He said Brazilian ethanol is the “best type of renewable energy” and offers the possibility of an “ultrapotent fuel that could revolutionise the market”.

BP is channelling its research into renewable fuels accordingly, with 40pc of its $1bn (£625m) annual spend in this area targeted at Brazilian ethanol, Mr Dudley told the weekly Brazilian news magazine Veja.

“There will obviously a time when the oil runs out and with this prospect on the horizon, we will use more renewable energy sources,” he said.

“The alcohol extracted from sugar cane is cheaper, less polluting and more efficient than that from corn, for example, produced in the US.

“Brazil also has a huge advantage in relation to its competitors. The climate and soil are ideal and the sugarcane crop does not have to compete for areas with food crops, as happens in the case of America.”

More than half the cars in Brazil already have flex-fuel engines, meaning they can run on pure ethanol or ethanol mixed with petrol, and around 80pc of new cars sold are of this type.

Embraer, Brazil’s aerospace company, has also produced small aircraft which are fuelled by ethanol.

Mr Dudley said BP had recognised the potential of Brazilian ethanol some years ago, even before the discovery of vast oil fields off the country’s south-east coast focused international attention on Brazil as an important energy source.

“Of $1bn that we spend every year worldwide on research on renewable fuels, $400m (£250m) is destined for Brazilian alcohol,” he said. “The goal is to develop cellulosic ethanol and create an ultrapotent fuel that may revolutionise the market.”

Source: www.telegraph.co.uk

The Ministry of Mines and Energy will next quarter hold an auction for renewable energy that will include natural gas projects along with wind, biomass and hydroelectric plants, according to the country’s official gazette.

This contradicts the ministry’s official 10-year National Energy Expansion Plan, released in December, and comes as the country prepares to tap offshore reserves of oil and gas that were discovered in 2006.

“It was announced at the end of last year there wasn’t going to be any more thermal generation plants” that use fossil fuels, Fabio Dias, director of Associacao Brasileira dos Pequenos e Medios Produtores de Energia Eletrica, a Brazilian power-industry trade group, said in an interview. The details of the auction were disclosed on Feb. 2 in the gazette.

Brazil’s about-face may be an effort to take advantage of the Santos Basin oil and gas reserves, about 300 kilometers (186 miles) offshore, according to Liana Coutinho Forster, strategic planning analyst at Sao Paulo-based energy consulting company Excelencia Energetica. Large-scale production from those sites is expected to begin in the next two to three years, she said in an interview yesterday.

‘Not Enough Gas’

Developers of natural gas projects that sold electricity in past auctions had difficulties securing firm contracts for the fuel because there wasn’t enough gas, she said. That’s changed with the offshore reserves.

Energy companies must prove they have a supply of natural gas to take part in this year’s auction, she said.

Brazil’s production of natural gas may more than double to 231 million cubic meters a day by 2019 with a “significant contribution” coming from the Santos Basin reserves, the ministry said in its energy plan.

Dias said that depending solely on renewable energy sources, with their unpredictable output, would be a challenge, and including natural gas in the auctions gives the country’s energy grid more flexibility to respond to changing demand.

The amount of electricity gas plants produce doesn’t “depend on the weather or wind,” Dias said.

No U-Turn

Brazil’s decision is not a U-turn on renewable energy, he said. “It’s not a sign we’ll reduce the amount of wind farms that will be developed,” he said.

Participants in the auction will bid for 20-year power contracts for wind, biomass and natural gas-fueled energy projects and 30-year contracts for hydroelectric ones, according to the statement. The facilities must go into operation by Jan. 1, 2014, the ministry said in the gazette.

Different energy sources will participate in the same auction, without being pitted against each other, Forster said. “They’ve all got their own quota of contracts to bid for,” she said.

The ministry will hold another auction for 20-year power contracts for wind and biomass projects that must come online by July 1, 2014, and will provide backup power for the grid, the notice said.

Source: www.bloomberg.com

In the global energy market, rapidly changing due to a number of factors, such as the rise of Brazil and the shale gas revolution, Russia has been doing well so far, even beating Saudi Arabia to the title of the world’s biggest oil producer, according to some estimates.

But Russian Prime Minister Vladimir Putin has said that the country’s oil industry would need more than 8.6 trillion roubles ($280bn; £180bn) of investment during the next 10 years.

Otherwise, it is estimated, oil extraction levels in Russia could fall 20% by 2020.

“It is important we create conditions for investment growth in technical upgrades of the fuel and energy system, and stimulate fuel companies to use new technologies which can provide greater returns in oil and gas production,” Russian President Dmitry Medvedev told the country’s Security Council earlier this week.

Both officials and ecologists have been saying that many Russian oil and gas pipelines and refineries are either reaching the end of their serviceable life or have even surpassed the mark, while ageing oil fields make companies think of how much it could cost to discover new ones.

Could this situation put Russia in danger of losing a significant chunk of the global energy market?

Common problems?

The importance of serviceable life data must not be over-estimated, according to Anatoly Dmitrievsky, director of the Oil and Gas Research Institute of the Russian Academy of Sciences.

He told the BBC that the Russian norms regulating depreciation periods were much stricter than the ones in the west.

He added that while more than 50% of Russia’s known oil reserves had indeed been extracted, “we still have not found about 60% of oil reserves in Russia, and have discovered only 25% of gas reserves”.

According to the government’s estimates, Russia’s known gas reserves stand at 165 trillion cubic metres.

Elena Anankina, credit analyst at Standard & Poor’s, says that many Russian oil companies have oil reserves that will last 20 years, which is longer than what their western rivals have.

Mark Spelman, head of strategy at the technology consulting firm Accenture, believes that there is no long-term risk of Russia losing its position as a leading exporter of oil and gas.

Many experts point out that most challenges Russia is facing are not unique, as a number of other oil producers have seen a decline in output or require large investment.

For example, says Mr Spelman, while Brazil has got significant oil reserves, many of them are offshore, and there could be a long delay in exploring them due to the Gulf of Mexico oil spill earlier this year.

‘Artificial profits’

But there is no denial that the Russian oil and gas industries are in clear need of modernisation.

According to the Kremlin documents, quoted by the Russian news agency RIA Novosti, 80% of the oil refining industry’s infrastructure is worn out.

The situation in the gas and electricity industries is said to be only a little bit better.

But Mr Dmitrievsky says that when talking about the need to modernise the oil refining industry, experts and officials often mean a gradual replacement of old technologies with new ones, rather than a need to fix worn out parts of the system.

Many refineries, he argues, were built in the 1950s-1960s, and the cheapest and simplest technology was used to refine oil.

No surprise, then, that 40% of all refined products produced in Russia are heavy products, such as fuel oil, according to Ms Anankina.

She says that most Russian refineries do not have the necessary equipment to produce a lighter product mix and, compared to international peers, have a higher share of cheaper fuel oil and a lower share of expensive petrol.

The paradox, though, is that while Russian heavy products are cheaper than the oil they are produced from, it is economically viable to sell them abroad.

The answer lies in the Russian system of export duties: they are almost twice as high for oil than for oil products, Ms Anankina explains.

“We are talking about some artificial profits here, i.e. profits created by the peculiarity of the tax system,” she says.

High taxes also often discourage companies from investing in new oil fields, while many existing ones have been providing less and less oil.

The government seems to have recognised the problem, as it has been working on changing the tax system, hoping to give a boost to the modernisation process.

Money and know-how

In order to succeed in upgrading its existing energy infrastructure and exploring its offshore and onshore fields, Russia will need some expertise and support from the west, says Mr Spelman.

He believes that Russia is “extremely pragmatic” and the government understands the need to attract foreigners to its oil and gas sectors.

In turn, Mr Dmitrievsky suggests that while Russia has enormous scientific potential in the energy sector, there is something else that might be missing.

“Do we need brains? Yes. But we need practitioners more,” he says.

He compared this situation to Russia’s car industry, where the same models have been slightly modified and produced for decades, because of inability to replace assembly lines with ones capable of producing newer models.

Mr Dmitrievsky believes that attracting money is important, but the main task is to attract some technologies that could help Russia retain its leading position in the global oil and gas market.

It will soon become clear whether the government shares this view.

Head of Russia’s Security Council, Nikolai Patrushev, has said that Russia’s new energy security doctrine will be drawn next year.

Source: www.bbc.co.uk

Sinopec Group, as China’s second-largest oil and gas producer is known, will buy new shares in the Brazilian unit to hold 40 per cent of the division, Madrid-based Repsol said in a statement yesterday. The investment is China’s largest overseas oil deal since Sinopec bought Addax Petroleum Corp. for C$8.3 billion ($US8 billion) last year to gain reserves in Iraq’s Kurdistan and West Africa.

“China’s increased reliance on imported oil is prompting state companies to accelerate the hunt for resources globally,” said Wang Aochao, head of energy research at UOB-Kay Hian Ltd. in Shanghai. “The trend is set to continue as the country’s fast economic growth won’t stop.”

Chinese companies spent a record $US32 billion last year acquiring energy and resources assets overseas to meet demand in the world’s fastest-growing major economy. Cnooc Ltd., China’s biggest offshore oil explorer, agreed in March to buy a 50 per cent stake in Argentine producer Bridas Corp. for $US3.1 billion while PetroChina Co. in December won Canadian government approval to buy a stake in two Alberta oil-sands projects for C$1.9 billion.

Statoil ASA, Norway’s largest oil and natural gas company, in May agreed to sell a 40 per cent stake in the Brazilian offshore Peregrino field to Sinochem Group for $US3.07 billion in cash.

Brazil Fields

Repsol, Spain’s biggest oil company, has stakes in Brazil’s Santos and Espirito Santo basins and plans to invest as much as $US14 billion there through 2019 in fields that may hold as much as 3 billion barrels.

Shares in Repsol jumped to a two-year high yesterday, climbing 5 per cent to close at 19.83 euros in Madrid and giving the company a market value of 24 billion euros ($US33 billion).

The valuation of the transaction is “surprisingly high,” Banco BPI SA analysts Bruno Silva, Flora Trindade and Gonzalo Sanchez-Bordona wrote in a research note. They have a “buy/accumulate” rating on Repsol shares.

Repsol had also considered a plan to sell about 40 per cent of the Brazilian business through an IPO. Repsol now won’t be selling shares in the Brazilian unit to the public, Madrid-based spokesman Kristian Rix said.

Too Large

“For us, Brazil was way too large,” Repsol’s Chief Operating Officer Miguel Martinez said in an interview on Bloomberg Television. “Obtaining a partner was a move that was necessary.” Repsol and Sinopec may work together in other areas in the future, he said.

Since 2007, Repsol and partners BG Group Plc and Brazil’s Petroleo Brasileiro SA have found hydrocarbons in the offshore Carioca, Guara and Iguacu fields in the Santos Basin’s BM-S-9 block. They are ultra-deep deposits beneath a salt layer under the seabed.

Petrobras, as the Brazilian state-controlled company is known, estimated in November 2007 that the Santos Basin’s pre- salt Tupi field may contain as many as 8 billion barrels of oil, the largest find in the Americas since Mexico’s Cantarell field in 1976. Repsol doesn’t own a stake in Tupi.

The investment by Sinopec comes after Petrobras last week completed the world’s largest share sale, raising about $US70 billion.

Energy Shares

Shares of other energy companies with stakes in Brazilian offshore projects advanced yesterday after the Sinopec investment in the Repsol unit was announced. Galp Energia SGPS SA rose as much as 7.8 per cent in Lisbon, while BG Group Plc, the UK’s third-largest oil and natural gas producer, climbed as much as 5.8 per cent in London.

“This puts a hefty valuation on reserves in Brazil,” said Peter Hitchens, an analyst at Panmure Gordon & Co. in London. “It could read through into BG’s assets.”

Repsol wants to invest in exploration in Brazil’s offshore Santos Basin and elsewhere to increase reserves and output, while trying to reduce exposure to mature fields in Argentina. The company forecasts annual production growth of as much as 4 per cent through 2014 as projects in Brazil and Peru come on stream. Repsol plans to invest a total of 28.5 billion euros in the period.

Oil and gas production at Repsol’s upstream division, which doesn’t include Argentine unit YPF, was unchanged from a year earlier at 340,000 barrels of oil equivalent a day in the second quarter. Output from Buenos Aires-based YPF, of which Repsol owns 84 per cent, fell 7 per cent to 556,000 barrels a day as fields matured.

The Spanish company wants to sell part of its holding in YPF “sooner rather than later,” Chief Executive Officer Antonio Brufau said on April 29. In 2008 Repsol delayed a public offering of a stake in YPF.

Source: www.sht.com.au

Brazil’s finding of these new reserves is not itself the real story behind its rise-and Mexico’s and Venezuela’s decline. The real issue is why Brazil has become more successful in finding and exploiting fossil fuel reserves then the traditional local petroleum powerhouses.

Brazil’s state-run oil company, Petroleo Brasileiro or “Petrobras,” is hungry. It lost its monopoly on Brazilian oil production in the mid-1990s, which opened it up to private competition. That led to increased exploration, by private concerns which saw an opportunity, and by Petrobras, because it had to explore to keep up its revenue. Petrobras also improved the efficiency of its operations, again, due to the necessity of keeping up with competitors. For the state-run company, finding itself in competition with private business meant it had to improve or face potential economic death.

The result? Brazil’s oil production has grown 50 percent since 2000 and looks to keep growing. Currently producing around 2 million barrels per day, Petrobras expects to produce 2.25 million barrels daily in 2010, 2.43 million in 2011, and 2.58 million (a 29 percent increase over 2009) by 2012.

At the same time, Venezuela’s and Mexico’s state oil companies, Petróleos de Venezuela, S.A. (PDVSA) and Pemex, respectively, were fat and complacent. Protected by monopoly positions, flush with large, easily exploited reserves, they had little incentive to invest in expensive exploration or new production facilities or techniques.

Unfortunately, in the world of oil production, there is no standing still: to stand still is to fall behind. All wells and fields experience a reduction in output over time as more readily accessible reserves are drawn down. Exacerbating that is that the infrastructure of oil production-the wells, the pipes, the pumps-consists of large machinery, subject to high stresses, with more than a few moving parts. Unless you continually maintain the machinery, it, too, will decline.

Mexico, which has relied on a few large fields in heavy production, has been particularly susceptible to time-related declines. For example, production at its most important field, Cantarell, has declined by over 300,000 barrels per day since last year. Currently producing only 639,000 barrels a day, it’s well down from the 2.2 million it was putting out as recently as 2004. In response, Pemex has begun engaging in more exploration, including deep-water wells in the Gulf of Mexico. However, while it has made some promising finds, production at these new sites isn’t expected to even begin until 2015.

Venezuela has suffered from political problems as well as aging fields and infrastructure. Its populist president, Hugo Chavez, props up his regime with heavy social spending drawn from the oil sector, diverting money that would otherwise be available for exploration and capital investment. He’s also followed a leftist ideology and nationalized foreign assets in Venezuela’s oil sector, taking fields away from more efficient foreign production and turning them over to the inefficient state oil company. The net effect has been to decrease Venezuelan production by more than 700,000 barrels a day over the course of the last 10 years, to a point where the nation is producing around 2.22 million barrels per day-a low volume on proven reserves of at least 170 billion barrels, and a testament to inefficiency. (For comparison, Saudi Arabia has around 50 percent larger reserves-but produces over 500 percent as much oil daily.)

In brief: Brazil has been deliberately making itself a petroleum power. Mexico and Venezuela have not.

What’s the likely impact on oil and heating oil prices? As we’ve written, there’s little consistency in projections for 2010 and beyond, with some analysts and institutions projecting increased oil demand and higher prices, while others see stable demand but increased production, leading to a continued surplus of supply over demand and falling prices. Those bearish analysts typically site production growth in traditionally second- or third-rank oil producers, such as Brazil or Nigeria, as powering the growth in supply.

However, even if you don’t or are unwilling to put a firm stake in the ground on demand, suffice to say that an increase in production from a physically close, politically stable, and relatively U.S.-friendly nation can only be good for American consumers.

Source: www.heatingoil.com