Italy: Six Arrested in ‘Operation Ghost Ship’, bt Marex


By Kayla Turner

Italy’s Guardia di Finanza, also known as the financial police, have arrested six people accused of stealing millions of euros from the state with a fake contract to refuel a sunken navy tanker on Monday. Three navy officers were arrested for their part in the plot.

Italian businessmen supplied on paper 11 million liters of oil to a military base in Sicily for a tanker which had sunk in 2013. According to AFP, the culprits submitted a bill for over 7.0 million euros ($8.7 million) to the Treasury for the oil, which the navy officers signed for — with one even attesting to the quality of the product for the ship, the doomed Victory 1.

The actual ship was wrecked in September 2013 in the Atlantic Ocean, and some crew members are still officially missing.

A police statement said the money had been seized under court order, while raids were being carried out at the homes and offices of those arrested as part of the operation, named “Ghost Ship”.

Philippines Praises Vietnam over South China Sea, by Marex.


Vietnam has helped ensure peace in the South China Sea dispute with Beijing by following the Philippines in seeking UN arbitration, Manila said, despite the fact that Beijing has refused to take part.

Beijing claims almost the entire energy-rich South China Sea but Brunei, Malaysia, the Philippines, Vietnam and Taiwan also have claims. Only Brunei has not occupied and garrisoned territory in the potential flashpoint in the region.

Vietnam on Thursday submitted its position to a UN arbitration tribunal initiated by the Philippines over the festering dispute. China called on Vietnam to respect its sovereignty and has refused UN arbitration.

“The Vietnamese position is helpful in terms of promoting the rule of law and in finding peaceful and nonviolent solutions to the South China Sea claims based on international law,” the Philippine Foreign Ministry said.

“…This promotes peace and stability in our region.”

China, Vietnam and the Philippines are signatories to the U.N. Convention on the Law of the Sea, an international agreement that grants the right to explore and exploit resources within 200 nautical miles of a state’s shore. Both Hanoi and Manila say Beijing is extending beyond the limit.

In May, China placed its largest mobile oil rig close to Vietnam’s coast in the Paracel islands that prompted angry protests in Hanoi against Chinese business interests. At the same time, Beijing began reclamation in the Spratly islands and appeared to be building airstrips in the area.

Beijing has also seized control of Scarborough Shoal near the Philippines’ main island of Luzon and chased civilian ships delivering supplies to Philippine-held Second Thomas Shoal in the Spratlys.

The Philippines and Vietnam appear to be ending decades of distrust. Last year, the two sides held a first-ever navy-to-navy talks and last month, Hanoi displayed its two most powerful missile-guided stealth frigates in Manila during a port call. The two states will hold the first strategic defence dialogue early next year.

“Vietnam’s legal opinion puts political weight on the Philippine legal case,” Professor Rommel Banlaoi, a security analyst, said on television.

“What Vietnam did was in fact supporting, reaffirming and even rallying behind the Philippine legal action and that’s good for our national interest.”

Copyright Reuters 2014.

Oil Price Tumbles after OPEC Releases Forecast, by Marex


By Andy Tully

The demand for oil in 2015 will drop to its lowest level since 2002 because of an oversupply of crude and stagnant economies in China and Europe, according to OPEC’s latest forecast. And that’s just one of several sour estimates.

OPEC’s monthly report said demand for the cartel’s oil will fall to 28.9 million barrels per day next year, 280,000 barrels lower than its previous forecast and the lowest in 12 years. Add to that a new report from the US government’s Energy Information Administration (EIA), which also cut its 2015 forecast for growth in global oil demand by 240,000 barrels per day, down to 880,000 barrels per day.

For 2014, the EIA expects demand will be about 960,000 barrels per day.

And yet on Nov. 27, OPEC refused to lower its production levels below 30 million barrels a day, adding to the oil glut that started with the US boom in high-quality shale oil. As a result, the price of Brent crude has plunged more than 40 percent since June. Futures for US crude also are down dramatically.

“There is a growing realization that the first half of next year is going to look very weak,” Gareth Lewis-Davies, a strategist at the Paris-based bank BNP Paribas, told Reuters. “You start to price that in now.”

On Dec. 9, meanwhile, the American Petroleum Institute (API) reported that inventories of US crude rose during the week ending Dec. 6 by 4.4 million barrels to 377.4 million barrels. The increase was twice as large as had been expected. US backlogs of gasoline and distillates also were up, according to the API.

“Almost all the news flow points to a weaker market,” said one oil analyst, Carsten Fritsch of Commerzbank in Frankfurt. “We have had very bearish API data with large stock builds across the board, and also a very bearish Short-Term Energy Outlook from the EIA, with a sharp reduction in demand growth forecasts for next year.”

Abhishek Deshpande, an oil market analyst at Natixis, agreed. “The fundamentals outlined in the report look quite bearish,” he said. “Fiscal balances are a huge problem for weaker OPEC members, so I won’t be surprised if they call for an emergency meeting [to adjust production levels] early next year.”

In fact this year’s price plunge hasn’t hurt just the weaker OPEC members. Bloomberg reports that oil prices now are too low for 10 of its 12 members to balance their governments’ budgets. The exceptions, the news agency reports, are Kuwait and Qatar. Saudi Arabia may be losing money on oil at the moment, the news agency says, but its treasury has nearly three-quarters of a trillion dollars in reserve.

What’s missing in this flurry of news, as of midday Dec. 10, is what OPEC plans to do about the balancing the oil glut with the expected stretch of lower demand. And the cartel’s next meeting to discuss production levels isn’t scheduled until June 5, 2015.


Tanker Markets See Storage Boon from Oil Price Collapse, by Marex


The oil price drop will hand tanker markets an unexpected bonus next year, boosting demand for oil storage at sea while distant eastern markets also bargain-hunt fuel and need shipping.

Supertanker rates are already close to five-year highs of over $83,000 a day – helped by a drop in shipping fuel bunker prices. Overcapacity, which has dogged owners for years, is also receding.

Herbjorn Hansson, chairman and chief executive of Nordic American Tankers, told shareholders recently that lower oil prices “may trigger stockpiling or have a more general positive impact”.

“We see a clear increase in demand, especially from the East, and the oil is also carried over longer distances. There are very few idle ships out there now and the market is much tighter,” he told Reuters.

Average earnings are still some off the over $120,000 a day seen before the 2008 slump in trade.

So far this year, oil held at sea has been no more than a few tankers as the discount for the front month of crude futures has been insufficient to finance chartering. The front-month discount for Brent is now only 34 cents, about half what it would need to be to do so.

Tanker owners have also preferred to trade their ships rather than opt for floating storage as vessels normally deteriorate when kept stationary.

The International Energy Agency forecast last week that global oil stocks will continue to build and could reach tank-tops next year. That could force the front of the crude oil market into a bigger discount, and encourage floating storage.

“Once we have gone into 2015, there may come a point when the rapid build-up of surplus crude in the market will open opportunities for floating storage. This scenario is a further positive for VLCCs (supertankers),” tanker broker E.A. Gibson said.

A contango in 2009 led to over 100 million barrels of oil being stored on tankers at sea and sold later.

“One would need a contango in the oil market to justify floating storage. Given the current developments in the oil market this cannot be ruled out,” said Svein Moxnes Harfjeld, co-CEO with tanker group DHT Holdings.

“Continued oil demand and longer transportation distances combined with no fleet growth should support our expectations for 2015 on average to be better than 2014,” he said. “If floating storage takes place, this will be an additional benefit.”

By Jonathan Saul and Christopher Johnson (C) Reuters 2014.

LNG Boom Over? – China looks to sell out of long-term deals, by Marex


China’s state-controlled energy giant Sinopec wants to sell some long-term liquefied natural gas (LNG) import deals as a slowing economy makes them unprofitable, sources say, signalling the end of a five-year boom fueled by rising Chinese demand.

 Asia’s thirst for energy has helped drive a “dash for gas” in producer countries from Australia to Canada, with LNG emerging as the fastest growing fuel source since the beginning of the century on the back of soaring Chinese imports. But just as long-planned projects start to come on stream China’s economy is stuttering, which is likely to crimp demand and pull down domestic gas prices to levels that make imports unprofitable.

“We talk about China choking on LNG. There’s just too much coming onto the market,” said Gavin Thompson, Head of Asia Gas Research at Wood Mackenzie. Analysts say falling crude prices, which have dropped around 40 percent since June, are another factor weighing on Chinese gas prices. 

“Based on the recent fall in oil prices… there is an increased risk that there could be a near-term cut in natural gas price (in China) for the first time,” Bernstein Research said on Tuesday, adding that at lower levels “LNG and pipeline imports make little sense for producers”.

And even if retail prices do not fall, imports may not be needed as the high gas price at home caps demand. “Slower economic growth and higher domestic prices … are tempering demand,” said Michal Meidan, director of consultancy China Matters.

 In response, China is trying to find buyers for contracted LNG on the international market, which is already oversupplied due to slowing demand and rising output that have seen Asian LNG prices halve this year, with analysts expecting another 30 percent fall by 2015. 

“There is at least one SPA (Sales and Purchase Agreement) being negotiated with a Chinese buyer that has a lot of destination flexibility, including to terminals outside of China,” said one source involved in LNG shipments from Australia to China. 


Sinopec is planning to offload LNG from new export plants in Australia and potentially Papua New Guinea to BP, advisory and trading sources with knowledge of the matter said, amid growing unease over the scale of an unprecedented expansion that has seen the construction of 11 LNG import terminals since 2006 and includes plans for 25 more projects.

BP and Sinopec declined to comment, but the sources said that, beyond selling excess cargoes into the spot market, other options being discussed included selling parts of its long-term agreements to another company. 

Three industry sources said Sinopec was in early talks to sell off chunks of the 20-year, 4.3 million tonne per annum (mtpa) supply it bought from Origin Energy’s Australia Pacific LNG plant due to start in 2015. Sinopec invested in the Australia Pacific LNG in 2011 and 2012, when Asian spot LNG prices averaged $14.8 per mmBtu, compared with less than $10 per mmBtu now. 

It may also sell excess volumes coming from its 2 mtpa stake in Exxon Mobil’s Papua New Guinea LNG, in which it invested in 2009, when LNG prices were low but China’s LNG demand was expected to grow for decades to come. 


Tumbling energy prices may make reselling LNG difficult as consumers across Asia also scramble to offload excess volumes, contributing to an emerging glut. 

Sinopec is exploring options to sell BP up to 1 mtpa over 2016 and 2017 from its Australian project, which could be extended to run until 2020, the sources said.

While oil traders, including in China, often take advantage of low prices to build up long-term reserves in preparation for supply disruptions or higher prices in the future, stocking LNG is more costly as the gas has to remain liquefied in super-cooled facilities or pumped into pressurized gas storage tanks after being regasified. 

The sell-offs could also end a race by Chinese energy firms to enter the LNG market.

Sinopec, CNOOC, CNPC and PetroChina all made big LNG investments in the past years, racing to outdo competitors from Japan and South Korea, which remain the world’s biggest LNG importers. “The build-out was driven by competition between the companies for market share,” Meidan said.

LNG importers also face stiff competition from other fuels such as pipelined gas, hydroelectric and coal-fired power generation, as well as domestic shale gas production.

“Coal and hydro are hard to beat over price,” one LNG trader said. “Russian and central gas Asian pipelines will come in, and one day Chinese shale will add to our long list of competitors.” By Oleg Vukmanovic and Henning Gloystein (C) Reuters 2014.

Norway’s Oil Decline Accelerating, by Marex

Noway Oil

By Nick Cunningham 

New oil projects are being scrapped in Norway amid falling production and low oil prices.

Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.

Since 1990, Norway has diverted much of its oil earnings to a sovereign wealth fund, which has become the world’s largest. The money, reaching $890 billion as of June 2014, amounts to $178,000 for every Norwegian citizenThe sovereign wealth fund helps Norway avoid some of the problems associated with the “resource curse” by investing capital abroad. But more importantly, the money is set aside to be saved and invested to help the country plan for the eventual decline of oil production, with the intention of transitioning to a more diversified economy that can take oil’s place.

The early cracks in Norway’s petrol-based economy are beginning to show, perhaps quicker than many predicted.

Energy analysts have explored in detail how the ongoing decline in oil prices – down 40 percent since June – might affect oil exporting countries like Russia, Iran, Venezuela, and other OPEC members. But even Norway, the model for using natural resources to build a modern wealthy economy, is not immune to the price fall.

Statoil, the mostly government-owned oil company, has seen its share price cut in half since July 2014. It is idling several offshore rigs as oil prices drop. Three rigs – the COSL Pioneer, Scarabeo 5, and Songa Trym – will be suspended until the middle of 2015 because of lower profitability. “These measures are necessary due to the overcapacity of rigs compared to the assignments we are prioritising. This situation is unfortunate, and we are doing what we can to minimise the extent of the suspensions,” Statoil procurement head Jon Arnt Jacobsen said in a statement.

To make matters worse, costs of developing new fields have been steadily rising. “The boom is probably over. But we’re not looking at a steep decline in investment or production,” Norway’s oil minister Tord Lien told Reuters in May 2014. “The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere.” Since those comments, oil prices have tumbled. Norway may in fact see a steep decline in investment.

Lower oil prices could force more than $150 billion worth of investments to be put on hold worldwide, according to an assessment by Norwegian firm Rystad Energy. Statoil is deferring a decision on investing $5.74 billion in the Snorre field, an offshore oil project in the Norwegian Sea. Also, Statoil’s Johan Castberg field, an estimated $16-$19 billion oil field in the Barents Sea, will be tabled for the time being. These costly projects won’t generate a sufficient return given today’s prices.

But the oil price decline is only accelerating a trend that is already underway. Even with high oil prices Norway was facing a tougher future due to years of waning oil production. Since 2001, Norway’s oil production has fallen by almost half, from around 3.5 million barrels per day down to about 1.8 or 1.9 million bpd in 2014. 

The decline in investment is already pinching the labor market. Around 10,000 Norwegian oil workers have been laid off as the industry pares back spending, accounting for 10 percent of the sector’s total workforce, the Wall Street Journal reports. Oil workers are threatening to strike unless the government steps in to stem further losses.

And the way forward is murky. Despite its best efforts, Norway’s economy is overwhelmingly dependent on oil, which accounts for more than half of the country’s exports. Other export industries have struggled to develop as costs are too high – a classic symptom felt in countries suffering from the resource curse.

But resuscitating the sector may be difficult. With such a high cost environment, it doesn’t make sense for many companies in Norway to invest in new projects. Spending could drop by another 18 percent next year as project economics look poor.

Conversely, without investment, new production will not materialize in the coming years, leading to further deterioration for the sector as existing fields age and decline. 

To be sure, Norway has its almost $1 trillion sovereign wealth fund to fall back on, so it is not as if its citizenry will be thrust into poverty anytime soon. Still, Norway may need to begin building a post-oil economy sooner than it thought. Source:

Noble Pays $12.2m Settlement for Arctic Mishaps, by Marex


Drilling contractor Noble Corporation PLC on Monday said it paid $12.2 million to settle felony charges by the U.S. Department of Justice related to safety, environmental and record keeping violations on vessels in Arctic waters off Alaska in 2012.

During 2012, the Noble Discoverer drillship experienced numerous problems with its main propulsion system, including its main engine, resulting in engine shut-downs, equipment failures, and unsafe conditions, according to prosecutors. Noble acknowledges that it failed to report any of these hazardous conditions to the U.S. Coast Guard, according to DOJ. The Noble Discoverer was contracted by Royal Dutch Shell PLC to work on Shell leases in the remote Chukchi Sea off northwestern Alaska. 

Charges also relate to Noble’s operation of the Shell-owned drilling unit Kulluk, which ran aground in December 2012 after work in the Beaufort Sea. Noble failed to keep proper records on both vessels, prosecutors said. 

Under the terms of the plea agreement, Noble will plead guilty to eight felony offenses, pay $8.2 million in fines and $4 million in community service payments. 

The London-based company is also required to implement a comprehensive environmental compliance plan, and will be placed on probation for four years. 

A spokesman for Noble said the company has made significant improvements to the Noble Discoverer since it entered the shipyard in 2013. Copyright Reuters 2014.

Chinese Firms Seek $23m in Oil Spill Trial , by, Marex

CoP China

A group of 21 Chinese firms are suing CNOOC Ltd and ConocoPhillips for compensation of over 141 million yuan ($22.80 million) for losses suffered due to oil spills at the duo’s operations in 2011, according to court documents. Leaks at the Penglai 19-3 oilfield, a joint exploration project by the two oil majors, were first discovered in June 2011. The spills polluted 6,200 square km of water in the Bohai Bay area before the field was finally sealed in late October that year.

The aquaculture farmers said ConocoPhillips and CNOOC failed to inform the public quickly about the spills, causing them to continue using polluted seawater in their sea cucumber farms, according to court documents posted on the Tianjin Maritime Court’s microblog page on Wednesday. Lawyers from ConocoPhillips China said the plaintiffs did not have legal certificates for seafood farming and that the compensation amount sought by the farmers was too high, according to court documents of the trial, which opened on Tuesday. China’s State Oceanic Administration ordered ConocoPhillips and partner CNOOC in April 2012 to pay 1.683 billion yuan ($272 million) in compensation for damage done to the region’s marine ecology following the spill, as well as to fund environmental protection efforts in the Bohai Sea.

The oil firms had also reached an agreement with the Ministry of Agriculture in January 2012 to pay 1 billion yuan to settle compensation claims stemming from oil spills in north China’s Bohai Bay. 

ConocoPhillips has a 49-percent stake in the field, which is 51-percent owned by China’s top offshore oil and gas firm CNOOC. The field, with daily production of about 160,000 barrels, was restarted in February 2013. ($1 = 6.1869 Chinese yuan renminbi)

Three ST Marine Execs on Corruption Charges, by Marex

ST Marine

On 11 December, three former employees of ST Marine of Singapore were charged in the State Courts of Singapore under the provisions of the Prevention of Corruption Act (PCA) and the Penal Code. They are Chang Cheow Teck, Mok Kim Whang and Ong Tek Liam. 

Chang was the President of ST Marine from March 2008 to April 2010, and was the President of Singapore Technologies Aerospace from May 2010 to June 2014. He has been charged with a total of three charges under section 6(b) read with section 29(a) of the PCA. Mok was the Senior Vice President (Tuas Yard) of ST Marine from 1 June 2000 to 31 July 2004. He has been charged with one charge under section 6(b) read with section 29(a) of the PCA. 

Ong was the Group Financial Controller and Senior Vice President (Finance) of ST Marine from April 2007 to December 2012. She has been charged with a total of 118 charges under section 477A of the Penal Code.  

The charges against the former employees are not expected to have any material impact on the consolidated net tangible assets or consolidated earnings per share of the ST Engineering Group for the financial year ending 31 December 2014, said the company in a statement. 

“ST Engineering is committed to maintaining high standards of corporate governance and recognizes that fraud is detrimental to the reputation of the ST Engineering Group. ST Engineering does not condone fraud, including corruption and bribery, and is fully committed to proactively mitigating the risk of its occurrence.”

The charges follow an investigation by the Corrupt Practices Investigation Bureau (CPIB) that commenced in 2011.


Philippines: Storm Damages Ship, Threatens Spill BY MAREX


Three holes were torn in the hull of a bulk carrier when tropical storm Queenie sent the loaded vessel smashing onto its berthing dolphin in Bohol, the Philippines. The now-stuck MV Goldeneye fell victim to huge waves. Its side was scraped and hull punctured, according to a Philippine Coast Guard (PCG) official. The ship’s bunkers must be offloaded and the vessel refloated before it can be pulled off its grounding and towed to a drydock, reports SeaShip News. However, the PCG has concerns that waves caused by another tropical storm, Ruby, could free the vessel and cause an oil spill from the 300 tonnes of bunkers onboard.

Putting Philippines’ east coast towns at risk, Bunkerworld commented that “a spill of that magnitude is enough to trigger a national disaster.” The MV Goldeneye was loaded with limestone at the time of the incident.