OPEC sees rivals’ output rising as it over-delivers on cuts

A flag with the Organization of the Petroleum Exporting Countries (OPEC) logo is seen before a news conference at OPEC's headquarters in Vienna, Austria, in this December 10, 2016 file photo. (REUTERS)
Updated 13 April 2017
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OPEC sees rivals’ output rising as it over-delivers on cuts

LONDON: The Organization of the Petroleum Exporting Countries (OPEC) cut oil output in March by more than pledged under a supply reduction deal and said oil inventories had fallen in February, suggesting that its effort to clear a supply glut that has weighed on world oil prices is succeeding.
But OPEC also raised its forecast for supplies from non-member countries in 2017 as higher oil prices encourage US shale drillers to pump more, reducing demand for OPEC’s oil this year.
OPEC is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1 for six months, the first reduction in eight years, to get rid of a supply glut. Russia and 10 other non-OPEC producers agreed to cut half as much.
Oil prices pared gains on Wednesday after OPEC released its monthly report to trade at around $56 a barrel. Prices are still up from about $42 a barrel a year ago, and OPEC was upbeat on the outlook for the market.
“Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish,” said the report, which made a minor upward revision to its global demand forecast this year.
“The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks.”
In the report, OPEC pointed to an increase in its members’ compliance with the deal and said oil stocks in industrialized nations fell in February — although they are still 268 million barrels above the five-year average.
Supply from the 11 OPEC members with production targets under the accord — all except Libya and Nigeria — fell to 29.761 million bpd last month, according to figures from secondary sources that OPEC uses to monitor output.
That means OPEC has complied 104 percent with the plan, according to a Reuters calculation. OPEC did not publish a compliance number, but OPEC figures seen by Reuters on Tuesday also put adherence at 104 percent.
But OPEC revised up its estimate of oil supply growth from producers outside the group this year to 580,000 bpd, as higher oil prices following the supply cut help spur a revival in US shale drilling.
“With the pick-up in drilling activity, as well as increasing cashflows in the tight oil industry, US tight crude output is expected to rise quickly and increase 335,000 bpd for the overall of 2017,” OPEC said, using another term for shale.
OPEC said its production, including Nigeria and Libya, fell about 150,000 bpd in March to 31.93 million bpd, as Saudi Arabia continued to make a larger cut than called for by the deal.
Due to the higher expectations from outside producers, OPEC trimmed forecast demand for its crude in 2017 to 32.22 million bpd — 130,000 less than last month but more than current production, suggesting stocks will drop if output does not rise.
A further rise in supply outside the group could weigh on prices and hinder OPEC efforts to clear the glut, although OPEC officials have said they believe the market can deal with renewed shale growth.


Mozambique’s gas-fueled future threatened by militants

Updated 4 min 32 sec ago
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Mozambique’s gas-fueled future threatened by militants

MAPUTO: An unprecedented wave of militant attacks in northern Mozambique has raised fears the country will fail to fully cash in on a gas bonanza.
After 180 trillion cubic feet (5.1 trillion cubic meters) of natural gas were discovered off the country’s northeastern shore, Mozambique entertained dreams of following Qatar down the path toward wealth. The government even predicted that by 2035, the country’s GDP per head could increase sevenfold.
But the southeast African country’s golden vision has been thrown into doubt by an explosion of bloodthirsty assaults by a shadowy militant group in the region where the industry plans to base its hub.
Since October, more than 30 people have been killed in brazen assaults on unarmed villagers.
Security forces have rushed reinforcements to be area yet seem powerless to stem the attacks. Terrorized, many civilians have fled their homes and a cloud hangs over the great expansion plans.
US oil and gas giant Anadarko, the largest exploration company in the region, has invested $4 billion (3.4 billion euros) so far — it plans to put in $20 billion over the lifetime of the gasfields.
But following a US embassy alert on June 8 that warned of an imminent attack on the regional gas hub Palma, Anadarko temporary suspended some activities and moved affected workers and contractors to a secure site.
Canada’s Wentworth Resources has already suffered delays to its projects as a result of the insecurity, forcing it to seek a year-long extension for its initial exploration.
In its successful application to the authorities, Wentworth said the attacks had “prevented safe access to the area for Wentworth staff and contractors.”
There have been more than 10 attacks on villages since October, featuring beheadings and arson. None has targeted gas operations.
“Due to the attacks, we took additional measures to protect not only the oil and gas companies operating in that area, but also to protect the communities,” said Joaquim Sive, the police commander in Cabo Delgado.
Eric Morier-Genoud, a researcher at Queen’s University Belfast, said any attack against the gas “majors” would be an “escalation from which the militants would come out the losers.”
“At this point... based on the information we have, we classify the attacks as an insignificant risk to the economy,” Rogerio Zandamela, the governor of Mozambique’s central bank, told AFP.
In contrast to this, the central bank did consider a spate of attacks carried out by a militia loyal to the main opposition Renamo party in the country’s center in 2015 and 2016 as an economic risk.
“There was much more clarity about the conflict in central Mozambique... We cannot equate the north with the south,” Zandamela said. “The information available on the conflict in Cabo Delgado is very limited.”
Police have stepped up security around gas projects — particularly those close to areas that have come under attack, national police spokesman Inacio Dina told AFP.
An official at Anadarko, who declined to be named, said “There have been no threats specific to our project. However, it is a cause for concern, and therefore, as operations continue, we have undertaken appropriate measures.”
The company has a gas operations camp in a forest on the Afungi Peninsula.
Police and army units have established a command post in the forest following the attacks.
But a source at Anadarko told AFP that the firm has also stepped up its own security efforts, increasing its private protection force by two-thirds — a move that will have an impact on costs.
Despite such problems, foreign investors for now still have a big appetite for a share of Mozambique’s gas treasures.
Japan’s Tokyo Gas and Britain’s Centrica inked supply deals with Anadarko on June 15 — just a day after a machete attack on the village of Ibu.
Even so, experts say the instability in the northeast could still prove costly. It could cut into the dividend that Mozambique expects from the huge find.
“(The gas projects) are at risk in their early stages, as attacks can adversely affect logistics. Materials must reach Palma by land,” said Maputo-based political science researcher Joao Pereira.
“The insurgency is most likely to delay rather than derail development of the sector,” said Ed Hobey-Hamsher, an analyst at global risk consultancy Verisk Maplecroft.
“Attacks will certainly make the investment more expensive because of security needs reducing revenues for the state.”