WSJ: Iraq Foretells Oil's Dystopian Future

        The WSJ reports, "Iraq's real significance for oil may have less to do with what transpires this summer and more over the rest of this decade. The direct threat to the country's oil exports actually isn't acute yet. For now, the insurgency is focused in central Iraq, away from the main oil-producing and exporting areas in the south and the largely Kurdish-controlled north".

"The bigger issue is what the sudden advance of the Islamic State of Iraq and al-Sham means for Iraq's oil-production growth prospects".

"In its latest medium-term forecast, released Tuesday, the International Energy Agency cut its supply-growth outlook for Iraq. It now expects Iraq to be able to produce 4.29 million barrels a day by 2018, almost half a million barrels a day less than last year's forecast. Even so, Iraq still accounts for 61% of expected growth in output capacity controlled by the Organization of the Petroleum Exporting Countries. So even if the near-term threat to supply from ISIS isn't catastrophic, the wider context potentially is".

Iraq's borders now look more like dotted lines, possibly portending a situation like Libya's, where rival groups vie for power or separation with a weak central government.

In Libya, that instability has caused production to yo-yo between virtually zero and about 1.75 million barrels a day. Now, it is down at about 250,000 barrels a day. In 2010, before Libya blew up, the IEA forecast output of more than two million barrels a day in 2015. Now, Libya isn't seen getting anywhere near that even by 2019.

In Iraq's case, even if Baghdad doesn't fall, ISIS may establish itself in a large swath of the country, remaining a force for instability. Worse, Iraq is now an arena for wider rivalries between Sunni and Shiite Muslims backed by their patrons, Saudi Arabia and Iran.

Such instability means even the IEA's reduced forecasts look questionable, as the investment needed to develop Iraq's oil could be deterred or blocked outright. That is bullish for longer-dated oil futures. Yet these haven't reacted as much as near-term prices, suggesting gains to be made. For example, while average Brent prices for the rest of 2014 have risen by 3.3% in the past week, average 2018 prices are up by less than 1%. Moreover, those 2018 prices are roughly where they were at the end of 2010 just before Libya blew up—yet this crisis could be much worse.

As longer-dated prices rise on intensifying instability in the Middle East—the center of the conventional oil industry—this should benefit firms operating in unconventional areas. Chief among these are North American exploration-and-production companies developing shale resources and the like.

The IEA forecasts global oil demand to rise by 6.58 million barrels a day by 2018, of which 61% is to be met by extra North American supply. That represents a slowdown in output growth. But if Iraqi growth slows sharply, that would raise prices and likely spur even more investment in North American oil. E&P firms rely on the futures market to lock in prices, providing certainty on cash flow to underpin drilling. So any rise in longer-dated oil futures would reinforce this.

Ultimately, though, all this is bearish for oil longer term. Iraq joins a litany of countries such as Libya, Nigeria and Venezuela—all OPEC members—that can't necessarily be relied upon as stable suppliers.

The high prices and geopolitical shocks that ensue are slowly but surely pushing oil consumers to redouble efforts to reduce demand. They also are raising the energy burden on vulnerable regions such as the euro zone, slowing economic growth that underpins the oil market's health. The Middle East's periodic conflagrations, so often lighting a fire under oil markets, eventually will burn them down.

CITIC Resources says metal missing from China's Qingdao port

Chinese commodities trader CITIC Resources Holding Ltd <1205.HK> said on Wednesday that more than 100,000 tonnes of alumina stored at Qingdao port was missing, deepening fears that firms exposed to a metals financing scam at the port could face big losses.

The Chinese port, the world's seventh busiest, has been at the centre of an investigation looking at whether a private metals trading firm issued multiple warehouse receipts so that the same metal cargo could be used multiple times to obtain financing.
The alumina CITIC had been unable to secure has a value of around $43 million based on current market prices.

The probe has rattled global metals markets, reflecting market fears about business practices in China and worries that the probe could extend to other ports and prompt a crackdown on using metal as collateral for finance. 
"The company has been notified that in the enforcement of the sequestration orders obtained by the group, the Qingdao court has been unable to sequester about 123,446 MT (metric tonnes) of alumina which the group has stored at Qingdao port," the firm said in a statement to the Hong Kong stock exchange.

CITIC Resources said it had title to 223,270 tonnes of alumina and 7,486 tonnes of copper stored at the port pending payment by and delivery to buyers.

CITIC Resources is the commodities trading unit of China's biggest and oldest state-owned financial conglomerate company, CITIC Group Corp. Singapore sovereign wealth fund Temasek Holdings  also holds an 11.46 percent in the unit.

The Chinese trading firm said it would conduct its own investigation to establish why the court had been unable to enforce its sequestration order in full.

CITIC said it did not have information on the current status of an investigation by Qingdao authorities and was not yet able to accurately assess the impact of the alleged fraud on the company.

The use of commodities as collateral to raise finance is common practice in China and is not illegal. But duplicating receipts to repeatedly mortgage the full value of an asset is fraud and could leave more than one creditor holding claims to the same collateral.

Panic over the scandal has meant that some copper cargoes held at China's Qingdao Port have been shipped to more regulated London Metal Exchange warehouses, industry sources said.

Global banks including Standard Bank Group and a part-owned unit of Louis Dreyfus Corp , Singapore-listed GKE Corp. have warned of potential losses from the scandal.

Standard Chartered has said it is reviewing metals financing to a small number of companies in China and acknowledged there are issues in China around commodity.

Source: Reuters

Japan trade deficit shrinks in May following tax hike

Japan's goods trade deficit shrank in May for the second straight month, as imports were tepid with the first consumption tax hike in 17 years from April 1 dragging down personal spending and industrial output at home, the government said Wednesday.

The country's trade deficit stood at 909.0 billion yen last month, marking the 23rd straight month of red ink but contracting 8.3 percent from a year earlier, the Finance Ministry said in a preliminary report.The value of imports fell 3.6 percent to 6,516.5 billion yen, down for the first time in 19 months, with those of crude oil plunging 15.1 percent and of coal plummeting 24.4 percent, suggesting production activities have been petering out after the tax hike.

Source:Kyodo

Japan May crude imports fall 19.3 pct, LNG up 1.2 pct

 The volume of Japan's customs-cleared crude oil imports fell 19.3 percent in May from the same month a year earlier, while LNG imports rose 1.2 percent as gas demand for power remained high with no clear picture on a restart for nuclear energy.

Japan, the world's fourth biggest crude buyer, imported 2.73 million barrels per day (13.48 million kilolitres) of crude oil last month, preliminary data from the Ministry of Finance showed on Wednesday.

Imports of fossil fuel, especially LNG and thermal coal, have remained high as all 48 commercial nuclear reactors in Japan have been shut since last September, with no schedule for restart pending rigorous safety checks enforced after the Fukushima crisis three years ago.

Japan's imports of liquefied natural gas totalled 6.495 million tonnes last month, up 1.2 percent from a year earlier. Imports of thermal coal for power generation slumped 18.1 percent in May to 7.06 million tonnes, the data showed.

Source: Reuters

Upshot of Domestic U.S. Oil Boom: Fewer Shocks

           The WSJ reports,"the oil-price instability has been playing out broadly since late 2010, when a string of popular political revolutions across the Middle East drove up the price of crude to $113 a barrel from $85 over five months".

"Much has changed since the so-called Arab Spring to alter the U.S. energy picture. Advanced technologies such as hydraulic fracturing, or fracking, have boosted U.S. crude-oil production by 47% since late 2010. Domestic U.S. oil production in October surpassed imports for the first time in nearly two decades, putting slack into the global oil market and making more crude available at lower prices to countries like China and India".

"Canada, too, has made great gains in oil production, so that the U.S. now imports about as much oil from its northern neighbor as from all of the Organization of the Petroleum Exporting Countries, meaning that the Middle East's importance to the U.S. energy supply has shrunk".

Better fuel economy has also left many consumers less sensitive to oil prices. For model year 2013, vehicles had average mileage of 24 miles a gallon, up 6% from 2010 and 22% from a decade ago.

"The U.S. is less vulnerable to oil shocks," said Brian Levitt, senior economist at OppenheimerFunds. "Over time, there's going to be less and less vulnerability to events in the Middle East."

That's not to say the U.S. is invulnerable. The nation still imports more than 7 million barrels a day of crude oil, and for many Americans, the amount of gasoline they consume is largely determined by the length of their commute. Higher gas prices—now at a national average of $3.69 a gallon, up 11% since the start of the year, according to the Energy Information Administration—can take a bite from consumer spending elsewhere.

An increase of just $10 a barrel in the price of oil over three months would reduce U.S. gross domestic product by about 0.2 percentage point, according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

The oil-price instability has been playing out broadly since late 2010, when a string of popular political revolutions across the Middle East drove up the price of crude to $113 a barrel from $85 over five months.

Much has changed since the so-called Arab Spring to alter the U.S. energy picture. Advanced technologies such as hydraulic fracturing, or fracking, have boosted U.S. crude-oil production by 47% since late 2010. Domestic U.S. oil production in October surpassed imports for the first time in nearly two decades, putting slack into the global oil market and making more crude available at lower prices to countries like China and India.

Canada, too, has made great gains in oil production, so that the U.S. now imports about as much oil from its northern neighbor as from all of the Organization of the Petroleum Exporting Countries, meaning that the Middle East's importance to the U.S. energy supply has shrunk.

Better fuel economy has also left many consumers less sensitive to oil prices. For model year 2013, vehicles had average mileage of 24 miles a gallon, up 6% from 2010 and 22% from a decade ago.

"The U.S. is less vulnerable to oil shocks," said Brian Levitt, senior economist at OppenheimerFunds. "Over time, there's going to be less and less vulnerability to events in the Middle East."

That's not to say the U.S. is invulnerable. The nation still imports more than 7 million barrels a day of crude oil, and for many Americans, the amount of gasoline they consume is largely determined by the length of their commute. Higher gas prices—now at a national average of $3.69 a gallon, up 11% since the start of the year, according to the Energy Information Administration—can take a bite from consumer spending elsewhere.

An increase of just $10 a barrel in the price of oil over three months would reduce U.S. gross domestic product by about 0.2 percentage point, according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

Increased domestic oil production and more-efficient cars mean the U.S. is more insulated from oil shocks than in past decades, he said, "but no one is fully insulated."

Still, while climbing oil prices would hurt U.S. consumers, any increase would benefit U.S. energy producers, providing a partial offset for the overall U.S. economy, according to Jason Schenker, the president of Prestige Economics in Austin, Texas.

"Because we're importing less, the risks to a widening trade deficit are somewhat diminished," he said, referring to the reduced need to import foreign oil. And there are potentially gains "from a corporate-profit standpoint" now that more U.S. firms and workers stand to gain when oil prices rise.

Before the latest spread of violence, Iraq was producing around 3.45 million barrels a day, less than half of what the U.S. currently produces and about 4% of world supply. Of that, 2.7 million barrels went onto the export market last month, according to the International Energy Agency.

Iraq has already suffered some setbacks on the oil front. An attack in March took 340,000 barrels a day off line. Repeated insurgent attacks have shut down the Kirkuk-to-Ceyhan oil pipeline that transports oil from northern Iraq to Turkey.

But the majority of the country's oil production is in the south, still well out of the zone of sectarian fighting north of Baghdad.

Apache Holds Steady As Top Texas Oil Producer With Value

• Apache has been a remarkably steady top Texas oil producer.
• The Permian Basin is the largest recipient of Apache's capital for 2014.
• Expect increased production in 2014 as long as the economy stays stable.
• Apache's organizational form as an independent-conglomerate offers a source of longer-term value.

U.S. crude output rose to 8.47 million barrels a day in the week of May 23, the highest level since 1986, says the Energy Information Agency. As noted in past articles, Texas is a significant U.S. crude oil producer, largely from the Permian and Eagle Ford Basins. Apache (APA) holds 1.7 million net acres in the Permian, one of the largest acreage holders. It also produces in the East Eagle Ford.

As one of the most active Texas drillers, Apache shifted its focus from 66% international and offshore Gulf of Mexico and 34% North American onshore in 2009 to 62% North American onshore by the early part of 2014. Apache's 2009 production in the Central and Permian regions changed from 7% and 10%, respectively, to 16% and 27% as of first quarter 2014 (pro forma production). In the Central region, Apache has 1 million acres, which produced about 91,000 barrels of oil equivalent per day.

Additionally Apache shifted the hydrocarbon mix from 50% liquids in 2009 to 58% as of first quarter 2014. Of its $8.5 billion E&P capital program, 64% is to be directed to North American onshore. The Permian will soak up $2.6 billion and the Central region $1.7 billion. It projects 15% to 18% North American onshore liquids growth, largely oil driven.

(click to enlarge)

Apache was not the only E&P firm to make this shift back to North America and especially in U.S. shale oil basins. Other large players like Pioneer Natural Resources (PXD) and EOG Resources (EOG) and conglomerates like Chevron (CVX) and Exxon Mobil (XOM) have renewed their production in the Bakken, Permian and Eagle Ford Basins. The chart below offers a snapshot of how key Texas producers have grown production and their rankings from 2012 to 2013.

(click to enlarge)

Though other firms have moved up and down in production and rankings, Apache has uncannily stayed at number four. Exxon Mobil, with subsidiary XTO Energy, has held stable. EOG has hit the Eagle Ford pretty hard. Also of note, Energen (EGN) has played with the big boys, even surpassing Chevron's production in 2013. That may change in 2014 as Chevron hascommitted to more Permian production alongside others like Occidental Petroleum (OXY), also a top Texas producer.

This chart confirms the intent of the top Texas producers, and Apache in particular. If the U.S. economy keeps steady, 2014 will see increased production in Texas, as well as other Basins.

Aside from its strengthened balance sheet, increased dividend for 2014 and portfolio changes, Apache with its diversified oil and gas portfolio can be considered an independent-conglomerate. Being a conglomerate, over a pure-play, gives Apache flexibility in moving capital around as well as managerial talent. Over time, this is a source of value, which may not be fully realized in the stock price. And, obviously, though a likely short-term phenomenon, geopolitical upheavals in the Middle East and Russia are keeping oil prices in the U.S. and around the world higher.

Source: Seeking Alpha   by  Jennifer Warren

Iraq: U.S. Rules Out Iraq Airstrikes for Now

       The WSJ reports,"President Barack Obama decided against immediate air strikes on marauding Sunni extremists in Iraq, opting instead to pursue strategies such as providing intelligence to the Iraqi military, addressing the country's political divisions and seeking support from regional allies".

Mr. Obama will convene a White House meeting Wednesday with Republican and Democratic leaders from the House and Senate to brief them on what officials call this new comprehensive approach.

The White House and Pentagon now hold a more skeptical view of the possible effectiveness of speedy airstrikes and instead are considering deploying U.S. special operations forces to provide intelligence and battlefield advice to the Iraqi military, the U.S. officials say.

The president faces little pressure from the American public to launch a military offensive in Iraq less than three years after he ended American involvement in what had grown to be a deeply unpopular war there, although some U.S. lawmakers have urged him to quickly act militarily.

Mr. Obama has asked his advisers to craft an Iraq response package that includes political measures to be taken by the Iraqi government in addition to the training and advisers.

A third component—support from countries in the region—also ideally would be part of the package, U.S. officials said, but appears increasingly unlikely amid longtime sectarian splits among Iraq's neighbors.

Also affecting the administration's thinking about the merits of airstrikes is the performance of Iraqi security forces, which has improved in recent days after large scale desertions last week.

Adm. Kirby said there were encouraging signs that Iraq's security forces, and the Shiite militias helping them, are better prepared than those in the north to combat the threat from ISIS

"It appears as if they have the will to defend the capital," he said. "We have reason to believe, certainly indications, that the Iraqi security forces are stiffening their resistance."

Beijing Blocks European Freight Alliance Out of Concern Over Pricing

        The WSJ reports,"China is flexing its growing power over global deals, after it put the kibosh on a shipping alliance that officials here said would hold too much sway over trade lanes to Europe.

Tuesday's decision by China's Ministry of Commerce came despite approvals for the shipping alliance in Europe and the U.S. It marks only the second time the Chinese regulator has stepped in to block a corporate combination since the country enacted its antitrust law in 2008".

In a statement on its website posted late Tuesday local time, the Commerce Ministry said it believed the proposed P3 alliance that would have included AP Møller-Mærsk A/S's Maersk Line, CMA CGM SA and Mediterranean Shipping Co. would control about 47% of the Asia-to-Europe container-shipping market. The parties, it said, "failed to demonstrate that the alliance would bring more benefit than harm or that it is in line with the public interest."

Ministry officials couldn't be reached late Tuesday.

China's ambition to have greater say in global pricing trends is one factor behind its increasingly expansive use of its antitrust laws. China is the world's largest trading nation in terms of imports and exports, making it a major customer for big shipping lines. It is the world's largest importer of copper, soybeans and iron ore, and it is challenging the U.S. as the world's largest importer of oil.

Chinese officials hadn't previously expressed any skepticism over the shipping deal, and industry officials widely expected Beijing to follow Washington and Brussels in approving it.

A person familiar with the matter said China COSCO Holdings Co. and China Shipping Container Lines,  two of China' biggest shipping companies, opposed the deal because of worry they would lose market share.

Both companies said on Tuesday they weren't involved in the Commerce Ministry's decision.

Zhang Shouguo, executive vice chairman of the China Shipowners' Association, which represents China's major shipping operators, said on Tuesday that the group had expressed concerns about the P3 alliance, which would have given "the world's top three container shipping operators a dominant position" in some of the world's major trade lanes.

Pricing can be a charged issue in China, which has sometimes seen bouts of steep inflation.

"Most other major economies rely much more broadly on the market mechanism for setting prices and allocating resources efficiently," said H. Stephen Harris Jr. , partner at Winston & Strawn LLP. China is moving toward market pricing but "they are doing it in lurches," he said.

Last year Beijing approved the $62 billion deal to combine mining companies Glencore and Xstrata only after Glencore agreed to divest a giant copper mine in Peru. The combined company this year agreed to sell it to a Chinese consortium for $5.8 billion. It also agreed to sell copper concentrate to Chinese customers at specified prices.

China's approach also reflects fundamental differences in its economy versus those in the U.S. and Europe, said Fay Zhou, a Beijing-based partner at law firm Linklaters LLP who formerly worked at the Commerce Ministry, or Mofcom. As well as a massive consumer, China is a major manufacturing and export hub, giving those industries and related government agencies added heft in antitrust discussions.

"China is a large market. It's natural that China may have different interests than other jurisdictions," Ms. Zhou said.

She added, "Mofcom is particularly sensitive to the opinions of the Chinese stakeholder."

That leads to extra scrutiny in fields like mobile devices, in which China is both a major manufacturer for many global players as well as home to a number of ambitious companies that sell their own brands.

Brent Crude Above US$ 113

Brent crude rose to a nine-month high as the U.S. weighed military options against Islamic militants in Iraq.

President Barack Obama told congressional leaders yesterday he will deploy as many as 275 U.S. troops to Iraq to protect the American embassy. He also opened the door to air strikes and increased military aid to help the Iraqi government defeat the Islamic State in Iraq and the Levant, or ISIL. West Texas Intermediate fell amid speculation recent gains were excessive as supplies remained near a seasonal record.

“It takes an extreme amount of fortitude to be able to sell this market right now,” said Stephen Schork, president of the Schork Group Inc. in Villanova,Pennsylvania. “One headline and this market could jump $3. Brent is much more vulnerable to geopolitical events than WTI.”

Brent for August settlement added 51 cents, or 0.5 percent, to $113.45 a barrel on the ICE Futures Europe exchange, the highest closing price for a front-month contract since Sept. 9. The volume of all futures traded was 17 percent above the 100-day average for the time of day.

WTI for July delivery dropped 54 cents, or 0.5 percent, to $106.36 a barrel on the New York Mercantile Exchange. The contract ended last week at $106.91, the highest since Sept. 18. Brent’s premium to WTI widened to $7.09 a barrel, the most since May 28.

Prices pared losses after the American Petroleum Institute was said to report that U.S. crude inventories dropped 5.7 million barrels last week, according to two people familiar with the report. Supplies at Cushing,Oklahoma, the delivery point for the Nymex contract, increased 255,000 barrels. The July contract was down 30 cents at $106.60 at 4:54 p.m. in electronic trading.

Islamic militants last night attacked a prison in Baquba, putting the city on the frontline of a Sunni guerrilla campaign that poses the gravest threat to Iraqi Prime Minister Nouri al-Maliki so far.

Brent gained 4.4 percent last week, the biggest weekly increase since July, as the unrest in Iraq fanned concern that supplies from OPEC’s second-largest producer may be disrupted. WTI climbed 4.1 percent, the most since December.

The nation’s oil output hasn’t been hurt by the violence, the International Energy Agency said today. Iraq’s oil exports from its southern terminals on the Persian Gulf are poised to surge, according to a preliminary loading plan obtained by Bloomberg News yesterday, at a time when fighting has plunged the north into chaos.

Basrah Light

Exports of Basrah Light crude, Iraq’s main grade, may reach about 2.8 million barrels a day next month. That’s 11 percent more than this year’s average and would be close to a three-decade high of 2.799 million barrels that Iraq said were exported from all its ports each day in February.

“At this moment, not a single barrel of oil has been displaced compared with the situation a week ago,” Maria van der Hoeven, executive director of the Paris-based International Energy Agency, said on a conference call today. “But of course we can see that the market is worrying.”

The fighting hasn’t spread to the south, which the U.S. Energy Information Administration says is home to three-quarters of Iraq’s crude output. Iraq pumped 3.3 million barrels a day of crude in May, second in the Organization of Petroleum Exporting Countries only to Saudi Arabia, according to data compiled by Bloomberg.

“What we know now on Iraq has already been taken into the price, so for a further rise there would need to be an escalation that affects supply,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone. “We are coming out of an overbought situation so there is a bit of market retracement.”

The EIA, the Energy Department’s statistical arm, will release its weekly petroleum data tomorrow. Crude inventories probably shrank by 750,000 barrels last week, according to the median projection of eight analysts surveyed by Bloomberg News. Supplies increased to a record 399.4 million in April.

Gasoline futures gained 1.93 cents, or 0.6 percent, to $3.0911 a gallon on the Nymex. Ultra-low sulfur diesel climbed 2.01 cents, or 0.7 percent, to $3.0180.

Source: Bloomberg

Oil majors cut staff in Iraq on fears violence will spread

 Some oil companies are pulling foreign staff from Iraq, fearing Sunni militants from the north could strike at major oilfields concentrated in the Shi'ite south despite moves by the Baghdad government to tighten security.

Iraqi officials say the southern regions that produce some 90 percent of the country's oil are completely safe from the Islamic State of Iraq and the Levant (ISIL), which has seized much of the north in a week as Baghdad's forces there collapsed.

The government says 100,000 police dedicated to protecting oil facilities are on high alert and well armed 

But oil firms are taking no chances with the foreign expert staff who could be prime targets for jihadists. And some importers of Iraqi oil are getting nervous about supplies.

"We are just very vigilant in Iraq. Non-essential production people have left, but operations continue," said Bob Dudley, chief executive at BP , a major investor in Iraq through the giant Rumaila field. He was speaking to reporters in Moscow.

Industry newsletter Iraq Oil Report said Exxon Mobil , which is developing another huge field, West Qurna 1, was also cutting staffing levels. Exxon declined comment.

In a mark of concern abroad, Turkey evacuated its consulate in the southern oil hub of Basra on Tuesday. [ID:nL5N0OY4HY]

Though the departure of foreigners would have only limited near-term impact on output, the risk of wider civil war - not restricted to attacks in the south by Sunnis but also a possible revival of friction among Shi'ite factions - could hit production and certainly hold back plans for expansion.


"PLAN B"

Russian firms said they were not reducing staff so far but were working on contingency plans.

At Gazprom Neft , first deputy head Vadim Yakovlev said of its work in the Badra field, on the Iranian border east of Baghdad: "Everything is going according to plan for now but we are working on plan B, including evacuation options."

China’s foreign ministry has advised citizens to avoid Iraq.

In India, which with China is the biggest importer of oil from OPEC's second largest producer after Saudi Arabia, an official said there were concerns about future Iraqi supplies.

The Indian oil ministry official said his department asked refiners to have alternatives: "They should have a contingency plan ready to avoid any supply disruption from Iraq," he said.

In 2013, Iraqi oil accounted for 14.5 percent of Indian needs [ID:nL3N0L13PV]. An official at an Indian refiner said he saw no supply problem at the moment and that Saudi Arabia and the United Arab Emirates could make up any future shortfall.

International oil executives note that their assets in Iraq are a long way from the seat of the troubles in the north: "The people we are dealing with appear to be very much in control of the oil communications that we have," said BP's Dudley.

Yet firms are well aware of the need for vigilance after attacks on facilities in various parts of the world, including one which killed dozens of workers at a BP gas plant deep in the Sahara desert 18 months ago. The speed with which ISIL fighters have routed Iraqi forces underlines their potential to surprise.

Almost all international oil majors work with Baghdad on joint projects including Exxon, BP, Royal Dutch/Shell , ENI , Gazprom Neft , Lukoil and Chinese firms.

Security sources working for the oil industry say companies will proceed with a full evacuation of the hundreds of foreign staff they employ in Iraq only if there is a major escalation of violence - such as a major attack in Baghdad or Basra.

"For each company, the triggers for evacuation are different," one security source said. "They analyse practicalities, how you get people out and how you make sure fields continue to operate, possibly even unmanned."

Basra, on the Gulf, has enormous strategic importance to Prime Minister Nuri al-Maliki's government as the hub for oil exports accounting for over 95 percent of government revenue.

It presents a tough and distant target for Sunni insurgents and saw relatively little of the sectarian violence of the past decade. It has seen bombings, however, including in the past year, and has also been a battleground for Maliki against opponents among fellow Shi'ites, notably during 2008.


RISKS TO PLANS

Iraq wants to double or even triple output from the current level of 3.2 million barrels per day by the end of this decade, but hopes that it will be able to achieve that are fading.

"The bigger question than the immediate threat to production is Iraq’s ability to meet the expectation to meet 60 percent of the world’s oil demand growth needs," said Majid Jafar, chief executive at Crescent Petroleum.

A Barclays research team noted that while oil firms have not yet seen a major impact on operations, oil service firms such as Baker Hughes and Schlumberger suspended work for a time last year after labour unrest.

"Activity is stable, though this area does not appear to be outside the reach of the insurgents given the periodic bombings in and around Basra in recent months," the Barclays team wrote.

The think-tank Energy Aspects said that the rate of activity was likely to slow due to workers being evacuated. Merrill Lynch said Iraqi oil output was unlikely to grow at all this year.

"The risk of a protracted civil war has become all too apparent," its analysts wrote. "Longer term, the risks have also risen as investment projects could be cancelled or delayed."

Source: Reuters

Foes of Canada's Pacific pipeline vow legal blitz

 Opponents of Enbridge Inc's proposed Northern Gateway crude oil pipeline are vowing to ramp up their legal challenge to the politically charged project if Canada lives up to expectations and approves its construction.

With a Tuesday deadline looming, Prime Minister Stephen Harper's Conservative government appears ready to bless the C$7.9 billion ($7.3 billion) project despite fierce resistance from aboriginals and environmental groups.

The pipeline would carry 525,000 barrels of crude a day from Alberta's landlocked oil sands to the Pacific Coast for export. While its capacity would represent a fraction of the 2.5 million barrels that flow each day to Canada's largest customer, the United States, Ottawa sees market diversification as crucial to the industry's long-term health and Canada's economic future.

But Harper may not have the final say. Approval will set the stage for a flood of lawsuits by opponents intent on stopping what they view as an environmental disaster in the making. A wave of protest marches and road blockages is also likely.

"We've been putting together a number of legal strategies," said Art Sterritt, head of the Coastal First Nations, an alliance of aboriginal groups in the Pacific Coast province of British Columbia. "The federal government will get a lesson in democracy if they try to bully their way through this province."

Litigation could hold up development for years, frustrating efforts by Canada's energy industry to ease its reliance on the United States, where a second pipeline project, Keystone XL, is also in jeopardy.

Even so, experts say lawsuits alone are unlikely to kill the project. As a best-case scenario, litigants may buy more time.

"With the challenges we are likely to see ... the best-case outcome for the First Nation litigants is having the matter sent back for further consultation and accommodation, essentially a delay of the project," said Gordon Christie, an aboriginal law expert at the University of British Columbia.

Politics in British Columbia could hold up Northern Gateway, as well, especially if opponents manage to put a referendum on the ballot. Such a vote, while nonbinding, could expose a lack of public support, making it politically difficult for the provincial government to allow the project to proceed.


BY THE LAW

Late last year a federal regulatory panel recommended that the Canadian government approve Northern Gateway despite a massive effort by First Nations and environmentalists to persuade the committee to take their side.

The recommendation resulted in five lawsuits, which the courts have put on hold until after the federal government's final decision, in order to allow for more potential claims. Opponents will likely file injunctions to halt work on the project until all legal actions are resolved.

While Canada's final decision is still pending, Greg Rickford, the federal resources minister, praised the regulator on Monday, saying the government is proud of its work. "Their decisions are driven by science and facts," he said.

After the government ruling, any new claimants will have to file within 15 to 30 days. The Federal Court of Appeal will then decide how to proceed with the cases, and the timetable for those hearings will depend on the number of cases and the complexity of each, said Karen Campbell, a lawyer at EcoJustice, a legal group whose clients are behind one of the existing lawsuits.

Experts say the process is likely to take at least a year, and some cases could end up at the Supreme Court of Canada, further delaying the outcome.

The five existing lawsuits, which seek to quash the regulatory panel's recommendation, focus on the shortcomings of documents studied by the panel and what the plaintiffs say is a lack of meaningful consultation with aboriginals.

Future cases will likely argue that the panel's report was deficient, making it illegal for the federal cabinet to approve the project, experts say.

If the court agrees with that argument, it could send the project back to the panel to reconsider the evidence and demand further consultation with aboriginal communities whose territory is in the pipeline's proposed path.

"In general, meaningful consultation means entering in the process with the expectation that you may have to change your project," said Julie Abouchar, a partner at Willms & Shier, an environmental law firm in Toronto.


FIVE CONDITIONS

British Columbia, which stands to derive just a fraction of the economic benefit of the pipeline while assuming much of the environmental risk, could also play a role in stalling the project by refusing to issue certain construction permits.

The province is officially opposed to Northern Gateway and Premier Christy Clark has set out five conditions that all oil pipelines in the province must meet, including world-class spill response and a bigger slice of economic benefits.

There are about 60 permits that the province must issue for construction, giving it some leeway to control the project.

Experts say Clark is unlikely to go back on her word, despite pressure from Alberta and the federal government. Still, opponents are readying a ballot initiative. In a similar, nonbinding vote held in the coastal town of Kitimat, which would be Northern Gateway's terminus, 58.4 percent of residents said

"no" to the pipeline and 41.6 percent said "yes."

Source: Reuters

Iraq's oil growth at risk as demand, for now, accelerates-IEA

Iraq's oil growth targets look increasingly at risk, the International Energy Agency said, as threats to supplies from political instability and violence grow just as demand is picking up due to a stronger global economy.

Iraq is the second-largest producer in OPEC and its northern
exports have been offline since March. OPEC output has also been hit by unrest in Libya, sanctions on Iran and oil theft in Nigeria.

"Within OPEC, Iraq remains the main source of most of the expected capacity growth, but this expansion looks increasingly at risk," Maria van der Hoeven, the IEA's executive director, wrote in the report's Foreword.

Still, the adviser to the United States and other industrialised countries also said in its Medium Term Oil Market Report on Tuesday that global growth in oil demand may start to slow down by the end of this decade due partly to high prices, and shale oil would start to spread outside the United States.

Oil prices jumped to almost $115 a barrel last week, the highest since September, as advances by Sunni insurgents in Iraq raised concern that more of the country's supply could be disrupted.

At present, the agency expects OPEC to increase its production capacity by 2.08 million barrels per day (bpd) - to 37.06 million bpd by 2019. More than 60 percent of the growth is expected to come from Iraq.

The report contrasts with the IEA's previous medium-term update in May 2013, which forecast U.S. shale oil would help meet most of the world's new oil demand, leaving little room for OPEC to lift output without risking lower prices.
Now, the IEA expects world oil demand in 2014 to average 92.76 million bpd, 960,000 bpd more than expected in May 2013. Global demand growth will accelerate to 1.42 million bpd next year from 1.32 million bpd in 2014, it said.

The Organization of the Petroleum Exporting Countries will need to pump more oil than expected in the previous medium-term report, the IEA said, raising its forecast of demand for OPEC crude plus inventories by 900,000 bpd to 30.1 million bpd in 2014.

"Oil markets are in many ways tighter today than they were at the onset of the U.S. shale and tight oil boom, and considerably tighter than they were a year ago," the IEA said.


WATCHING IRAQ CLOSELY

The Paris-based IEA also coordinates the use of strategic oil reserves held by its members in case of supply shocks.

Van der Hoeven said on a conference call the latest violence in Iraq had not cut its supply, although the agency was keeping an eye on developments there.

"We will continue to monitor the situation closely and keep in close touch with our members, ready to respond in the event of a major disruption in physical supplies of oil," she said. It last tapped the stocks in 2011 during the Libyan war.

In the report, the IEA cut its estimate of Iraq's oil production capacity growth by 470,000 bpd, and now expects capacity to reach 4.54 million bpd by 2019 - much lower than the Iraqi government's plan of up to 9 million bpd by 2020.

While highlighting production risks in OPEC, the IEA also said shale oil would make an impact outside the United States before the end of the decade, with 650,000 bpd of supplies coming by 2019 from Canada, Russia and Argentina.

But the IEA also questioned whether other countries looking to develop shale had the combination of above- and below-ground advantages that enabled the U.S. supply boom, and said that U.S. output growth would tail off.

Underlining the steady shift of oil demand growth to Asia, the IEA said China would overtake the United States as the world's top crude oil importer as soon as this year.

After 2015, the IEA sees a slowdown in global oil demand growth further down the road, citing environmental concerns and cheaper alternatives to oil.

"While 'peak demand' for oil, other than in mature economies, may still be many years away, peak oil demand growth for the market as a whole is already in sight," it said.

Iraqi Government Steps Up Efforts to Defend Baghdad

             The WSJ reports,"Iraq's government stepped up its defense of Baghdad on Tuesday, turning back a bid by Sunni militants to seize the heart of a strategic province north of the capital.

Fighters of the Islamic State of Iraq and al-Sham have been fighting to gain control of two major highways that lead from Sunni Muslim strongholds into Baghdad, where they have pledged to depose Iraqi Prime Minister Nouri al-Maliki and his Shiite-dominated government".

On Tuesday, however, forces loyal to Mr. Maliki repelled the militants' attempt to capture Baquba, the capital of Diyala province and 38 miles north of Baghdad.

At least 28 rebels were killed in an attack on the city's police station, said Abdul Amir Al Zaidi, head of the military command center in the province.

Government soldiers were moving through Baquba to root out ISIS fighters who had infiltrated the city, an Iraqi security source said.

Elsewhere in Iraq on Tuesday, government forces also were mounting an offensive to retake the strategic city of Tal Afar from ISIS militants.

ISIS fighters seized Tal Afar on Monday, as they continued their drive to link areas under their control on both sides of the Iraq-Syria frontier.

   U.N. Secretary-General Ban Ki-moon on Tuesday urged Mr. Maliki to start political negotiations with rival ethnic and religious groups with the aim of creating a national governing alliance.

Mr. Maliki, who has been Iraq's prime minister since 2006, has been accused of the minority Sunni and Kurdish politicians of furthering sectarian tensions in the nation by promoting hard-line Shiite politicians and military officers whose main credential is loyalty to him.

"The Iraqi government should have one state, whether it is Sunni, Shia or Kurds, they should be able to harmoniously live together," Mr. Moon said in Geneva.

In Ankara, Turkish Prime Minister Recep Tayyip Erdogan said that 80 Turkish diplomatic personnel taken hostage last week in Mosul were safe and that the Foreign Ministry was watching their situation closely and in contact with "all involved parties." The hostages were being held in an unknown location by ISIS fighters, Mr. Erdogan said.

Also on Tuesday, a criminal court in Ankara ordered a ban on all news reports and photographs regarding the hostage crisis, which brought withering criticism on the government from opposition parties less than two months from Turkey's critical presidential elections.

The decision, which bans all news material regarding the crisis in print, on television or the Internet, was taken to protect the safety of the hostages, the state-run Anadolu news agency said.