US oil pipeline rivals look to consolidate West Texas projects

MOSCOW (MRC) — As shale oil producers have rushed back into the Permian Basin after a downturn, US pipeline firms have scrambled to plot new pipelines to take all that petroleum from West Texas to refineries, export hubs and petrochemical plants, said Hydracarbonprocessing.

But operators with plans for up to 20 new lines are now selling stakes in some of those projects amid concerns that production could fall short of the volumes needed to fill them. "I suspect some projects will disappear altogether," said Roberto Simon, Americas head of natural resources and infrastructure for investment bank Societe Generale. "Not everyone is going to be viable."

The shakeout comes despite record crude volumes being pumped now in the Permian, the largest US oilfield, after a two-year downturn that started in 2014. Production from the Permian Basin is up 24% since the year began, to 2.6 MMbpd. It has sold at a discount since August to benchmark crude oil stored at Cushing, Oklahoma, according to Reuters data, a reflection of congested pipelines.

But the competing pipeline projects, taken together, would add an enormous amount of pipeline space that even record production might not fill. If all nine new or expanded crude lines were built, it would nearly double the region's current capacity of 2.4 MMbpd.

Rather than compete for the same customers, the pipeline firms are seeking to cut deals to ensure they can guarantee the energy supplies to fill the lines. None have formally dropped out of the competition, but a hunt for partners signal that the winnowing process has begun. "There is a lot of money chasing the opportunity right now," said Whit Keuer, a partner in consulting firm Bain & Company's oil and gas practice. "We would expect a pretty big shakeout."

Kinder Morgan and DCP Midstream LP last week signed Targa Resources Corp as an investor in their natural gas pipeline project. Targa separately sold a 25% stake in its proposed gas liquids line out of West Texas to Blackstone Energy Partners. Kinder Morgan declined to comment. DCP and Targa did not respond to requests for comment.

NuStar Energy, which plans a USD1-B crude pipeline out of the Permian, is in talks with other companies about selling a stake and obtaining access to fuel in the region, said Danny Oliver, NuStar's senior vice-president of marketing and business development. "If it puts us ahead of the competition and gets a deal done, we would be absolutely open to something like that," he said.

Some analysts say output can accommodate many of the new transportation lines. Permian production—which accounts for the vast majority of US output gains—should rise through 2026, estimates Alex Beeker, senior research analyst at consultancy Wood Mackenzie.

Others think it could peak sooner. US oil output could experience a final spike next year before growth flattens as rising costs make it unprofitable to drill many fields, Ian Taylor, chief executive of oil trader Vitol, said this week. Gas pipeline operators are also recalibrating expansion plans.

NAmerico Partners LP, which is competing with Kinder Morgan to develop a Permian to Gulf Coast pipeline able to move nearly 2 Bcfd of natural gas, is in "very active discussion" about selling stakes, said managing partner Jeff Welch. NAmerico would swap equity for a producer's volume commitment or join with another pipeline and gas gathering company if it would help provide access to more natural gas, he said.

Privately held Permico Energia, which is planning a liquid natural gas pipeline, is negotiating a potential sale of a stake to energy producers for cash and a supply commitment, said Chief Executive Jeff Beicker. Permico would consider folding in its project with another pipeline if one approached Permico with a strong case for a consolidation, he said.

Some firms aren't looking for partners. EPIC Y Grade Pipeline LP, which struck a deal with BP plc last month to use its proposed 650-mi natural gas liquids pipeline, feels confident enough to go it alone, said Chief Executive Phil Mezey.

It still would welcome supply deals with more energy producers and processors, he said. The competition for deals to fill the pipelines is so fierce that margins for operating the lines are likely to be thin without consolidation, said Libby Toudouze, portfolio manager at Cushing Asset Management, which invests in energy producers and transportation companies.

Private equity investors have so much capital to invest that they are willing to do so at prices that might not initially produce profits, she said. "You've got some competition in there that is willing to be a loss leader," Toudouze said.
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Sinochem taps banks for Hong Kong IPO of oil assets

MOSCOW (MRC) -- China's Sinochem Group has tapped three banks, including Morgan Stanley, to work on the possible Hong Kong listing of its key oil assets, as it seeks to raise capital and revive the company, reported Reuters with reference to four people with knowledge of the matter.

Citic Securities and BOC International are also advising China's fourth-largest oil company on the planned initial public offering, which will likely take place in the second half of next year, the people said.

No formal mandate for the IPO has been awarded yet, they said, adding preparations for the market float are at an early stage, and unlisted Sinochem has yet to decide the size of the public offering.

The IPO plan also comes amid Beijing's latest push to revive its bloated state-owned enterprise sector via the so-called mixed-ownership reforms by injecting private capital into state enterprises.

"Our people are preparing for it (IPO) ... but it's still far away," Sinochem Chairman Ning Gaoning told Reuters on the sidelines of the Communist Party Congress.

The planned listing will likely include Sinochem's refining, fuel marketing, trading and storing assets, but not its struggling upstream business - mostly overseas oil and gas production - three of the people said.

"These assets are considered the best under the company," said one person who was briefed by Sinochem management, referring to the businesses likely to be part of the listing.

"Sinochem is looking to offload its upstream business to the government rather than to investors."

All the people declined to be named as details of the listing process are not yet public. Sinochem did not respond to a request for comment. Morgan Stanley, Citic and BOCI declined to comment.

Hit by low oil prices, Sinochem has aimed to shift from oil exploration and production to the more value-added refining and retailing businesses. It has been looking to sell a stake in Brazil's Peregrino offshore oilfield.

As MRC wrote previously, in late 2015, Sinochem received approval from the Fujian Provincial Development and Reform Commission for a refinery expansion and petrochemicals project in Quanzhou, the China Chemical Fiber Group reporte. The USD 6.8-billion project will expand the refinery by 25 % to 300,000 b/d from the current 240,000 b/d capacity. The company will also add a 1-million-t/y ethylene cracker, an 800,000-t/y paraxylene unit, a 400,000-t/y polyethylene plant, an aromatics extraction unit with 300,000 t/y of capacity, and secondary units. A schedule for the project was not given.

Sinochem Group engages in energy, agriculture, chemicals, real estate, and finance service businesses in China and internationally. It is involved in the exploration and production, refining and trading, warehousing and logistics, and distribution and retailing of oil and gas. The company also produces and distributes fertilizers, such as nitrogen, phosphate, potash, and other fertilizers.
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Asian LNG prices drop on wary buyers and lacklustre Egyptian demand

MOSCOW (MRC) -- Asian spot LNG prices fell this week as reluctant buyers submitted lower bids, more supply emerged and Egypt's call for 12 shipments in 1Q 2018 undershot expectations by traders, said Reuters.

Spot prices for December delivery fell to USD8.70/MMBtu, 20 cents below last week levels. However, at least two traders pegged December prices at around the USD8.50/MMbtu-8.60/MMBtu level, arguing that buyers were unlikely to pay up. Bid-offer spreads remained somewhat wide with bids submitted at around the mid-USD5/MMBtu and offers in the high-USD5/MMBtu range, two traders said.

Egypt's tender for deliveries between January and March - including three shipments which are to be imported via Jordan - was seen as a bearish signal for global gas markets as traders had expected Egypt to seek five cargoes per month, not four.

Petroleum Minister Terek El Molla said in September the country was on track to cease importing LNG by the end of 2018, a goal seen as unrealistic by some analysts. Egypt's mega purchase tenders of the past several years turned the country into one of the world's fastest-growing LNG importers, absorbing hundreds of shipments and propping up global prices for the fuel.

Weaker spot Asian prices come after weeks of gains which saw the contract rally more than 40 percent since the end of August. "The market has really overshot, driven by a variety of factors from the extent of Chinese demand, which was completely unexpected, to rising NBP [British gas] prices and other factors such as Hurricane Harvey," one trade source said.

Another source said added that prices are set for a further correction. "There is downside risk for December prices and upside risk for the first quarter." Given rapidly growing imports by Chinese companies this year, traders believe stocks there to be healthy and demand covered for November and December so long as temperatures stay within normal bounds.

But Chinese and other buyers are expected to seek more supply for delivery from January onwards. Weather will be a driving factor for demand and traders are waiting for a clearer sense of temperature forecasts for the period. Russia's Sakhalin II LNG export plant on Friday launched a tender offering a late-December loading cargo, traders said.

Nigeria's NLNG export plant put a Nov. 5-7 loading cargo up for tender, with bids due by Oct. 24. The first cargo from Chevron's latest LNG export facility Wheatstone, in Australia, is due to be shipped using the Asia Venture tankers which is currently moored just outside the facility, according to ship-tracking data.

With wide spreads between European gas markets and Asia, British utility Centrica is expected to export a cargo from the Isle of Grain terminal using the Cool Voyager tanker. One source said the cargo may be headed to India.
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London introduces vehicle pollution levy in new blow to diesel

MOSCOW (MRC) -- London brought in a new levy on the oldest and most polluting cars entering the city centre from Monday, almost doubling how much motorists have to pay in the latest blow to diesel, said Hydrocarbonprocessing.

Drivers are already charged 11.50 pounds ($15) to enter the financial district and parts of west London under a congestion charge. But those driving petrol and diesel vehicles typically registered before 2006 will need to pay an additional 10 pounds.

Since the 2015 Volkswagen emissions cheating scandal, a number of major cities including Madrid, Paris and Athens have announced plans particularly focused on cutting diesel emissions including bans, fines and restrictions. The new charge could further encourage motorists to switch to greener models in one of Europe's biggest cities as Mayor Sadiq Khan hopes the new levy to reduce toxicity, known as the T-Charge, will help save thousands of lives each year.

"The air is bad, but it's also a killer," he told Reuters. "There are children in London whose lungs are underdeveloped. There are adults who suffer a whole host of conditions caused by the poor quality air from asthma to dementia to suffering strokes."

The tax will apply to up to 34,000 vehicles every month, according to Khan's office, a small proportion of the 535,000 vehicles which come into the area. But it sets the tone for future policies including an ultra low emission zone due by the end of 2020.

Although the T-Charge will also affect older petrol cars, diesel has been particularly maligned over the last few years, with sales down 14 percent this year in Europe's second-biggest car market as petrol demand continues to rise.

"There's a budget coming up and the government's got to step up and announce the diesel scrappage scheme to help families and businesses," said Khan, a politician from Britain's main opposition Labour Party. Britain's Conservative government said this year that sales of new diesel and petrol cars would be banned from 2040 but has stopped short of an immediate programme to incentivise drivers to trade in their old models.

Whether 40,000 Uber drivers, one in three of all private hire vehicles working in the British capital, continue to operate will also have a major impact on London's streets in the years ahead. The city's transport regulator shocked the Silicon Valley taxi app last month by stripping it of its licence. But the company can continue to operate until an appeals process is exhausted, which could take several years.

After discussions between Uber's global Chief Executive Dara Khosrowshahi and Transport for London (TfL) Commissioner Mike Brown this month, Khan said further talks could take place.

"If it's possible for the global CEO to continue discussions with the TfL commissioner of course that's a sensible course of action," he told Reuters. "Whenever you can avoid litigation, you should avoid litigation but I appreciate Uber are appealing the TfL decision. We'll have to wait and see how that pans out."
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ExxonMobil begins production ont new PE line at Mont Belvieu plant

MOSCOW (MRC) -- ExxonMobil Chemical Company has announced that it has commenced production on the first of two new 650,000 tons-per-year high-performance polyethylene (PE) lines at its plastics plant in Mont Belvieu, Texas, said the producer on its site.

The full project, part of the company’s multi-billion dollar expansion project in the Baytown area and ExxonMobil’s broader Growing the Gulf expansion initiative, will increase the plant’s polyethylene capacity by approximately 1.3 million tons per year.

The Mont Belvieu plant capacity will total more than 2.5 million tons per year, making it one of the largest polyethylene plants in the world. These performance polyethylene products will deliver significant sustainability benefits enabling lighter weight higher performance packaging, lower energy consumption and reduced emissions.

A significant portion of Mont Belvieu polyethylene will be exported from the Port of Houston later this month. At peak, the site will ship more than 200 containers a day.

"The expansion of our Mont Belvieu facility further enhances our ability to meet growing global demand for high-performance polyethylene products around the world," said Neil Chapman, president of ExxonMobil Chemical Company. "The investments we’re making through our Growing the Gulf initiative will not only expand our existing manufacturing and export capacity, but will further stimulate local economic growth and create thousands of full-time jobs."

ExxonMobil is planning to invest more than USD20 billion over 10 years to build and expand manufacturing facilities in the U.S. Gulf region. These projects are expected to create more than 45,000 jobs, including more than 12,000 full-time jobs. The expansion covers 11 major chemical, refining, lubricant and liquefied natural gas projects along the Texas and Louisiana coasts.

As MRC reported earlier, in November 2016, Jacobs Engineering Group Inc. announced it received a contract from ExxonMobil Chemical Company to provide engineering, design and construction management services as part of a new 650 kTa polyethylene facility to be located at ExxonMobil’s Beaumont polyethylene plant.

ExxonMobil is the largest non-government owned company in the energy industry and produces about 3% of the world's oil and about 2% of the world's energy.
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