Petrobras Unveils Gasoline Hedge in Bid to Weather Volatility

(Reuters, 6.Sep.2018) — Brazil’s state-run oil company Petroleo Brasileiro SA on Thursday unveiled a hedging program for gasoline prices in a bid to boost pricing flexibility and protect its financial results during times of high volatility.

Petrobras, as the company is known, said in a securities filing the program would allow it to change the frequency of pricing adjustments in the domestic market, keeping them stable for up to 15 days at a time.

The logo of Brazil’s state-run Petrobras oil company is seen on a tank in at Petrobras Paulinia refinery in Paulinia, Brazil July 1, 2017. Reuters/Paulo Whitaker

Petrobras will buy gasoline futures in U.S. markets as part of the program, said Chief Financial Officer Rafael Salvador Grisolia at a news conference. He said the policy would go into effect immediately.

The company would only keep prices on hold for two weeks at a time during times of volatility in international markets and would keep daily pricing adjustments as an option, he said.

Preferred shares in Petrobras were down 0.4 percent in mid-morning trading in Sao Paulo, at 18.59 reais, whereas the benchmark Bovespa index was up 0.2 percent.

Itau BBA analysts said there is uncertainty around “how the strategy will be employed”, as the structure of hedge positions while prices are frozen is unknown. Gabriel Francisco, analyst at XP Investimentos, said the hedging policy is negative, as “it may be interpreted as a setback to a market-based pricing policy”.

The move comes after a truckers’ strike over rising diesel prices paralyzed Latin America’s largest economy in May and forced unpopular President Michel Temer to cut diesel costs through a mix of tax breaks and subsidies.

The tumult prompted Petrobras’s chief executive officer to resign and raised fears of government meddling in pricing, which has cost Petrobras billions of dollars in the past. Petrobras has not yet been compensated for the subsidies that took effect in June.

In the meanwhile, there has been speculation over whether the company will face pressure to lower gasoline prices, which have climbed internationally as oil prices have gained ground.

Petrobras said on Thursday it was still committed to allowing gasoline prices to fluctuate in line with international markets and the exchange rate.

It also promised to uphold a policy, in effect since October 2016, of not pricing the fuel below international parity.

Reporting by Marta Nogueira, Alexandra Alper and Paula Laier; Editing by Bernadette Baum and Alistair Bell

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Argentina to Seek Bids on Renewable Energy Projects

(Efe, 6.Sep.2018) — The government of Argentina announced Thursday that it will launch a third round of tenders for bids on renewable energy projects in October.

The announcement was made by the undersecretary of Renewable Energy, Sebastian Kind, during the Argentina Wind Power 2018 conference, organized by the Global Wind Energy Council.

The third round of the RenovAr program will seek to take advantage of the existing medium-voltage networks.

Kind explained that, while Argentina works on expanding its high-voltage networks, the government seeks to promote diverse renewable energy projects throughout the country that will use the existing medium-voltage networks.

“We seek to bring in capital from non-traditional actors to develop renewable energy projects and take advantage of the existing medium-voltage networks to promote regional development,” Kind said.

The undersecretary said that the projects will be presented next March, and that the contracts are expected to be signed in July 2019.

“We have taken the decision to make the announcement beforehand (…) to provide more time for the projects to be designed,” he said.

The Argentine government has already developed two stages of its RenovAr program, the first having begun in 2016, when 17 renewable energy projects for 1,109 MW were assigned.

RenovAr 2, for its part, was launched last year, when 22 projects for 634.3 MW were allotted.

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Output from Main Pre-Salt Field to Peak in 2019

(Efe, 6.Sep.2018) — Output from Brazil’s most prolific pre-salt field will climb to a peak of 1 million barrels of oil per day in 2019, according to the executive manager for deep-water exploration and production at state oil company Petrobras.

The Lula field, located in the Santos Basin, will achieve that level after two Floating Production Storage and Offloading (FPSO) units are put into operation this year, Joelson Falcao Mendes said.

“The P69 will start production in October and the P67, which is currently in Guanabara Bay (in southeast Brazil), in December or January,” he added.

Seven FPSO units are currently in operation at the Lula field, each with the daily capacity to process 150,000 barrels of oil and compress 6 million cubic meters (211.5 million cubic feet) of natural gas.

Brazil achieved output of 1.5 million barrels of pre-salt oil per day in 2018, a milestone that comes 10 years after the start of hydrocarbon production in that ultra-deep frontier.

At present, average production at the Lula field amounts to around 850,000 barrels of oil per day.

Petrobras says output at the pre-salt fields is expected to grow steadily through 2022 with the entry into operation of an additional 13 FPSO units and investment outlays totaling $35 billion.

Pre-salt fields are located in ultra-deep water some 300 kilometers off the coast and underneath a layer of salt up to 2 kilometers (1.2 miles) thick.

The Lula field is located in the BM-S-11 block, in which Petrobras has a 65 percent stake and the BG Group and Portugal’s Galp Energia have 25 percent and 10 percent stakes, respectively.

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Guyana Gov’t to Proceed with Energy MoU

(Stabroek News, 6.Sep.2018) — The signing of the Memorandum of Understanding (MoU) on Energy Sector Cooperation between the governments of Guyana and Trinidad and Tobago, paving the way for cooperation in oil and gas between the two states, will proceed as planned next week, despite a call by the city chamber of commerce for it to be put on hold.

Meanwhile, the Guyana Oil and Gas Energy Chamber President Manniram Prashad has said that even though it has not seen the MoU, it will support it if it is in the interest of Guyanese businesses and the Guyanese people.

On Wednesday, Prashad’s colleague, President of the Georgetown Chamber of Commerce and Industry (GCCI) Deodat Indar called for government to hold off on the signing until the group has a clear idea of what the MoU entails.

Read the complete story here.

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Tanker Backlog Builds Again in Venezuela

(Reuters, Marianna Parraga, 6.Sep.2018) — Crude exports by Venezuela’s PDVSA have slowed after a tanker collision at its main port last month disrupted operations, adding to a backlog of vessels waiting to load, according to shipping sources and Reuters data.

Oil is the financial lifeline for the embattled socialist government of President Nicolas Maduro, but his cash-strapped administration has failed to invest enough in the industry to prevent its decline. Venezuela has sought to increase exports after asset seizures and declining output earlier this year raised the prospect of temporary suspension of contracts.

PDVSA has not said how long it will take to repair damage from the collision and resume normal loading and discharging operations. The company did not immediately reply to a request for comment.

Last week, PDVSA offered loadings at an alternative port to crude customers whose shipments were affected by the collision, but only a few have accepted so far, the sources said. That alternative, the Puerto la Cruz terminal, is limited to loading 500,000 barrels of crude per tanker, far less than the 2 million barrels PDVSA’s main port of Jose can handle.

Large tankers including three Suezmaxes and seven Very Large Crude Carriers (VLCCs) are lined up off Jose waiting to load at the available docks and monobuoys systems.

The vessel backlog around PDVSA’s ports has been increasing since late August, following the collision. As of Sept. 6, more than 20 tankers were waiting to load 26 million barrels of Venezuelan crude, according to Reuters Trade Flows and vessel tracking data.

PDVSA’s crude exports rose in July to 1.39 million barrels per day (bpd), the most since November, but last month they slipped almost 8 percent to 1.29 million bpd on Jose port’s partial operations, falling oil output and Caribbean terminal seizure attempts by creditors including U.S. producer ConocoPhillips, according to the Reuters data.

One of PDVSA’s main customers, Russia’s state-run Rosneft, loaded a 925,000-barrel cargo of diluted crude oil (DCO) during the weekend at one of Jose’s monobuoys after being diverted from the South dock, still closed because of the collision.

Rosneft-chartered Nordic Moon set sail to Malta on Sunday after waiting to load in Venezuela since early August. But the Russian company still has other four vessels waiting to load up to 6 million barrels of heavy crude at Jose, according to the data.

Jose’s South dock, which suffered damage from the collision last month, is mainly used for shipping Orinoco Belt crude and discharging imported naphtha used to dilute the country’s extra heavy oil and make it exportable.

Reporting by Marianna Parraga; Editing by Steve Orlofsky

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Brazil Santos Lifting Costs Could Reach $5/bbl

(Reuters, 6.Sep.2018) — Lifting costs for the Santos basin in Brazil’s offshore pre-salt oil play should reach an all time low of $5 per barrel, but the timeline for reaching it will depend on the development of the transfer-of-rights area, an executive of Brazilian oil giant Petroleo Brasileiro told reporters on Wednesday.

Oil majors have plowed big money into Brazil, Latin America’s top producer, to lock in stakes to the offshore pre-salt layer, where billions of barrels of oil are trapped under a thick layer of salt.

The vastness of the resources helps reduce lifting costs, which have already slipped to $6 to $7 per barrel in the Santos basin’s Lula field, according to Joelson Falcao Mendes, Petrobras chief for oil production in ultra deepwaters.

The field, Brazil’s most productive, averages 879,000 barrels of oil per day, and is operated by Petrobras in a consortium with Royal Dutch Shell and Portugal’s Galp.

But reaching $5 in Santos will depend on the pace of development of the transfer-of-rights area, which was transferred by the government in 2010 to Petrobras to extract 5 billion barrels of oil and gas there.

However, the government and Petrobras are still squabbling over the value of the area, also located in the Santos basin.

Mendes, who was named to the committee negotiating the value of the area with the government, did not offer further details about how it would affect lifting costs. He spoke to reporters aboard the P-66 platform in the Lula field.

Mendes made the comments as white-capped waves rocked P-66, which began producing last year and has the capacity to process 150,000 barrels of oil daily.

However, Mendes said that the P-67 platform, which was scheduled to begin production between October and December of this year in the northern part of the Lula field, could be delayed into January.

He defended the time it took Petrobras to develop the logistically complex areas, noting that the consortium was finishing the development phase for Lula, which was discovered in 2006.

‘If there hadn’t been some construction delays for the systems, the timings would be even better. But regardless, they are pretty impressive and extremely competitive internationally,” he said.

(Reporting by Alexandra Alper; Editing by Phil Berlowitz)

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Peru Approaching Lithium Discovery Announcement with Caution

(Efe, 6.Sep.2018) — Peru’s government is exercising caution after mining company Macusani Yellowcake announced in July that it had discovered the world’s largest lithium deposit, the energy and mines minister said Thursday.

The company, a unit of Canada’s Plateau Energy Metals, estimated that the deposit in Peru’s Altiplano region holds at least 2.5 million tons of lithium (more than the reserves of Bolivia and Chile) and 124 million pounds of uranium, Francisco Ismodes said.

“We have to treat it with caution,” Ismodes said at a press conference in Lima.

Though acknowledging the importance of the announcement, he said Peru’s lithium is mixed with rock and thus its characteristics are different from the reserves of that light and soft metal that are found in Bolivia.

Ismodes said the Peruvian government had only had preliminary meetings thus far with the mining company that carried out the exploration work in the country’s southeastern Puno region, near the border with Bolivia, and acknowledged that the government needed to gather more information.

Since the so-called Falchani deposit also contains uranium, the Energy and Mines Ministry is working on a bill for the development of that radioactive element and plans to introduce it before year’s end.

Peru currently has no regulations governing uranium development.
Ismodes also guaranteed that no project would be launched to develop the lithium deposit without taking into account protected cultural or landscape heritage sites.

Plateau Energy Metals’ chief operating officer, Laurence Stefan, said initially that annual production of lithium rocks at the Falchani deposit could total between 5-6 million tons, allowing the company to obtain 50,000 to 60,000 tons of lithium carbonate.

Strong demand is expected in the future for lithium-ion batteries, which power a wide range of electrical and electronic devices, including electric vehicles, mobile phones and laptop computers.

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Venezuela Creates Commission to Reorganize PDVSA: Document

(Reuters, 6.Sep.2018) — Venezuela has created a commission to reorganize state oil company PDVSA in the coming months, according to the Official Gazette circulating on Thursday.

PDVSA did not immediately respond to an email seeking further details.

Reporting by Caracas newsroom; Editing by Chizu Nomiyama

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Concerns Raised Over Contract Release Program in Mexico

(S&P Global, 6.Sep.2018) — Mexico gas market observers have expressed concern that a lack of liquidity and supply guarantees will complicate the final phase of Pemex’s natural gas contract release program, which is designed to allow the entry of new gas marketers.

Mexico’s Energy Regulatory Commission (CRE) last week approved the final phase of the release program, known as PCC for the acronym of its Spanish name. The final rules of the regulation have yet to be published in Mexico’s Official Federal Journal (DOF).

The commission joined the second and third phases of the program as one and set its rules in a motion approved August 31.

In January 2017, CRE approved the program, setting the goal for Pemex to release 70% of its gas marketing contracts under a four-year period.

As of March 2018, Pemex has released 30% of its marketing portfolio, 10% more than the goal established in PCC’s first phase, which began in February 2017.

CRE said Friday the final phase would maintain some first phase rules, including full transparency on offers made to users, and a no-penalty clause to end contracts with Pemex.

Other rules to be retained include one requiring Pemex to provide binding offers to users, and another requiring provision of a base formula to allow comparison of offers from Pemex and new marketers.

The energy manager at one of the largest industrial users of gas in northern Mexico told S&P Global Platts that insufficient access to cross-border pipelines is limiting the entry of new marketers.

“At the time of selecting a marketer, the factors most important for users are the economic benefits and supply warranty,” the manager said.

Industrial users’ largest concern is finding a marketer that can offer a real supply alternative beyond Pemex and CFE, the manager said. “We have seen both state companies have a monopoly in most cross-border pipelines,” he added.

EYES OPENED

“The PCC’s first phase opened the eyes to users of the supply alternatives beyond Pemex as well as the mechanics and rules of the new market,” he said.

Before Pemex’s gas supply was taken for granted and users didn’t know how to optimize its gas supply and consumption, the manager said.

“For users, the opportunity in the PCC program is to diversify their supply portfolio beyond Pemex,” he added.

“It is true Pemex is still behind most cross-border pipeline capacity, but the PCC program has empowered users by giving us more information and thus increasing our negotiating power to a certain extent,” he added.

Gonzalo Monroy, managing director of Mexico City-based energy consulting firm GMEC, told Platts he has concerns related to PCC’s last phase.

“For this final phase, due to the lack of reliable private supplies, practically everyone will sign with Pemex or CFE,” Monroy said.

INFRASTRUCTURE ACCESS

The PCC was well drafted, but realistically it has a limited possibility of being applied. It is hard to migrate to a new marketer if it doesn’t have access to reliable infrastructure, Monroy said.

“Contracts have to be sold desegregated in its different components; companies can quit their contract without a penalty; all that is good. But at the end of the day, everything comes down to supply warranty,” Monroy said.

Mexico seeks to have an open access market, but this goal is difficult to achieve due to lack of liquidity and access to cross-border capacity for new marketers, he added.

Market participants have told Platts that the three private companies growing the most in Mexico are Shell, BP and Macquarie.

Monroy said these companies have enough upstream assets in the US to allow them to negotiate with CFE and Pemex for market access in Mexico.

‘However, as a marketer, if you have no bargaining position, no trading chip, you’re hanged,” Monroy said.

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Peru Approaching Lithium Discovery with Caution

(Efe, 6.Sep.2018) — Peru’s government is exercising caution after mining company Macusani Yellowcake announced in July that it had discovered the world’s largest lithium deposit, the energy and mines minister said Thursday.

The company, a unit of Canada’s Plateau Energy Metals, estimated that the deposit in Peru’s Altiplano region holds at least 2.5 million tons of lithium (more than the reserves of Bolivia and Chile) and 124 million pounds of uranium, Francisco Ismodes said.

“We have to treat it with caution,” Ismodes said at a press conference in Lima.

Though acknowledging the importance of the announcement, he said Peru’s lithium is mixed with rock and thus its characteristics are different from the reserves of that light and soft metal that are found in Bolivia.

Ismodes said the Peruvian government had only had preliminary meetings thus far with the mining company that carried out the exploration work in the country’s southeastern Puno region, near the border with Bolivia, and acknowledged that the government needed to gather more information.

Since the so-called Falchani deposit also contains uranium, the Energy and Mines Ministry is working on a bill for the development of that radioactive element and plans to introduce it before year’s end.

Peru currently has no regulations governing uranium development.

Ismodes also guaranteed that no project would be launched to develop the lithium deposit without taking into account protected cultural or landscape heritage sites.

Plateau Energy Metals’ chief operating officer, Laurence Stefan, said initially that annual production of lithium rocks at the Falchani deposit could total between 5-6 million tons, allowing the company to obtain 50,000 to 60,000 tons of lithium carbonate.

Strong demand is expected in the future for lithium-ion batteries, which power a wide range of electrical and electronic devices, including electric vehicles, mobile phones and laptop computers.

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AMLO to Continue Drilling Service Contracts

(Bloomberg, Amy Stillman and Eric Martin, 6.Sep.2018) — Mexico’s next president said he will continue with tenders for drilling service contracts starting when he takes office.

“We are preparing the rescue plan for the oil industry that will consist of producing more crude oil soon, and we will need these companies that have experience, most of them national companies,” President-elect Andres Manuel Lopez Obrador told reporters on Thursday in Mexico City. “We are already preparing tenders for the drilling of wells, and we are getting ready because we are going to launch those tenders from the first days of December.”

Lopez Obrador said he will travel to his home state of Tabasco on Saturday to meet with representatives from oil service companies. The meeting will take place with his pick for energy minister Rocio Nahle and the next chief executive officer of Pemex, Octavio Romero, according to a spokesman for Lopez Obrador who asked not to be identified, citing internal policy.

Mexico’s National Hydrocarbons Commission plans to hold auctions for more than 40 blocks and Pemex farm-out deals on February 14.

The leftist leader had previously indicated that future oil auctions, which have lured some of the world’s biggest oil companies, could be suspended or canceled as his government seeks to strengthen Pemex and focus on expanding refining capacity. He has also said that more than 100 oil contracts already awarded to companies such as Royal Dutch Shell Plc, Exxon Mobil Corp and BP Plc are being reviewed.

Pemex’s crude oil output has declined every year since 2004, which Amlo has pledged to turn around with an additional 75 billion pesos ($3.9 billion) for exploration and production investment.

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Let’s Use Guyana Oil Funds for Teachers

(Stabroek News, 6.Sep.2018) — Dear Editor: How could we have billions of barrels of oil in 2018 and not be able to pay our teachers a living wage? The value of having the requisite quality of well-paid and motivated teachers of the highest calibre will reverberate across this nation in positive ways that will lift Guyana out of its morass.

Let us for this occasion set aside the multiple ways that funds can be sourced from our treasury to give at least a 25% increase to our teachers for 2018 and a 5% increase for each of 2019 and 2020. Instead, let us source the needed funds from our oil resources now.

What is more important to the development of a nation than the education of our youths? We hear so much of the importance of Science, Technology, Engineering, Math, English and Artisan skills, yet we show great trepidation in taking the necessary actions to ensure that we empower our teachers with the benefits to get the job done and stem the increasing threat of violence, robbery, idleness, underdevelopment of our youth, marginalization of our youth, alarming levels of migration, poor communication skills, a subservient culture, inferiority complex, and contract subjugation.

The leveraging of our oil resources for the benefit of our teachers and support of the sugar industry, among others; will have an immediate and positive impact on the economic welfare of Guyana. What folly it is to create a wealth fund, while our teachers and sugar workers are thrown under the truck.

We often hear of providing for future generations. I beg to differ somewhat and state emphatically that the most important generations are those among us now. And the empowerment of current generations will benefit current and future generations.

Too often our political leaders are servile, complicit, compromised, weak-kneed and spineless to the global powers that we cannot engage with Exxon’s Esso, Hess, and Nexen – mano a mano and negotiate a contract that 1) Pays a realistic signing bonus exceeding US$500 Million, 2) Increases the royalty to at least 10%, and 3) Have the partners of the Government of Guyana that signed on to the 2016 Production Sharing Agreement, disgorge themselves of the foul pre-contract costs that are doubling every two years from US$460 Million at the end of 2015 to over US$900 Million in 2018.

How many billions of barrels of oil must be found before we find ways to monetize the oil discoveries to fund our teachers and sugar industry now?

In the midst of the Exxon’s Esso oilgreeopoly we have the aptly named “Wood” McKenzie agent releasing a report dated August 31, 2018 – noting that Guyana’s Liza complex located in the Stabroek block, accounts for 15% of all conventional crude oil found globally since 2015. “Wood” clusters over several key data points, such as amount of oil in the Liza complex, acreage of the Liza complex, location of the other 85% of crude oil found since 2015, and unsurprisingly, the amount of royalty for the owner of the oil: Guyana.

Wood McKenzie then gloats over the triple play for Esso, Hess, and Nexen, comprising of attractive fiscal terms, scale of resource, and oil reservoir quality.

How foolish it is that we have billions of barrels of oil in our backyard and we can’t pay respectable salaries for our teachers and support our sugar industry. Are our negotiating skills so hollow and inept that we can’t use monetary value leverage, with the billions of barrels of oil, to benefit Guyanese in need now; starting with our teachers, sugar workers and nurses.

More probably the failure to leverage the billions of barrels of oil has more to do with the despicable 2016 oil contract that Guyana signed away with Exxon’s Esso and its partners for a measly 2% and other superficial benefits.

With 123 Billion acres of land and water on earth – 29% land and 71% water; our beloved Guyana has been blessed by nature, providence and divinity to have Guyana’s Stabroek Block, comprising 0.005% of the earth surface and containing billions of barrels of oil offshore. Let us have the courage to demand that the resources in our 0.005% offshore, secures a contract that is best for Guyana’s ascendancy and provides a livelihood commensurate with our oil wealth: for our teachers, sugar workers, nurses, pensioners, youths and provide financial support for our industries and build infrastructure that will propel us to developed country status.

Yours faithfully,

Nigel Hinds

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