James A. Baker III Institute for Public Policy.

Tuesday, October 06, 2009
Kenneth B. Medlock III, James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics

Less than a decade ago, companies were planning large scale investments that would allow them to substantially increase shipments of liquefied natural gas (LNG) to the United States from Africa, the Middle East and Australia. This was spurred by the expectation that indigenous supplies would continue to dwindle and demand, particularly for power generation, would continue to grow. However, success in the development of domestic U.S. shale gas has turned this thinking on its head. In fact, growth from the production of shale gas in the United States has contributed to low capacity utilization of the LNG regasification terminals in North America, and modeling at the Baker Institute indicates that this trend is likely to continue into the early 2020s.

The recent and expected future expansion of North America shale gas production has an important implication for the global natural gas market and the geopolitics of natural gas in Europe and, to a lesser extent, Asia. Namely, it will lower the import requirement of the United States relative to what it would have been. A lower LNG import requirement for the United States effectively diversifies the global gas supply portfolio by increasing the available supply to the global market. Thus, supplies otherwise intended for North America can be redirected, even if still in the planning phases of development. To the extent that supplies are redirected, growth in shale in North America benefits European nations in their supply diversification efforts, as well as Asian countries seeking to expand their natural gas imports. In short, expanded supplies in North America, or in any major consuming region for that matter, weaken the leverage that Russia and other major gas-exporting countries, such as those involved in the Gas Exporting Countries Forum, might have on consuming nations moving forward.

Energy security benefits accrue to all natural gas importing countries as a result of new shale developments in the United States and Canada. To the extent that supply growth comes from countries and regions with a history of instability, greater reliance on those sources increases the likelihood of a major disruption in the global gas market. North American shale abates that reliance and reduces the risk of a major global disruption, thereby having significant geopolitical implications. For example, Baker Institute modeling indicates that supply from Iran tends to increase the most when factors inhibit the growth of North American shale supplies. This indicates that Iranian leverage is lessened as a result of expanded shale gas developments in North America. Similarly, as discussed above, expanded North American shale production strengthens the hand of European consumers in dealing with Russia. While shale gas is but one element of the global gas market, it is important to fully understand the broader implications of this new resource.

Timing of future developments is important. Many of the resources in play will have similar costs to the burner-tip, so first-mover advantage is crucial. Recent indications of a change in strategy by Russia with regard to international oil company (IOC) participation in the development of its potentially vast resources in the Yamal peninsula are a strong indicator that Russia understands the potential costs it may incur if it does not move forward quickly. While shale gas developments may reduce the share of the North American market that can be captured by Russian LNG, Gazprom runs the risk of losing significant market share in Europe if it fails to move decisively with plans to develop the Yamal resources. This point is made even more salient by recent interest in shale potential in Eastern Europe. If potential shale resources in countries like Germany, Hungary and Ukraine, as well as other Eastern European countries, prove to be commercially viable, Russia could have a real problem on its hands. On Oct. 1, 2009, Christian Wulff, prime minister of Lower Saxony, Germany, visited the Baker Institute and discussed his interest in developing shale gas in Lower Saxony. ExxonMobil Exploration Company executive Tim Cejka told the audience at the event that ExxonMobil hoped to identify shale gas resources in Germany and other large end-use markets. Moreover, he believed that the shale gas potential outside the United States was substantial. Click here to view a webcast of this event.

Gazprom’s sudden renewal of interest in developing the Yamal in partnership with IOCs probably serves two purposes. First, Gazprom might be hoping that its offer will shift IOC focus (and their capital) back to Russia, in hopes of diverting efforts away from interest in shale resources in Europe. However, the IOCs do not have a great track record with investments in Russia, so this may be wishful thinking. Second, Gazprom must act quickly to defend its strong market position in Europe against an increasing number of competitors. Not only is maintaining a reliable flow important, but expansion is also crucial. Other suppliers are studying new ways to penetrate the European market, such as Qatar’s recent interest in developing an LNG receiving terminal in Poland or the Caspian states’ willingness to entertain discussions about developing pipeline routes to Europe that bypass Russia. Moreover, shale is a potential threat. If Russia can successfully expand Yamal production, it could quiet some of these potential competitors. Gazprom’s visible expansion into the North American market via LNG trade, once tied to gaining access to a growing and premium market, might now be more to keep the option open to redirect LNG cargoes to the United States to prevent it from having to either temporarily shut in production or flood the European market.

As technologies applied to shale formations in the United States are applied to shale formations in Europe and Asia, it is possible that the nature of gas supplies will change substantially. Rather than expanded reliance on Russia and the Middle East, we could very easily see lower reliance on those countries, which dramatically changes the dynamics at the negotiating table and geopolitically. The mere threat of shale gas developments in Europe, if credible, could alter the behavior of Gazprom in supply negotiations. Not only might they be more open to foreign investment, but they could also be more willing to accept a move away from explicit oil-indexation, a move seen by many as inevitable. Time will tell if the shale potential plays out in Europe and even in Asia, where there has also been some recent interest. It has certainly changed the game in the North American natural gas market, so at the very least it should have everyone’s attention.

  • View graphs and slides that illustrate this blog.
  • To view slide presentations used during the Baker Institute’s Oct. 1, 2009, event with Christian Wulff, click here and scroll to the link above each panelist’s name.

Original Article

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