Posts on ‘April 9th, 2008’

Associated Press: Gas, Oil Prices Hit New Records

Gas and Oil Prices Hit New Records After Government Reports Supplies Fell Last Week

Wednesday April 9, 3:36 pm ET
By John Wilen, AP Business Writer 

NEW YORK (AP) — The upward trend in energy prices showed no sign of abating Wednesday as gasoline set yet another record at the pump and crude oil topped $112 a barrel for the first time in the futures market.

The national average price of a gallon of regular unleaded gas rose 1.2 cents to a record $3.343 a gallon, according to a survey of gas stations by AAA and the Oil Price Information Service. With the peak summer driving season still to come and gas following crude higher, the fuel may well reach the retail price of $4 a gallon that the Energy Department has been forecasting.

But prices that are 55 cents higher than a year ago are hurting demand for gasoline, which fell last week by nearly 2 percent from year-earlier levels, the department’s Energy Information Administration said in its weekly inventory report.

“People are cutting back on gasoline purchases because the economy is squeezing them right now,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The EIA report, closely watched by the futures market, also said crude oil supplies fell by a surprising 3.2 million barrels last week; analysts surveyed by Dow Jones Newswires, on average, had expected an increase of 2.4 million barrels.

That sent light, sweet crude for May delivery up $2.37 to settle at a record $110.87 a barrel on the New York Mercantile Exchange after earlier rising as high as $112.21. That beat a trading record of $111.80 set last month.

Analysts expect demand for gas and oil to fall further as prices rise. Theoretically, that should bring prices down. But so far this year, gas and oil prices have shown little inclination to fall in response to eroding demand. With gasoline supplies shrinking and the summer approaching — when demand, while weaker than last year, will be stronger than it is now — consumers may have to wait until this fall for price relief.

Some analysts cautioned against reading too much into last week’s drop in crude supplies.

“We note there was a sharp decline in crude oil imports,” said Eric Wittenauer, an analyst at Wachovia Securities LLC in St. Louis, in a research note.

Flynn believes crude imports fell in part because fog closed several shipping channels in Texas and Louisiana that serve as vital oil import conduits last week. “That leads me to suspect that there are more ships out there in the Gulf (of Mexico) that didn’t get counted,” he said.

Before the EIA issued its report, oil prices were already higher due to the dollar’s slide against the euro Wednesday. Many investors see commodities such as oil as an effective hedge against a falling dollar and inflation. Also, a weaker greenback makes oil cheaper to investors overseas.

Analysts attribute much of oil’s rise this year to speculative buying tied to the falling dollar. With the Federal Reserve expected to cut rates several more times this year, which will likely further weaken the dollar, oil prices may continue rising despite tepid demand.

The EIA also said supplies of gasoline and distillates, which include diesel fuel and heating oil, fell more than expected last week. May gasoline futures rose 2.38 cents to settle at $2.7742 a gallon on the Nymex — a price move that could also affect what consumers are paying at the pump. Gasoline futures are near the record price of $2.925 that benchmark futures set in 2005 when Hurricane Katrina struck New Orleans.

May heating oil futures rose 12.43 cents to settle at $3.2345 a gallon after earlier rising to a trading record of $3.2561 a gallon.

In other trading, May natural gas futures rose 35.9 cents to settle at $10.056 per 1,000 cubic feet.

In London, May Brent crude futures rose $2.13 to settle at $108.47 a barrel on the ICE Futures exchange.

http://biz.yahoo.com/ap/080409/oil_prices.html?.v=27

Seeking Alpha: BP Could Lose $20 Billion to Gazprom

by: Stephanie Grimmett: Bio & more articles
posted on: April 09, 2008

Gazprom is moving to take control of BP’s Russian oil fields.

Gazprom, Russia’s government-owned energy company, already had plans to buy a stake in British Petroleum’s Kovykta gas field. And now, with rumors circulating that BP (BP) is being bullied out of its Russian enterprise, Gazprom (OGZPY.PK) could be planning to buy a majority stake in TNK-BP, the joint venture between BP and four Russian billionaires.

The Russian government in general, and Gazprom in particular, has a history of forcing foreign oil and gas companies out of local fields through corporate and legal harassment and tax hikes. The government hasn’t gone so far as to say, “leave Russia to the Russians,” publicly, but you can imagine the sentiment being passed between cabinet ministers and police chiefs as they rifle through TNK-BP’s Moscow offices (which they did a couple of weeks ago).

Government officials accused a TNK-BP employee of industrial espionage to gain access to its corporate headquarters, and the company is currently under investigation for tax evasion and environmental violations. TNK-BP could very well be guilty of all three accusations, but so is every other corporation in Russia, where corruption runs rampant and bribery is sometimes the only way to receive legal approval.

BP owns 51% of its Russian joint venture, and TNK-BP contributes about a quarter to the company’s total yearly oil and natural gas production. Its stake is worth about $20 billion, as far as analysts can tell.

TNK-BP’s other owners, Russian billionaires Viktor Vekselberg, Len Blavatnik, Mikhail Fridman and German Khan, agreed not to sell their combined 50% stake in the company before 2008… No wonder Russia’s enforcement agencies just discovered an interest in TNK-BP’s legal dealings.

Convincing the Russian owners to sell shouldn’t be very hard for Gazprom. The company wields a lot of government clout (or maybe at this point I should say the government wields a lot of Gazprom clout), and any billionaire worth his Solikamsk salt (look it up) knows that staying on the good side of the Kremlin is more profitable than any minority stake in a foreign oil venture.

All that’s left is for Gazprom to wrench away 1% of BP’s portion of the company to gain majority control — that’s if its willing to give BP nearly half the profits.

Gazprom’s eventual goal could be to force BP out of the country altogether. But with global oil supplies growing scarce and harder to extract, the world’s third largest energy company will fight tooth and nail (or possibly hammer and sickle) to keep its hands on a healthy supply of oil and natural gas, even if it is on the other team’s home turf.

As I’ve said before, don’t bet against Gazprom. Even with the noble British Empire behind BP, I’d still stay on the Russian side of this potential fight.

Disclosure: None

http://seekingalpha.com/article/71696-bp-could-lose-20-billion-to-gazprom?source=d_email#comment-147566

snl.com: Uncertainty surrounds growth rate for LNG imports in 2009 and beyond

April 07, 2008 5:22 PM ET
By Mark HandKathleen

EXTRACT

Eisbrenner, executive vice president of LNG at Royal Dutch Shell plc, said there are currently 17 LNG importing countries, a number that is expected to grow to 29 by 2012. The number of LNG exporting countries is expected to increase from 15 today to only 18 in 2012. LNG demand has the potential to outpace supplies in the coming decade, she said.

In the United States, Eisbrenner said FERC’s recent approval of the Broadwater Energy LNG import terminal is a “significant step” in the project’s development. The Broadwater project is a joint venture between subsidiaries of TransCanada Corp. and Shell Oil Co.

The Broadwater facility is expected to be operated as a baseload facility, Eisbrenner said, adding that LNG shipments could get diverted to the facility when spot prices are higher in the New York region than other North American trading hubs.

For the complete article go to…

http://www.snl.com/interactivex/article.aspx?CdId=A-7592973-9058

moneymorning.com: BP Caving to Kremlin Pressure Over Joint Venture

By Jason Simpkins
Associate Editor

BP PLC (BP) has found itself under pressure from the Kremlin to cede control of its joint venture in Russia, TNK-BP Holding OAO, to a state-owned oil monopoly such as Rosneft NK OAO or Gazprom OAO – the latest attempt by the Russian government to expand its energy monopoly and drive out international oil majors.

Last month, 78 Federal Security Service (FSB) officers raided the Moscow offices of BP and TNK-BP. The raid resulted in the arrest of one TNK-BP employee and his brother, who will both face charges of industrial espionage. Soon after the raid, the Natural Resources ministry said it would check TNK-BP’s largest oil field for environmental violations and the Interior Ministry accused the company of breaking visa rules.

Sources close to the situation, including TNK-BP Chief Executive Robert Dudley, said the raids and subsequent arrest were a “one-off” incident. But many analysts see a more sinister motive behind the crackdown.

Tax claims, corporate malfeasance and government investigations could be just the kind of pressure the Kremlin needs to exert for one of its state-owned oil monopolies – some of which are the most heavily indebted companies in Russia – to acquire a stake in the venture for a relatively cheap price.

TNK-BP is currently co-owned by BP and a group of Russian billionaires. The Russian investors agreed not to sell their combined 50% stake in the company until 2008. But as the agreement nears its end, Gazprom is reportedly encouraging BP’s Russian partners to sell out.

Gazprom, whose chairman, Dmitry Medvedev, will be sworn in as Russian president on May 7, has frequently found itself the beneficiary of government interference in the energy sector.

Two years ago, OAO Yukos Oil Co., formerly one of the world’s largest private oil companies, went out of business after Russia’s Federal Tax Service demanded the payment of $30 billion in back taxes.

Soon after, Royal Dutch Shell PLC (RDS.A) was forced to relinquish control of its Sakhalin-2 oil and gas project to Gazprom for $7.45 billion when the Russian government threatened to block investment plans by canceling building permits on environmental grounds.

And just last year, TNK-BP was talked into selling its 62.8% stake in one of the world’s largest gas fields, the Kovytkta field, to Gazprom, after Russian authorities threatened to revoke the company’s license to develop it.

So it’s perfectly reasonable to believe that TNK-BP, which produces close to a quarter of BP’s total oil and natural gas production, could be Gazprom’s next takeover target. It’s also reasonable to expect that Gazprom may want more than to simply replace the Russian oligarchs as junior partners in the venture.

“We think there is a possibility that BP ends up as a minority shareholder in TNK-BP,” analysts at JP Morgan Chase & Co. (JPM) wrote in a research note.

Just two weeks after the Moscow raid, BP chief Tony Hayward began making a suspicious set of rounds. He met with Gazprom CEO Alexei Miller last Thursday. That meeting was followed by a meeting with Rosneft chairman Igor Sechin, and then another meeting with shareholder Viktor Vekselberg. Vekselberg, along with Mikhail Fridman and Len Blavatnik, is one of TNK-BP’s largest shareholders.

RBK Daily reported earlier this week that Gazprom is seeking a 1% stake in the joint venture from BP, while at the same time buying out TNK-BP’s three Russian shareholders, thereby giving the state monopoly a controlling stake in TNK-BP.

Sources cited by the paper, also said any deal would likely take place after President-elect Medvedev’s inauguration.

“We are all worried there is going to be some political maneuvering in order to relieve BP of the stake,” Colin Morton, a fund manager at Rensburg Fund Management who owns BP shares, recently told Reuters. 

Tuesday, April 8th, 2008

http://www.moneymorning.com/2008/04/08/bp-caving-to-kremlin-pressure-over-joint-venture/

Upstreamonline.com: MMS launches Bristol Bay drilling review

The US’s Minerals Management Service (MMS) said it is launching an environmental review of possible offshore oil and gas drilling in the salmon-rich area of Bristol Bay, where energy exploration was temporarily banned following the Exxon Valdez disaster in 1989.

After the Bush administration lifted the ban under the department’s current five-year outer continental shelf leasing plan, which took effect last July, the government proposed a North Aleutian Basin lease sale in 2011.

Potential Lease Sale 214 covers about 5.6 million acres in the south-eastern Bering Sea and may hold 2.5 billion barrels of oil and 23.3 trillion cubic feet of natural gas.

The area is also home to the world’s biggest sockeye salmon runs and a plethora of marine life, including some of the last known eastern Pacific right whales, a critically endangered species, Reuters reported.

The MMS said in its announcement that it is seeking oil industry and public comment on the leasing proposal. The announcement “does not indicate a preliminary decision to lease in this area,” the MMS said in its Federal Register notice, published yesterday.

“With this step MMS begins a more formal information gathering process and continues our process of consulting with local villages, interest groups, including environmental groups, and industry,” MMS Director Randall Luthi said in a statement.

The prospect of oil drilling in and around Bristol Bay has long been controversial in Alaska. A 1988 lease sale that drew $95.4 million in high bids was the subject of lawsuits and legislation that precluded any drilling. In 1995, the Clinton administration bought back the leases, refunding the oil companies and ending the legal disputes.

But as commercial fishing fortunes have faltered, some local governments in the Bristol Bay region and political leaders who once championed the lease buyback now embrace the proposed offshore oil development as a way to diversify the region’s economy.

Shell, has also expressed keen interest in North Aleutian Basin drilling.

“Obviously, we’d be excited if that area came up for lease,” Rick Fox, Shell’s Alaska assets manager, said in a presentation last week to the Alaska World Affairs Council. “We would be interested in participating and would position ourselves to do so.”

Environmentalists and several native and fishing organizations, meanwhile, continue to staunchly oppose offshore oil development.

It is unclear if the next US president would allow the MMS to conduct a lease sale in the designated area. The three main presidential candidates already oppose opening Alaska’s Arctic National Wildlife Refuge to oil drilling.

Wire services
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09 April 2008 00:28 GMT  | last updated: 09 April 2008 01:27 GMT

 

Oil tap: Chevron asks Mexico for permission to tap Gulf

Upstreamonline.com: Chevron outlines plans Mexico oil tap

By Upstream staff

Chevron has submitted proposals to tap deep-water oil and natural gas reserves in Mexico to the government in Mexico City as the country weighs up its options to stem declining output.

Chevron wants to make Mexico “a big part of our portfolio,” said Ali Moshiri, who oversees the company’s exploration and production portfolio in Africa and Latin America.

So far, Chevron’s proposals have not borne fruit because Mexico’s constitution bars foreign oil companies from producing hydrocarbons, Moshiri told Bloomberg.

Those restrictions probably will not change until state-owned Pemex relaxes its monopoly and pressures politicians to change the law, Moshiri said.

“The biggest problem in Mexico is Pemex,” Moshiri said.

He said Pemex needed to be more proactive and it should learn to ask for help.

Mexico has 12.4 billion barrels of untapped oil reserves, or 10% of the world’s crude, according to the US Energy Department. The country’s reserves are declining because most formations in the Mexican section of the Gulf of Mexico remain unexplored, the department said in a December report.

“The opportunity in Mexico is very vast and we just need the door to be opened to us,” Moshiri told the news agency. “If you look at Latin America as a whole, Mexico has been way behind any other countries, including Venezuela, which at least is open for us to do business in. In Mexico, we don’t even have access to exploration, not even high-risk exploration, or production.”

Chevron’s proposals to the Mexican government involve plans for deep exploration in the Gulf of Mexico and to tap natural gas deposits neglected by Pemex, Moshiri told Bloomberg.

Mexican crude output decreased 15% since peaking at 3.45 million barrels a day in December 2003, according to the nation’s energy ministry.

Underinvestment and industrial accidents have hampered efforts by Pemex, to find new reserves and maximise development output.

“Mexico has been closed for so many years that all that’s been explored is 250 feet of water in the Gulf of Mexico, while on the US side of the Gulf we’re exploring in 10,000 feet of water,” Moshiri said.

Chevron holds the record for the deepest well ever drilled in the Gulf of Mexico, Knotty Head, which plunges 30,589 feet beneath the sea floor.

The company’s $1.4 billion Blind Faith project in 7000 feet of water about 160 miles south of New Orleans is scheduled to being pumping oil this year, followed by the $4.7 billion deep-water Tahiti project, also in the Gulf, in 2009.

Chevron considers Brazil, Mexico, Colombia, Venezuela and Trinidad and Tobago its brightest prospects for future Latin American investments. Ecuador and Bolivia hold no attraction for the company, Moshiri said.

On 3 April, Mexican President Felipe Calderon told bankers at a conference in Acapulco that he was optimistic opposition lawmakers would eventually agree to relax controls that have kept Mexico off-limits to international petroleum companies.

Pemex has already signed technology-sharing agreements with Chevron, ExxonMobil, Shell, StatoilHydro, Petrobras, Nexen and Maersk Oil & Gas.

Calderon favours changing secondary laws rather than the constitution to loosen Pemex’s monopoly and allow greater foreign company participation. Moshiri said that will not work.

“You’re not going to ask a major oil company to come there for an itty-bitty project,” Moshiri said. “We’ve got opportunities elsewhere. Changing the constitutional ban on foreign ownership of Mexican petroleum resources is crucial to enticing international companies,” he said.

Brazil’s state oil company, Petrobras, approached Mexico last year about forming partnerships on energy projects and was rebuffed, Pemex chief executive Jesus Reyes Heroles said last week.
——————————————————————————–
08 April 2008 22:24 GMT  | last updated: 09 April 2008 07:15 GMT

http://www.upstreamonline.com/live/article151991.ece

THE WALL STREET JOURNAL: Where Oil Experts Come From

By SPENCER SWARTZ
April 9, 2008; Page B5A

LONDON — A large, steady supply of petroleum graduates from resource-rich and developing nations is helping to ease an industrywide labor shortage, while at the same time chipping away at the advantage in skills traditionally enjoyed by U.S. and European firms.

In the 1970s and 1980s, Texas A&M University and other top U.S. and European universities provided most of the world’s petroleum graduates.

The tables have turned. Today, schools in Azerbaijan, Brazil and other nations with state energy firms that manage vast hydrocarbon resources are expected to produce more than 12,000 petroleum-engineering and geoscience graduates in 2008, double the roughly 6,000 in the U.S., Canada and Europe, according to recent data from Schlumberger Ltd., the world’s biggest oil-services firm by revenue.

The gap has widened considerably in recent years. In 2000, the U.S., Canada and Europe produced almost 4,000 energy-related graduates compared with a total of about 6,000 in other nations.

Some of the new petroleum graduates are signing on to work for Western oil companies, but many are joining their national firms, building the skills and knowledge base of state corporations that already control more than 80% of the world’s proven crude reserves.

Over time, the abundance of trained national talent is likely to blunt the know-how bargaining chips U.S. and European firms have long employed to cut deals with governments, some analysts say.

The national oil companies will continue to have a reservoir of graduates and be able to cherry-pick the best ones, says Fariborz Ghadar, who has studied the issue as director of the Center for Global Business Studies at Pennsylvania State University. “Over the longer term, this will challenge Western oil companies in the knowledge department,” he says, citing skills like the latest drilling techniques and methods for recovering hard-to-get oil at existing fields.

“We have seen a big rise in the number of graduates coming from [non-U.S. and non-European], resource-rich nations,” says Antoine Rostand, global managing director at Schlumberger Business Consulting. “One of the reasons for this is many of these countries continued investing in new talent despite past years when oil prices were lower.”

Companies play down the competitive threat from the rising skill base of national oil companies and say the increasing number of petroleum graduates globally is an opportunity. Analysts say it is also cheaper in many cases for U.S. and European companies to hire locally rather taking on new recruits in their home markets and posting them in other countries.

Mr. Rostand of Houston-based Schlumberger says his company is hiring more graduates in some of the roughly 80 countries where it operates.

Chevron Corp., like other big oil companies with an aging work force and many big projects in development, says it is doing likewise. “[Chevron] plans to hire in excess of 6,000 employees globally this year, triple the number just two years ago,” says company spokesman Alex Yelland.

More than half of Chevron’s 59,000 employees are from outside the U.S., up from less than one-third in 1999, and that percentage is steadily rising, Mr. Yelland says. California-based Chevron has started partnerships with several universities in places such as India, Indonesia and Kazakhstan.

Young people outside the U.S. and Europe often have a relatively positive image of the energy industry, especially in the Middle East, where rising crude prices the past seven years have boosted living standards for most people.

“Working at Saudi Aramco for most Saudi kids is a dream job. Our enrollment numbers continue to rise,” said Sidqi Abu-Khamsin, who runs the petroleum-engineering department at King Fahd University in Saudi Arabia. The petroleum-and-minerals school has been a pipeline for talent to Aramco, which for decades has been the world’s biggest oil company by reserves.

By contrast, many young people in the U.S., Canada and Europe — where concerns about global warming are rife — often have less favorable views of the oil sector and usually have plenty of other professional opportunities in areas such as retail and technology.

To be sure, Western oil companies have increased recruitment, which is helping deliver more graduates — though shortages are seen persisting for a number of years as many workers go into retirement. Texas A&M graduated 180 petroleum students in 2007, compared with 60 in 2004, according to Schlumberger.

But those numbers are overwhelmed by the big strides being made elsewhere in the world.

Although privately funded, the University of Petroleum & Energy Studies in India was launched in 2003 after lengthy consultations with U.S. and European petroleum schools to supply engineers to state industry, which procures most of India’s fast-growing oil needs from abroad.

The school — accredited by the Energy Institute, a United Kingdom industry body whose members include BP PLC and Royal Dutch Shell PLC — has gone from graduating around 250 students in 2005 to more than 800 in 2007, according to Vice Chancellor Parag Diwan. More than 1,000 a year are expected to graduate over the next few years and the school will soon start campuses in Qatar, the United Arab Emirates and Vietnam.

Still, some professionals question the quality of the high number of graduates being pumped out around the world. “Universities in oil-producing countries are challenged to develop programs that produce more energy professionals quickly and efficiently and ensure international standards for academic excellence,” said Margaret Watson, a spokeswoman for the Society of Petroleum Engineers, whose membership includes professionals from many Western and state-run oil companies.

Those concerns, however, so far haven’t diminished the appetite to hire globally. “There are quality issues from time to time. There are longer-term competitive issues we face from state-run companies, but the universities in countries where we operate are helping fill a big need,” said one recruiter, who wished to remain unnamed, from a top U.S. oil company at a recent industry education and training conference in London.

Write to Spencer Swartz at spencer.swartz@dowjones.com

THE WALL STREET JOURNAL: ConocoPhillips, BP Plan Pipeline for Alaska Gas

By RUSSELL GOLD
April 9, 2008; Page B1

ConocoPhillips and BP PLC are joining forces to pursue construction of a long-awaited natural-gas pipeline that would bring the rich energy deposits of northern Alaska to the lower 48 states, the companies said Tuesday.

The two oil giants said they will spend $600 million over the next three years on a design for a project that industry experts say could cost more than $30 billion, potentially making it the largest private construction project ever in North America.

“This is not an announcement to start the plan. This is an announcement to start the project,” says Doug Suttles, president of BP’s Alaska unit. “We will begin work immediately. Gas could be flowing in 10 years’ time.”

Big oil producers have talked about building a second pipeline for Prudhoe Bay’s vast natural gas stores since the Alaska oil pipeline was completed in 1977. While the project still faces a number of hurdles, the talk has never before led to such a concrete step toward making the gas pipeline a reality.

On Tuesday, excitement gripped Anchorage and the rest of a state that still fondly remembers the boom times brought on by construction of the oil pipeline. “My phone has been ringing off the hook,” said Bill Popp, president and chief executive of the Anchorage Economic Development Corp. “We have a greater sense of optimism than we’ve had in several years.”

The perception that there may be a natural-gas pipeline by 2018 could send exploration into overdrive in the North Slope. “It enhances the probabilities and possibilities that any explorers or drillers would want to go to work right away to find new gas,” says Scott Heyworth, chairman of the Alaska Natural Gas Development Authority. The scale of the proposed gas pipeline, which ConocoPhillips and BP are calling Denali, is enormous. It would stretch 2,000 miles to reach Alberta and an additional 1,500 to its final destination near Chicago and require five million to six million tons of steel. It would also require more than 1,000 permits.

When it arrives in the lower 48, the Alaskan gas could also help tame prices for the relatively clean-burning fuel, which closed just shy of $10 per million British thermal units Monday on the futures markets, up 30% from a year ago. The proposed pipe would carry 4 billion cubic feet of gas a day from the Alaska North Slope. Some of the gas would be used to light and heat Anchorage. More of it could be used to develop Canada’s oil sands deposits, and the rest would be routed through North Dakota into Chicago.

In recent years, discussions of a gas pipeline project have been mired in disagreements and controversy. The big oil companies that control North Slope production — ConocoPhillips, BP and Exxon Mobil Corp. — had insisted on a long-term agreement on taxes and other fiscal terms before they committed to build the pipeline. Those talks, championed by former Gov. Frank Murkowski, collapsed in 2006 as lawmakers rebelled against terms they saw as favoring the oil companies. Then, when the state was swept up in a political corruption probe involving a major oilfield contractor, the pipeline project was shelved again.

Last year, in an attempt to jump-start the project, Gov. Sarah Palin and the legislature agreed to put up $500 million in matching funds for a company that would begin work on the pipeline. ConocoPhillips submitted a proposal, but it was rejected in January because it fell short of the state’s requirements. Alberta-based pipeline operator TransCanada Corp. submitted the only proposal meeting the guidelines, but it was criticized for not involving the big producers. Gov. Palin hasn’t yet said whether she will send this proposal to the legislature for approval.

One matter in debate: Trans-Canada said it must be involved in any international project. “We believe we hold the permits to transport Alaskans’ gas through Canada to the lower 48,” said Tony Palmer, TransCanada vice president of Alaska development.

Although it will be buried underground and run parallel to the existing oil conduit, the pipeline will likely raise objections from environmental groups. Given the strong state support, this opposition seems unlikely to derail the project.

Also looming large is the absence of Exxon Mobil Corp., which has the rights to develop about one third of the estimated 35 trillion cubic feet of gas in Alaska’s remote North Slope, but isn’t participating in the project. Exxon spokeswoman Margaret Ross said in a prepared statement that a gas pipeline would “be among the largest, costliest and most complex projects ever undertaken” and that the company hadn’t had enough time to study the proposal.

Still, many observers see the announcement as a major step forward. ConocoPhillips has dropped its earlier requirement to lock in an agreement on fiscal terms such as taxes and royalties before proceeding on the project. BP also is relaxing some earlier conditions.

Drue Pearce, head of the Office of Federal Coordinator for Alaska Natural Gas Transportation Projects, credits Ms. Palin with forcing BP and ConocoPhillips to move ahead.

As Western oil companies are being blocked from exploring for oil in many energy-rich nations, such as Russia and many parts of the Middle East, they are instead turning more often to this type of big, technically challenging project, often involving natural gas with a long payout. Indeed, the companies said the new pipeline could extend the producing life of the Prudhoe Bay oil and gas fields by 50 years.

Under the state guidelines, Alaska would provide $500 million in matching funds. But the new ConocoPhillips-BP plan doesn’t require any money from the state.

Write to Russell Gold at russell.gold@wsj.com

THE WALL STREET JOURNAL: Energy Agency Sees Oil Averaging $101 This Year

Economy May Damp
Demand for Fuel,
Curb Gasoline Price
By NEIL KING JR.
April 9, 2008

Federal energy officials expect oil to average $101 a barrel this year, a sharp upward revision from its earlier forecast that suggests prices will remain above $100 for some time.

But the U.S. Energy Information Administration expects American drivers, truckers and airlines to use less fuel this year as the economy softens. That could take some pressure off prices for gasoline and other fuels, and could keep the price of gasoline under a U.S. average of $4 a gallon.

Just months ago, $100-a-barrel oil seemed an aberration — a price surge driven by speculators that would soon slip back to more reasonable levels. But the move by the agency — usually a price bear that had predicted $87-a-barrel oil in January — suggests $100 oil could be the new norm this year.The arm of the U.S. Energy Department also doesn’t anticipate much relief next year, when it sees prices averaging $92.50 a barrel.

Crude oil for May delivery fell 59 cents a barrel, or 0.5%, to $108.50 Tuesday on the New York Mercantile Exchange. Oil hit a record high of $110.33 March 13.

Contrary to warnings from many analysts, the agency believes gasoline prices will remain below $4 a gallon in the U.S. during the height of the summer driving season. The government sees gasoline prices peaking in June at $3.60, up from the national average of around $3.33 now. The U.S., consumer of nearly a quarter of the world’s daily crude production, is expected to use 85,000 barrels a day less this year in liquid fuels than in 2007, the agency said.

Still, the Energy Department warned that gas could surge above $4 a gallon this summer in some parts of the U.S. — a prediction that politicians from both parties in Washington immediately seized on to attack one another’s policies. Democrats called on the Bush administration to stop filling the country’s Strategic Petroleum Reserve, while Republicans chided Democrats for seeking to raise taxes on oil companies.

Separately, the chairman of the House Energy and Commerce Committee said his panel has begun an inquiry into high gasoline prices, including the impact on prices of low refinery-utilization rates. Speaking on the sidelines of a conference in Washington, Rep. John Dingell (D., Mich.), said his committee was probing the contribution of speculation to prices and refinery use. “We’re looking to see if there are some questionable practices going on in the industry,” he said.

A number of factors continue to push oil prices upward, with little relief seen until later this year. Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized. In the Middle East, soaring energy needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more oil at home. The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.

The oil market is all the more jittery because of so little spare capacity to tap in a crisis. The 13-member Organization of Petroleum Exporting Countries now has just over two million barrels a day in excess production capacity, almost all of it in Saudi Arabia. The world is consuming about 86 million barrels a day, with OPEC supplying more than a third.

Oil traders also point with alarm at signs of slumping output from non-OPEC countries such as Russia, Norway, Mexico and the United Kingdom. OPEC has resisted increasing output this year in the face of record prices and pressure from consuming states, arguing that fresh supplies from non-OPEC producers will cover most of the world’s increased needs.

The EIA is now saying it expects most non-OPEC growth to come onstream in the second half of the year. But predictions of similar successes in recent years have often failed to pan out. OPEC ministers, meanwhile, continue to point to growing stockpiles in the U.S. and most developed countries to argue there isn’t any need for increased production. OPEC ministers have met three times in the past five months, each time deciding that no action was warranted.

U.S. forecasters say extreme volatility will remain the order of the day for the rest of the year. “Any real or perceived disturbance to petroleum demand or supplies,” the EIA said in this month’s report, “can result in large price increases in a short period of time.”

Write to Neil King Jr. at neil.king@wsj.com

Financial Times: Beyond buy-outs

Published: April 9 2008 03:00 | Last updated: April 9 2008 03:00

For those wondering where private equity’s cash piles go next, watch TPG. The firm’s latest mooted deals are anything but the mega-buy-outs that dominated last year.

The multi-billion dollar investment to recapitalise Washington Mutual exemplifies three trends. First, private equity will invest more cash in minority investments in public companies. That puts large amounts of money to work in a single deal. It does not require access to the moribund high-yield debt markets. If the terms are right – say, using convertible preferred shares – there is some downside protection.

Second, they will target distressed companies that require capital and, even without leverage, have scope for a big gain if the business can be fixed. Third, financial services companies will be increasingly popular. Again, many are distressed and usually highly geared already.

TPG’s other deal, to buy 50 per cent of the Russian pharmaceuticals group SIA International, hints at more money being invested in less developed overseas markets. China is one country where buy-out groups have worked hard to establish themselves. Until now, however, they have faced high prices, influenced by an over-valued stock market, and competition from plentiful capital from the same source. Now the Chinese market has corrected, opportunities should increase.

That is not to say buy-out funds will find the changes easy. Investing in overseas markets such as Russia is fraught with risks – as Royal Dutch Shell has discovered. Investments in public companies, meanwhile, come with limited control, embarrassing visibility if the share price falls and questions from investors about why they are paying huge fees on positions they could take themselves.

Finally, distressed investing is tough. Just ask Cerberus Capital Management. It is one thing to buy a good company that runs into trouble because of the economic cycle and is fixed to ride a recovery. It is quite another to buy a company, such as Chrysler, which was already struggling before recession became a clear and present danger.

Copyright The Financial Times Limited 2008

Headline by John Donovan of www.royaldutchshellplc.com