Shell pressing ahead with Majnoon oil field

Updated 19 May 2012
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Shell pressing ahead with Majnoon oil field

LONDON: Shell is pressing ahead with talks over final development of Iraq's Majnoon oil field, a senior executive told Reuters, and a lower, more realistic oil production target is a core part of discussions.
Majnoon is one of four southern super giant fields that are vital to Iraq's ambition to at least double its oil output and put it firmly back among the world's top producers.
But crunch time is approaching.
Iraq awarded service contracts in 2009 to foreign firms who vowed to boost its capacity beyond 12 million barrels per day (bpd) by 2017, but this target has proved too aggressive due to infrastructure bottlenecks and logistical shortcomings.
With that in mind, companies are now drafting final development plans due by the start of next year.
"We're having ongoing exploratory discussions with the Iraqi government, to determine the optimum field development plan for Majnoon," said Hans Nijkamp, Royal Dutch Shell vice president and country chairman for Iraq.
"But you have to look at it in the bigger context of the optimum aggregate production level for Iraq."
Iraq's top oil officials acknowledge the need for a more prudent output target and have suggested a level of around 8.5 to 9 million bpd.
Other experts see 6 to 7 million bpd by the end of the decade as the most realistic outcome for the war-damaged country. That would imply an output target of around 1 million bpd for Majnoon, industry sources say.
Shell, with junior partner Petronas of Malaysia, won the Majnoon contract by promising to boost the largely undeveloped field to 1.8 million bpd for a fee of $1.39 a barrel. Production capacity is now 65,000 bpd.
Oil Ministry documents show that Shell has opened discussions on a target of around 1 million bpd for Majnoon, as part of its full field development plan.
The company, the first to open talks with the ministry of oil, also proposed to extend the field's plateau period — the time period for which its peak production can be sustained and which is to begin in 2017 — to more than 20 years from seven years now.
Those figures are not set in stone.
"It depends on what Iraq wants out of Majnoon. You can develop this field in different ways with different plateau levels and durations," Nijkamp said on the sidelines of an Iraq Britain Business Council event on Thursday.
"The 1.8 million barrels a day that we bid for was a realistic plateau level that we can responsibly develop and produce — but obviously for a shorter period of time than a plateau level below 1.8 million."
The Shell executive said Baghdad is doing its best to overcome myriad infrastructure hurdles, but bottlenecks in the export system are choking production gains.
"That will really determine the production capacity — because the production capacity is there from the license round 1 fields," he said, referring to the southern fields of Rumaila, Zubair and West Qurna-1 that are already up and running.
Recovering from decades of wars and crippling sanctions, Iraq is unique among producing nations seeking to boost oil flows. But the level of red tape and logistical sluggishness beats regional rivals.
"Things do take time in Iraq — whether it's entry visas or customs clearance," said Nijkamp. "Customs clearance in most ports in the region is a matter of days to a week. We have some equipment that's been stuck for months."
Around $50 billion will be needed to ramp up Majnoon, which straddles the border with Iran.
"These are early days. We're sticking our toe in the water and learning how to effectively operate in Iraq," said Nijkamp.
"But to be confident that Iraq is a good place to invest, we need to ensure timely payment. That will really determine ongoing investor confidence."
Majnoon has yet to reach cost recovery mode, but the ExxonMobil-operated West Qurna-1 project — where Shell is a minority partner — has been in the money for some time.
A prolonged contractual dispute, however, delayed timely payment of installments totaling some $900 million.
That has finally been sorted out, said Iraqi oil officials, and the companies have now received payment in full. And going forward, Exxon and Baghdad have signed a final agreement for the companies to be able to be paid in oil for work on West Qurna-1.
Shell's southern gas joint venture, the $17 billion Basra Gas Co (BGC) is also going well, said Nijkamp. The company mobilized a sizable technical team and has seconded technical experts to get compressor units up and running quickly to increase gas throughput.
Shell has meanwhile yet to decide whether it will take part in Iraq's exploration round at the end of this month.
"We'll decide very soon whether we'll put in a bid," said Nijkamp.
Although the company has its hands full for now on three mega-projects with estimated investment of around $100 billion, future opportunities are not ruled out.
"We are in Iraq to stay for the long term — it might be more upstream, maybe gas," said Nijkamp.
"There is more we can do to add value to Iraq and run a good business that contributes to the reconstruction of the country, including substantial job generation."


Gulf of Oman tanker attacks jolt oil-import dependent Asia

Updated 15 June 2019
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Gulf of Oman tanker attacks jolt oil-import dependent Asia

  • Iranian threats to close the Strait of Hormuz have alarmed Japan, China and South Korea
  • Japan’s conservative prime minister, Shinzo Abe, was in Tehran when the attack happened

SEOUL: The blasts detonated far from the bustling megacities of Asia, but the attack this week on two tankers in the strategic Strait of Hormuz hits at the heart of the region’s oil import-dependent economies.

While the violence only directly jolted two countries in the region — one of the targeted ships was operated by a Tokyo-based company, a nearby South Korean-operated vessel helped rescue sailors — it will unnerve major economies throughout Asia.

Officials, analysts and media commentators on Friday hammered home the importance of the Strait of Hormuz for Asia, calling it a crucial lifeline, and there was deep interest in more details about the still-sketchy attack and what the US and Iran would do in the aftermath.

In the end, whether Asia shrugs it off, as some analysts predict, or its economies shudder as a result, the attack highlights the widespread worries over an extreme reliance on a single strip of water for the oil that fuels much of the region’s shared progress.

Here is a look at how Asia is handling rising tensions in a faraway but economically crucial area, compiled by AP reporters from around the world:

WHY ASIA WORRIES

The oil, of course.

Japan, South Korea and China don’t have enough of it; the Middle East does, and much of it flows through the narrow Strait of Hormuz, which is the passage between the Arabian Gulf and the Gulf of Oman.

This could make Asia vulnerable to supply disruptions from US-Iran tensions or violence in the strait.

The attack comes months after Iran threatened to shut down the Strait of Hormuz to retaliate against US economic sanctions, which tightened in April when  the Trump administration decided to end sanctions exemptions for the five biggest importers of Iranian oil, which included China and US allies South Korea and Japan.

Japan is the world’s fourth-largest consumer of oil — after the US, China and India — and relies on the Middle East for 80 per cent of its crude oil supply. The 2011 Fukushima nuclear disaster led to a dramatic reduction in Japanese nuclear power generation and increased imports of natural gas, crude oil, fuel oil and coal.

In an effort to comply with Washington, Japan says it no longer imports oil from Iran. Officials also say Japanese oil companies are abiding by the embargo because they don’t want to be sanctioned. But Japan still gets oil from other Middle East nations using the Strait of Hormuz for transport.

South Korea, the world’s fifth largest importer of crude oil, also depends on the Middle East for the vast majority of its supplies.

Last month, South Korea halted its Iranian oil imports as its waivers from US sanctions on Teheran expired, and it has reportedly tried to increase oil imports from other countries.

China, the world’s largest importer of Iranian oil, “understands its growth model is vulnerable to a lack of energy sovereignty,” according to market analyst Kyle Rodda of IG, an online trading provider, and has been working over the last several years to diversify its suppliers. That includes looking to Southeast Asia and, increasingly, some oil-producing nations in Africa.

THE GEOGRAPHY AND THE POLITICS

Asia and the Middle East are linked by a flow of oil, much of it coming by sea and dependent on the Strait of Hormuz.

Iran threatened to close the strait in April. It also appears poised to break a 2015 nuclear deal with world powers, an accord that US President Donald Trump withdrew from last year. Under the deal saw Tehran agree to limit its enrichment of uranium in exchange for the lifting of crippling sanctions.

For both Japan and South Korea, there is extreme political unease to go along with the economic worries stirred by the violence in the strait.

Both nations want to nurture their relationship with Washington, a major trading partner and military protector. But they also need to keep their economies humming, which requires an easing of tension between Washington and Tehran.

Japan’s conservative prime minister, Shinzo Abe, was in Tehran, looking to do just that when the attack happened.

His limitations in settling the simmering animosity, however, were highlighted by both the timing of the attack and a comment by Iranian Supreme Leader Ayatollah Ali Khamenei, who told Abe that he had nothing to say to Trump.

In Japan, the world’s third largest economy, the tanker attack was front-page news.

The Nikkei newspaper, Japan’s major business daily, said that if mines are planted in the Strait of Hormuz, “oil trade will be paralyzed.” The Tokyo Shimbun newspaper called the Strait of Hormuz Japan’s “lifeline.”

Although the Japanese economy and industry minister has said there will be no immediate effect on stable energy supplies, the Tokyo Shimbun noted “a possibility that Japanese people’s lives will be affected.”

South Korea, worried about Middle East instability, has worked to diversify its crude sources since the energy crises of the 1970s and 1980s.

THE FUTURE

Analysts said it’s highly unlikely that Iran would follow through on its threat to close the strait. That’s because a closure could also disrupt Iran’s exports to China, which has been working with Russia to build pipelines and other infrastructure that would transport oil and gas into China.

For Japan, the attack in the Strait of Hormuz does not represent an imminent threat to Tokyo’s oil supply, said Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics.

“Our sense is that it’s not a crisis yet,” he said of the tensions.

Seoul, meanwhile, will likely be able to withstand a modest jump in oil prices unless there’s a full-blown military confrontation, Seo Sang-young, an analyst from Seoul-based Kiwoom Securities, said.

“The rise in crude prices could hurt areas like the airlines, chemicals and shipping, but it could also actually benefit some businesses, such as energy companies (including refineries) that produce and export fuel products like gasoline,” said Seo, pointing to the diversity of South Korea’s industrial lineup. South Korea’s shipbuilding industry could also benefit as the rise in oil prices could further boost the growing demand for liquefied natural gas, or LNG, which means more orders for giant tankers that transport such gas.