Increasing role of China in the oil market

At present, China is the fourth largest oil producer in the world

China, it seems, is everywhere. In what has become a routine, not a day passes without a mention of China in the news, in everyday conversations and predictions. As the next superpower, the country is wielding clout in every sphere possible. The growing influence is felt even in the oil market where the Asian giant is one of the biggest players.

Iraq's oil field is just emerging from the ravages of oil, but China is already there. PetroChina Co. has already got development projects for Halfaya and Rumaila Oilfield in Iraq. The company has also signed agreements for co-cooperation in the oil field with companies in Turkmenistan, Kazakhstan, Uzbekistan and Russia. Last year Chinese companies spent more than $32 billion to secure oil, metal, coal fields in Asia, Africa and Australia. The Chairman of PetroChina Co. has said that the company was planning to invest at least $60 billion for foreign acquisitions in the next decade.

Seemingly, at present, China is the fourth largest oil producer in the world. Last year oil output was put at 189.49 million tons, (3.79 million barrels a day) a fall by .04 percent than expected. According to the National bureau of statistics, China produced about 15.11 million tons of oil in the month of February. But, the country consumes oil many times more. As a result of which imports contribute to as high as 52 percent of the oil consumed.

Indeed, China became an oil importer only in 1993 but has come a long way since. China's oil imports could reach a record 210 million tonnes this year, up by 5.5 %. So how does China go about for energy? Let's see:

In one of the largest export deals for Australia, China National Offshore Oil Corp has decided to buy LNG from BG Group Plc's proposed export terminal in Queensland. Based on the deal signed, China would get 3.6 million metric tons of LNG yearly for the next twenty years from 2014. The deal is estimated to be worth more than $80 billion. Last August PetroChina Co. signed an agreement worth A$50 billion ($46 billion) with Exxon Mobil Corp. to buy 2.25 million tons of LNG with Chevron Corp.-led Gorgon LNG venture.

Of course, this is despite the tensions on the political front. One would remember the Rio Tinto trial where an Australian citizen and three of his colleagues were standing trial (since given 7-14 years of prison sentence) on charges of bribery and for infringing on commercial secrets. Anyway, the trial didn't stand in the way of growing trade relations with China. Also, PetroChina Co., and Royal Dutch Shell agreed to a $3.44 billion deal to buy most of the Australian assets of Arrow Energy Ltd., the coal seam gas producer.

"Australia's trading relationship with China is healthy and mutually beneficial" says Australian Energy Minister Martin Ferguson, "Australia is committed to strengthening that relationship and being an important partner in our region's economic growth."

In other deals, China's largest oil and gas producer, PetroChina Co., which holds about 7.5% stake in China Petroleum Finance decided to raise its holdings to 49%. The move made possible by buying stakes from the parent company China National Petroleum Corp. Thus, PetroChina Co. gets better returns on investment, as it gets finance quite easily.

Oil and Gas in Indiana

Following the news of the success of Colonel Edmond Drake's oil well in Titusville, Pennsylvania in 1859, oil exploration moved westward into Ohio and Indiana. Between 1862 and 1869, wells were drilled in Pulaski County and Vigo County and gas and oil were discovered but not further developed. Gas was discovered in what would become the Trenton Field near Eaton in Delaware County in 1876. Beginning in 1886 and continuing into the first decade of the 20th century, gas and then oil were discovered and developed in east central Indiana. A wild untethered boom ensued that ultimately resulted in thousands of wells being drilled; this was America's first giant oil field (greater than 100 million barrels of oil). The gas was used to attract and then fuel numerous industries in the region. In fact, the existence of Muncie, Anderson, Marion, and Kokomo as manufacturing centers can be directly attributed to the development of the Trenton Field. In addition to these industrial complexes, the oil boom led to the development of refining and petrochemical industries in the Calumet region. The boom quickly ended in the beginning of the 20th century because wasted resources and unregulated drilling practices caused a precipitous drop in production. Unfortunately much of the resource was wasted or lost through the burning of gas at the surface and the contamination of oil by fresh water within the subsurface reservoir.

Southwestern Indiana

As gas and oil production quickly declined in northern Indiana, new discoveries were being made in the southwestern part of the state known as the Illinois Basin. Production from fields in Vigo and Pike Counties was rapidly followed by new discoveries in Sullivan and Gibson Counties. Unlike the single field of northern Indiana that produced from a single reservoir, these new discoveries produced from many smaller fields and a variety of different reservoirs at different depths. Also, unlike the Trenton Field, the Illinois Basin fields produced mostly oil, not gas. Soon all the counties located in the southwestern part of the state were contributing to oil production. Production peaked in 1956 at over 12 million barrels for the year. Since that time both the number of holes drilled and the production for the state have declined.

Current Activity and Future Prospects

Since the early 1960s, the amount of oil produced in Indiana has declined. Close examination of this decline reveals that changes in the price of oil are directly related to the number of wells drilled and consequently, the volume of oil produced. For instance, the reversal of the steep decline in the 1960s and 70s can be attributed to increased drilling in response to the energy crisis of 1973 and Iranian crisis of 1979. After 1986 a steep declined resumed, resulting from a dramatic lowering in the price of crude oil. In this same time frame, the number of holes drilled within the state declined from more than 1,200 per year in the early 1980s to around 200 per year by 1997. While most new holes are drilled as development wells in existing fields, a low level of "wildcat" exploration still takes place within the state. With oil prices approaching $100 per barrel in 2007, exploration for new reserves has resulted in an increase in the number of holes drilled.

The current hot play is the New Albany Shale gas play which is utilizing state of the art completion technologies to access and produce natural gas from this unconventional reservoir. Renewed interest in the New Albany began in the mid-1990s and related drilling has accounted for nearly 500 wells since that time. Initially focused in Harrison County, where New Albany gas production was discovered in the late 1800s, successful exploration has more recently expanded to several other counties in southwest Indiana. Although wells with initial production test rates (IPs) typically range from 20-400 MCFPD (thousand cubic feet gas per day), some wells northern Daviess and in southern Sullivan Counties are rumored to have tested more than 1 MMCF (1 million cubic feet of gas per day). Many of the New Albany wells are being drilled with one or more horizontal boreholes that extend outward from the surface drill-site over a distance of one-half mile to nearly a mile. In Harrison County, the New Albany occurs at depths ranging from 500-1200 ft.; in some of the newly-drilled areas the New Albany is encountered at greater depths, around 2,000 ft. in Daviess County, for example. Additionally there is significant interest and development work ongoing in the coal measures of the southwestern part of the state. Here shallow drilling is tapping unconventional gas known as “coal bed methane” or CBM.

There is a fair potential for the discovery of significant new reserves in the state. Much of the state has been thoroughly drilled; however, this drilling reached only the first few thousand feet of depth. A considerable portion of the subsurface remains unexplored, and many thousands of feet of potential reservoir exist, especially in the southern portion of the state. Although the deep subsurface geology of this region is thought to be similar to northern areas of the state, details of thermal maturity, migration pathways, and trapping mechanisms are unknown. In addition to untested geology, the application of new technologies to explore for and produce oil and gas could hold the key to unlocking some of Indiana's resource potential. These new technologies, some of which are being used in the development of the New Albany Shale as an unconventional gas source, include the application of advanced seismic acquisition and processing techniques, new drilling technologies including horizontal drilling, and complex completion techniques such as CO2 stimulation.

Petroleum industry is too profitable, so what?

Petroleum is even more profitable than finance. Do you need a proof ? This post is extracted from the longer (too long?) post revenues per employee sum up world’s troubles. First, I give you again the chart of revenues and profits per employee of a few top companies

But, maybe you do not believe me when I say that oil is more profitable than finance. Indeed if you look closely at the chart, the profits per employee of Goldman Sachs are 380k$/E while it is only “379.18k$/E” for Exxon. That it is about the same, but still, finance wins.
So, to support my point, let me add other data: (from Fortune 2008 and 2009 - though notice that the results do not change much between both years)

• List of the industries generating most revenues per employee
• List of the 10 highest paid CEOs Ok the first one is from a finance company (Blackstone), the second one is from a software company (Oracle) but, be seated, “The next seven highest paid CEOs all helm energy companies: Ray Irani of Occidental Petroleum (OXY, Fortune 500), John Hess of Hess Corp (HES, Fortune 500), Michael Watford of Ultra Petroleum (UPL), Aubrey McClendon of Chesapeake Energy (CHK, Fortune 500), Bob Simpson of XTO Energy (XTO, Fortune 500), Mark Papa of EOG Resources (EOG, Fortune 500) and Eugene Isenberg of Nabors Industries (NBR).” (CNNMoney) Shouldn’t we feel sorry for traders who are not working in the oil industry?
• 25 top-paying companies First one is a law firm (Bingham McCutchen), second one is a Medical Doctor firm (Lehigh Valley Hospital & Health Network), interestingly, the 3rd, 4th, and 5th company are also law firms (Orrick Herrington & Sutcliffe, Alston & Bird, and Perkins Coie). And the 6th one at last is an oil company: Devon Energy “The largest independent oil and natural gas producer in the U.S., Devon pumps half a million barrels of oil a day” (CNNMoney). One word about lawyers and MD: I am really not shocked to see them first because a lawyer or a MD has much more responsibility than an engineer. So even if their job may be in some cases less complex (does not mean easy obviously) than engineering, it is definitely worth more money per person. Back to our subject, Goldman Sachs is only 11th, behind, another oil firm (EOG Resources) and behind sofware companies (among other Adobe Systems).
• Best big companies to work for The first one is… an oil company: Valero Energy the Largest oil refiner in North America! And the second one is nothing else than Goldman Sachs! However, notice that the ranking puts a high weight on the size of the company because else in the ranking of the best companies to work for Goldman Sachs is before Valero and that the first company is Google (2007).

Petroleum industry is way too profitable, so what?
Petroleum industry is the most profitable because oil is the most useful thing around. Oil is energy and the world needs energy. There is a high demand for energy so energy should be expensive. OK but this does not explain why oil companies revenues per employee (and wages) and profits are so high.
In fact, wages and profits should be greatly lowered by the expected high cost for unextracted crude oil. Cost of crude oil should appear in the balance sheet of an oil drilling company, and then in all the supply chain. Well, crude oil costs do appear in terms of concessions. But they are way undervalued. As an approximation you can neglect these costs. You can think that current cost of unextracted crude oil is ZERO$. That exactly means that nobody owns it and that reserves are unlimited. In my opinion everybody owns it, just like every natural resource, and it is limited. The market of natural resources (oil among others) should take into account in its pricing process all the natural reserves and not only the extracted reserves.
And to pronounce a taboo word : taxes. Profits from petroleum companies should be more taxed because these profits are not merited. They are not justified by an extraordinary complexity or by an extraordinary innovation. The useful innovation would be to find substitutes to petroleum.
Maybe if, like many, you really hate taxes, one other solution would be to force petroleum companies to highly invest in fundamental research for new energies.

Petrol station market continues to attract investors

Petrol station market continues

to attract investors

Property services group Barber Wadlow, which specialises in petrol and service stations, has teamed up with Experian Catalist to publish a list of value indices for independently owned sites

These account for 63% of the UK’s petrol stations, and are the only vacant sites in the country that are “actively” traded.

The value of “mid-range” dealer sites — sites with average levels of trading performance — has fallen by 28% in the last 12 months, and by 36% since the peak of the market in 2007. But trading levels for these sites are still low in comparison with “top-end” sites — the top quarter of sites in terms of trading performance — where values have only fallen by 14% since the start of 2009.

The fall in values is primarily because purchasers cannot access finance. However, there are some well-funded investors who are continuing to buy up sites, and some of these are new entrants to the market.

Ownership is still fragmented, and the top 10 traders only account for around 10% of independently owned petrol stations. Investors are focusing on the better-performing sites, which account for 23% of the network.

Last year, planning or procurement issues meant that only 24 new petrol stations were developed. The supply of good sites without planning constraints therefore remains limited.

There was exceptional growth in values between 2000 and 2007. The prices of “top-end” sites rose by 66% and the average value of “mid-range” sites increased by 137%. By comparison, the IPD Retail Property Index increased by 65% over the same period.

The rise in value on “mid-range” sites was caused by the closure of poorly performing sites. Since 2000, almost a third of all sites have been closed, and this has driven up the trading performance of the remaining mid-range petrol stations. Fuel sales have risen by 40% and sales on forecourt shops have more than doubled.

The improvement in trading is also the result of better facilities — 25% of forecourts now have an off licence and 40% have cash machines. There is, however, scope for further investment as only 15% of sites provide a convenience store.

Retail sales at petrol stations have remained strong. Although fuel sales are down by 10%-20%, sales at forecourt stores have been steady. The latter provide gross profit margins of 20% to 25%, compared with fuel margins of between 3% and 6%. As a result, estimated rental values have fallen by just 3% for “top-end” sites and by 14% for “mid-range” sites.

Barber Wadlow expects the value of sites to rise, but the funding crisis will continue to limit price inflation.

LUKOIL is one of the world’s leading vertically integrated oil & gas companies. Main activities of the Company are exploration and production of oil & gas, production of petroleum products and petrochemicals, and marketing of these outputs. Most of the Company's exploration and production activity is located in Russia, and its main resource base is in Western Siberia. LUKOIL owns modern refineries, gas processing and petrochemical plants located in Russia, Eastern and Western Europe, near-abroad countries. Most of the Company's production is sold on the international market. LUKOIL petroleum products are sold in Russia, Eastern and Western Europe, near-abroad countries and the USA.

LUKOIL is the second largest private oil Company worldwide by proven hydrocarbon reserves. The Company has around 1.1% of global oil reserves and 2.3% of global oil production. LUKOIL dominates the Russian energy sector, with 18% of total Russian oil production and 19% of total Russian oil refining.

LUKOIL proven reserves at the beginning of 2009 were 14,458 mln barrels of crude oil and 29,253 bcf of natural gas, totaling 19,334 mln boe.

LUKOIL has an outstanding portfolio of production assets. The main production region for LUKOIL Group is Western Siberia. LUKOIL is carrying out international exploration and production projects in Kazakhstan, Egypt, Azerbaijan, Uzbekistan, Saudi Arabia, Colombia, Venezuela, Cote d’Ivoire, Ghana and Iraq.

With putting into operation the Nakhodkinskoye gas field in 2005 the Company started its gas program which targets at a rapid growth of gas production in Russia and abroad and increase in the share of gas to a third of total hydrocarbon production by LUKOIL. The key regions for development of LUKOIL gas production are the Bolshekhetskaya Depression, the Northern Caspian and Tsentralno-Astrakhanskoye field in Russia as well as the Kandym – Khauzak – Shady project in Uzbekistan (put into production in 2007) and the Shakh Deniz project in Azerbaijan. LUKOIL owns significant oil refining capacity both in Russia and abroad. In Russia the company owns four large refineries at Perm, Volgograd, Ukhta and Nizhny Novgorod. Total capacity of LUKOIL facilities in Russia is 44.7 mln tons of oil per year. LUKOIL also has refineries in Ukraine, Bulgaria, Romania, and a 49% stake in ISAB refining complex (island of Sicily, Italy), with total capacity of 21.8 mln tons per year. In 2008 LUKOIL refined 56.28 mln tons of oil at its own refineries and ISAB complex, including 44.18 mln tons at its Russian refineries.

LUKOIL created a new business sector in 2008: Power Generation. Creation of the new business sector is a part of the Company’s Strategic development program for 2008–2017. By the end of 2008, LUKOIL’s Power generation business sector included UGK TGK-8 (acquired during the year), the Company’s own power generating facilities at oil & gas fields, and also a number of power generators in Bulgaria, Romania and Ukraine. Output of electrical energy during 2008 by LUKOIL organizations was in excess of 16.2 billion kilowatt-hours, output of heat energy – more than 18.1 million Gcal (UGK TGK-8 accounted for 90% and 85% of the total, correspondingly). At the beginning of 2009 the Company's marketing network encompassed 25 countries, including Russia, the near-abroad and European countries (Azerbaijan, Belarus, Georgia, Moldova, Ukraine, Bulgaria, Hungary, Finland, Estonia, Latvia, Lithuania, Poland, Serbia, Montenegro, Romania, Macedonia, Cyprus, Turkey, Belgium, Luxemburg, Czech Republic, Slovakia, and Croatia) as well as the USA and includes 204 tank farm facilities with total capacity of 3.06 million cubic meters as well as 6,748 filling stations, including franchises