Total ventures into offshore Kenya

Total has made a major play off East Africa as it snapped up a huge chunk in five Kenyan offshore blocks.

The French supermajor has hatched farm-in agreements with US stalwart Anadarko and London-listed independent Cove Enervy for the quintet of blocks in the Lamu basin, it announced on Wednesday.

The deal for a 40% cut in the blocks follows reports early last month that Total was eyeing acreage in Kenya although it was unclear if this would be on shore or offshore.

Total is taking 20% of Anadarko's share in blocks L5, L7, L11a, L11b and L12 although the latter will stay on as operator with a 50% share. The French player is also getting its hands on 5% of Cove's holding in the blocks with Cove holding on to a 10% cut.

The agreement sees Dynamic Global Advisors sell out its entire 15% stake in the blocks to Total, however.

The blocks cover a total area of 30,500 square kilometres with water depths ranging from 100 to 3000 metres. A 3D seismic survey programme is currently underway.

No purchase price was revealed but Cove said drilling operations are set to kick off in the second half of next year.

Total's senior vice president for exploration, Marc Blaizot, commented: “This transaction is part of a bold exploration strategy that consists in acquiring large stakes in high-potential frontier plays.

"Recent discoveries in offshore Mozambique and Tanzania offer a very promising outlook for these Kenyan permits.”

Last month news wire Dow Jones reported that Total had shown an early interest in one block in Kenya. The report cited Kenyan petroleum official, Martin Heya, as saying Total Kenya Limited was in contact with the government in May with regards to acreage.

Kenya represents a new frontier in oil and gas exploration as the country does not currently produce any oil.

Total has been active in East Africa recently after being awarded oil and gas exploration rights in neighbouring Tanzania last month. Total beat off competition from nine other bidders for the acreage on the northern side of Lake Tanganyika.

The Tanzania Petroleum Development Corporation has divided the Tanzanian side of Lake Tanganyika into two blocks, with the southern portion awarded to Australia's Beach Energy in 2008.

China to Lend Tanzania One Billion Dollars for Pipeline

China and Tanzania are to sign a $1.06 billion loan agreement to build a natural gas pipeline from the southern part of the east African country to its commercial capital, a Tanzanian newspaper wrote.It is hoped the project will put an end to the country's chronic energy shortage.Last month, Energy and Minerals Minister William Ngeleja said in a presentation to parliament that the government was seeking loans from China to finance construction of the pipeline from Mtwara to Dar es Salaam.

The Guardian on Sunday newspaper reported $300 million of the loan will be used to construct processing plants at Mnazi Bay, and that Finance Minister Mustafa Mkulo and Ngeleja were expected to fly to Beijing next week to sign the loan agreement.

Must project

"This is a must project for the future of this country ... we have secured financing from the Chinese and the agreement will be signed next week," Ngeleja was quoted saying.

"Some people have been misleading the public by saying the Chinese own this project, but the truth is it's government owned ... The Chinese are financiers and the project will boost gas supply as well as reducing or ending the power supply problem in the country."

Tanzania's chronic energy shortages have resulted in rolling power outages, undermining economic growth in the country.

Away from hydropower

The Tanzanian government said it plans to shift its focus to investment in thermal plants fuelled by natural gas and coal in attempts at weaning itself off weather-dependent hydropower, which accounts for 55 percent of the country's energy sources.

The paper reported the project will be carried out by the China Petroleum and Technology Development Company (CPTDC) a unit of China National Petroleum Corp (CNPC) , and state-run Tanzania Petroleum Development Corporation.

Aminex Takes over Ruvuma Basin

London-listed Aminex has taken over operatorship of Tanzania’s Ruvuma basin permit in a reshuffling of licence interests ahead of drilling of a key exploration well later this year.

Previous operator Tullow Oil has handed over the reins with immediate effect to Aminex as the partners on the Ruvuma production sharing agreement prepare to spud the Ntorya-1 well in the Mtwara block at the underexplored play in November.

Following a re-assignment of interests by Tullow to partners, Aminex will hold a 56.25% interest with Tullow on 25% and remaining stakeholder Solo on 18.75%. The stake transfers remain subject to Tanzanian government approval.

Aminex said the transfer of operatorship was “a logical and practical move” given that it is already operating a well using the Caroll Rig-6 that will be moved to the drill the Ruvuma well once its present drilling job at Nyuni-2 is completed.

Ntorya-1 is a follow-up to the Likonde-1 well drilled last year that provided strong evidence of oil and gas but was not a commercial discovery.

The new probe will be drilled south of Likonde to a depth of about 2020 metres with drilling expected to take 25 days to reach target depth.

“Both Solo and Aminex have a strong focus on Tanzania and by gaining a greater participation in the PSA will jointly be able to advance the work programme more quickly,” said Solo executive director Neil Ritson.

Aminex chairman Brian Hall said the Ntorya prospect is “in one of the last major underexplored deltaic basins in Africa”.

Aminex was originally awarded the PSA with a 100% interest in 2005 and acquired the original seismic before handing over operatorship to fellow UK independent Tullow.

The Ruvuma basin, located both onshore and offshore Tanzania, has triggered strong exploration interest, with several successful deep-water gas wells drilled by Anadarko in the Mozambique sector of the basin.

Earlier this year, BG Group and partner Ophir Energy drilled an offshore gas discovery in the Tanzanian sector in a licence adjoining the Ruvuma PSA.

Brent Falls Below $111 on US Recession Fears

Brent crude fell below $111 a barrel on Monday, as fears of another U.S. recession slowing fuel demand overshadowed supply concerns over a major shutdown of offshore oil production forced by Tropical Storm Lee.

CNBC.com

U.S. employment growth ground to a halt in August, reviving recession fears and piling pressure on both President Barack Obama and the Federal Reserve to provide more stimulus to aid the frail economy.
   
London Brent crude [LCOCV1  110.50    -1.83  (-1.63%)   ] fell 61 cents to $111.72 a barrel by 0248 GMT, after falling to as low as $111.46 earlier. Brent plunged almost $2 a barrel on Friday on the disappointing jobs data released in the U.S. 
   
U.S. light, sweet crude [CLCV1  84.05    -2.40  (-2.78%)   ] was down 67 cents to $85.78 a barrel, after settling $2.48 lower at $86.45. Friday's oil losses wiped out part of U.S. crude's 4.1 percent gain in the week through Thursday.  
   
"The macro situation is leading to fears of a double-dip recession. And there has been a recent trend of selling into strength when the market hits a soft patch," said Chen Xin Yi, a commodities analyst at Barclays Capital in Singapore. 
   
Asian stocks followed Wall Street lower on Monday, after the U.S. Labor Department said employers added no net new jobs last month and July's total was revised lower.
   
Compounding fears of a recession in the United States, Europe faces a string of political and legal tests this week that could hurt efforts to resolve its sovereign debt.
   
However, worsening economic woes may also raise the odds of more quantitative easing (QE) by the U.S. Federal Reserve . That could cheapen borrowing, weaken the dollar, and encourage investment in commodities as an asset class.  
   
"This is likely to bring further calls for quantitative easing, despite the Fed's apparent aversion," said CMC Markets market strategist Michael McCarthy in a research note.
   
Brent oil will fall further to $109.01 per barrel, while U.S. oil is also expected to fall more to $84.20 per barrel, according to Reuters market analyst Wang Tao.
 
Storm Watch
   
Providing some support for prices was oil companies' shutdown of more than half the crude production in the U.S. Gulf of Mexico due to Tropical Storm Lee, which is hindering efforts to restaff and restart oil and gas platforms in the basin.
   
Lee reached Louisiana's coast early Sunday, but was moving inland very slowly. Its 45 miles-per-hour (75 kmph) winds grounded helicopters on standby for oil and gas companies that would have otherwise ferried workers out to do post-storm assessments and restaff facilities. 
   
"Reports that about 60 percent of crude refinery capacity was halted while Tropical Storm Lee hit the coast could lead to further declines in crude stockpiles in the latest government inventory report," ANZ Bank said in a research note. 
   
Another storm, Hurricane Katia, intensified over the open Atlantic on Sunday, bulking up to a powerful Category 2 storm, the U.S. National Hurricane Center said.
   
The Miami-based hurricane center said it was still too soon to gauge the potential threat to land or to the U.S. East Coast with any certainty.  
   

But most computer models showed the storm veering on a northeast track out to sea after moving safely west of the mid-Atlantic island of Bermuda later this week.  
     
The European Union imposed a ban on purchases of Syrian oil on Saturday and warned of further steps unless President Bashar al-Assad's government ended its five-month crackdown on dissent.
   
In Libya, forces loyal to Muammar Gaddafi refused on Sunday to give up one of their last strongholds without a fight, raising the prospect of an assault on the town of Bani Walid. 
   
The EU has lifted sanctions on Libyan ports and oil firms, but few expect the country's normal oil production — around 1.6 million bpd — to be restored soon, after a civil war halted its oil sector this year. 

Tanzania watchdog okays BP sale of fuel firm stake

- Tanzania's competition regulator on Friday approved the sale by London-based BP of a 50 percent stake in a fuel marketing business in the east African country to Puma Energy, a subsidiary of Dutch commodity trader Trafigura.

The deal follows an announcement by the oil major in November that it had agreed to sell its southern African network to Trafigura for $296 million, part of a trend that oil majors are exiting fuel retail businesses.

The go-ahead was granted by Tanzania's Fair Competition Commission (FCC) after BP announced it would sell interests in forecourts and supply businesses in Namibia, Botswana, Zambia, Tanzania and Malawi to Puma Energy.

Oil traders such as Trafigura have not historically involved themselves in fuel retail business.

Tanzania's government, which owns the remaining 50 percent stake in BP Tanzania, did not object to the acquisition.

Gulf Power Ltd Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project description The project is the development of an 80 MW Heavy Fuel Oil (“HFO”) diesel power plant, including a 66kv interconnector and backup metering equipment on a 20 years build-own-and-operate basis in the Mombasa Road area of Nairobi, Kenya (the “Project”). The project will have a 20 year Power Purchase Agreement (“PPA”) with Kenya Power and Lighting Company (“KPLC”), the national transmission and distribution company. The developer of the Project is Gulf Power Limited (“GPL” or the “Company”), a special purpose company incorporated in Kenya by a consortium of Kenyan investors with a view to enter the power generation business in Kenya. The Project is one of 3 Independent Power Projects (“IPPs”) for which KPLC had sought Expressions of Interests (“EOI”), in June 2009. These IPPs were expected to generate 60-80 MW each using medium speed diesel engines with HFO as the fuel. The projects were awarded through a competitive bidding process based on the lowest electricity charges. GPL submitted an EOI to bid for the Project. In the final bidding held on December 15, 2009, GPL was the lowest bidder for the development of an 80 MW plant on the Mombasa Road, Athi River Site and on that basis was awarded the concession.

Kenyan firm plans 80 MW diesel plant

 Kenyan firm, Gulf Power, plans to generate 80 megawatts (MW) of power from thermal sources for the national grid.

Several parts of Kenya are experiencing severe drought, which could lead to the use of diesel to generate power as has happened in the past.

Meteorologists are forecasting depressed rainfall within the first six months of 2011.

The east Africa nation relies heavily on hydroelectric dams for power, which have proved inefficient in times of drought.

"The generating system will comprise heavy fuel oil-powered generators capable of generating a net electrical output of 80.32 MW," Gulf Power said in a statement.

The firm said it had applied for a power generation licence from the sector regulator.

Another power generating firm, Iberafrica, said  it would buy 320,000 tonnes of heavy fuel oil for its 110 MW power plant in the capital for use over the next 24 months.

Africa poised to become energy powerhouse

A CONTRIBUTOR | APRIL 2011 | SOURCE: The Citizen

Africa could hold the key to solving the world’s looming energy crisis but unlocking the continent’s vast potential will not be easy.

As supplies of oil and gas from traditional sources diminish, international energy companies are pushing into increasingly volatile and environmentally-sensitive territory in their scramble to meet demand.

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Among the most controversial projects on the starting blocks for 2011 are a proposed $17 billion development of the world’s third largest hydroelectric dam in the Amazon rainforest and the possibility of drilling in Alaska’s Arctic Refuge.

But it is in Africa that many believe the most potential lies for boosting energy supplies. Over the next two decades, 90 per cent of new resource development in oil and gas will be in the developing world, and much of that in Africa.

Industry experts are asking whether Africa’s transformation into an energy powerhouse could offer an answer to the energy conundrum – both as an oil producer and a testing ground for large-scale clean energy. But potential investors need also to be aware of the risks.

Africa already accounts for 10 per cent of the world’s oil supplies but a second generation of oil production has emerged in the last three years, most recently off Ghana’s coast. This has been spurred in part by rapid advances in drilling technology which have prized open new reserves.

"Everyone knew the Guinea basin was a very rich deposit for hydrocarbons, but until recently all the attention focused on a small group of countries that were seen as worthwhile investments,” says Philippe de Pontet, an analyst at political risk consultant Eurasia Group, adding: “ [But today] even countries that were totally off the radar are getting a fresh look.”

Compared to Middle East crude, African oil has many advantages. It is light and low in sulfur – a quality highly prized by refiners – it is located primarily offshore and favorable production sharing agreements are readily available.

“With the decline in production [of this kind of oil] in Europe, there should be a constant demand for crude from Africa in the future,” says Olivier Jakob, an analyst at Petromatrix.

While some of the biggest finds have been in Uganda and Ghana, Sebastian Spio-Garbrah, founder of risk consultant Da Mina Advisors, says that exploration off the shore of Kenya and in Tanzania and South Sudan is the most crucial for the Asian market, due to lower shipping costs. “There you have the real prospect that exploration... could rise dramatically.” However, concerns remain over the environmental impact of so many large-scale energy projects in developing countries.

“There’s certainly more talk of environmental protection,” says Julian Lee, an analyst at the Center for Global Energy Studies. “It’s not clear whether this will translate into regulation on the ground, but it will become much more important. Companies have fewer places to hide these days and are closely scrutinized by NGOs, if not governments.

Regulation is no silver bullet in Africa, but it is hoped it could help pen a new chapter for African oil.

According to Mr de Pontet, the Gulf of Mexico Spill acted as a wake-up call for governments in relation to the tourism, fishing and farming industries. “Even in Angola the government is looking to enforce tougher regulations for offshore drilling. The BP spill gave additional momentum,” he says.

Not only is Africa rich in natural gas and oil, but the continent also has plenty of sunshine, strong winds, countless powerful river systems and hydroelectric dams. Africa’s electricity supply continues to depend heavily on carbon-based energy sources, but an increasing number of governments are looking at the potential of wind turbines, solar panels and other forms of cleaner energy.

Opportunity for development in renewable energy in Africa is huge, with the potential to draw in foreign investment as well as funding from the World Bank’s Clean Technology Fund to spearhead a green revolution. (Agencies)

Energy experts believe renewable technologies could even allow poor communities without electricity to leapfrog the West’s high-carbon technology, in the same way mobile phones jumped over landline technology in many developing African countries. At the end of 2008, Africa’s installed wind power capacity was just 593 megawatts, but by the end of last year it was just under one gigawatt (1000 megawatts).

African Oil Supply – Taking Stock

CGES  | SOURCE: Quarterly Oil Supply

Oil production from the non-OPEC countries of the continent of Africa was much lower than expected in 2008.

Output fell by around 40,000 bpd instead of rising by 120-140,000 bpd, as predicted by the CGES and most other forecasters, including the IEA and OPEC. This year, however, the CGES expects oil production in non-OPEC Africa to rise by 85,000 bpd.

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The biggest disappointment was Congo (Brazzaville), where output was expected to rise sharply as Total’s 65,000-bpd N’Kossa field came back on stream after a fire in May 2007 and Total’s 90,000-bpd Moho Bilondo deepwater offshore oil field started up.

However, detailed monthly data for Congolese oil production, published by the Energy Industries Transparency Initiative (EITI), show that output of oil liquids (crude, LPG & NGLs) averaged only 237,000 bpd in 2008 — significantly lower than most analysts had assumed but up 13,000 bpd on the 2007 figure.

Although Moho Bilondo came on stream in April 2008, a month ahead of schedule, output only reached 34,000 bpd by the end of last year, limiting its contribution to the annual average.

Production wells are still being drilled and the field is not expected to reach capacity until 2010. Output from Congo (Brazzaville) is expected to increase again this year as output continues to rise from Moho Bilondo, but the gains will be limited by lower output from existing mature fields, which are declining at around 10% according to the EITI data.

Sudanese Oil

Oil production in the Sudan was also lower than predicted, averaging only 462,000 bpd in 2008 — down 22,000 bpd on the previous year. The Sudan had hoped to maintain its output close to 500,000 bpd last year following the completion of the Dar Blend export terminal, but rising production of Dar Blend from Blocks 3 & 7 was more than offset by a sharp fall in the supply of Nile Blend, which averaged 205,000 bpd in 2008, down 40,000 bpd (17%) on the year before. Yet despite this setback, the Sudan’s oil production is expected to recover in 2009.

The 50,000-bpd Gumri field started up in January, lifting the supply of Dar Blend and another 50,000-bpd field, Qamari, is also expected to start up this year. The Sudan hopes to raise Dar Blend output to 300,000 bpd by the end of 2009, but this may be optimistic, since last year’s 275,000-bpd target was not achieved: output of Dar Blend averaged 199,000 bpd in 2009, up 24,000 bpd on the previous year.

The CGES expects the Sudan’s oil production to average 500,000 bpd in 2009 — significantly lower than the official target of 600,000 bpd — as falling output of Nile Blend continues to offset the gains from Dar Blend.

The picture is mixed across the rest of non-OPEC Africa. Output is rising in Egypt, where new small fields are more than compensating for declining output at mature fields. Egyptian crude oil and condensate production averaged 673,000 bpd in 2008 — up 30,000 bpd (5%) on the previous year— and had exceeded 700,000 bpd by the middle of this year.

Oil output is also thought to be rising slowly in Gabon, where new fields developed by smaller independent oil companies are at least compensating for the declines at Rabi and Mandji. However, accurate and up-to-date information is hard to obtain. Although Gabon is participating in the EITI process, the latest report, published in March 2008, covers 2006 when output was just below 240,000 bpd. This year, Vaalco plans to expand output from its Ebouri and Etame fields by around 5,000 bpd.

Elsewhere in Africa output is falling slowly in Cameroon, Chad, Equatorial Guinea, the Ivory Coast, Mauritania and Tunisia, although higher output is expected from the Ivory Coast in 2009 following the start-up of CNRL’s 20,000-bpd offshore Olowi field in May and new wells at the Baobab and Espoir fields.

For a full insight into African oil, take a look at the African Oil & Gas Sourcebook 2010

Dominion faces Tullow in search for oil in Kenya

Posted  Monday, March 28 2011 at 00:00

The scramble for oil exploration blocks in Kenya has heightened as companies make last-ditch efforts to resolve the puzzle of why the country — despite sitting on a rich vein that has yielded oil elsewhere — is yet to strike wells with tangible quantities for exploration.

The jostling has gained tempo in the past year as assigned blocks change hands rapidly and more reputable miners compete for the handful of blocks that are yet to be allocated.

“Several companies with good experience and resource capacity for successful exploration are trooping in and we hope to at least strike something in the short term,” said Mr Martin Heya, the head of petroleum at the Ministry of Energy.

Raised expectations

The presence of two London listed firms — Dominion Petroleum and Tullow Oil — in particular has raised expectations of an oil find.

Tullow has said it will start seisimic tests and drilling in Northern Kenya while Dominion is betting on an offshore block it won a permit for last week.

Dominion elbowed strong competition to win one of three highly sought after blocks off the coast of Lamu dubbed Block L9.

“Kenya’s Block L9 represents one of the very few ‘ground floor’ opportunities remaining in the highly prospective, and increasingly attractive, East African offshore basins,” Dominion CEO Andrew Cochran said on Monday last week when he announced the acquisition.

One well, Simba 1, showed signs of potential gas reserves when it was sunk in 1979 while offshore oil seeps had been identified to the north of the block, which has similarities to Dominion’s Block 7 offshore Tanzania.

Dominion will take a 60 per cent stake of offshore block L9 in the Lamu Basin, with the government likely to take a 15 per cent share later.

The company will spend between Sh517 million ($6.15 million) and Sh3.87 billion ($46 million) on exploration over the next two to six years, according to the terms of the contract.

Oil and gas explorer, Tullow Oil through its local subsidiary Tullow Kenya BV, is scheduled to sink two wells within Blocks 10DD and 10A that hug the Lake Turkana Basin, raising expectations of a find as it did in neighbouring Uganda.

Tullow is next year expected to start oil production within the Albertine Basin in Uganda where billions of barrels of the precious commodity have been discovered.

Tullow entered oil exploration in Kenya after an agreement completed last month with East Africa-focused exploration firm Centric Energy which accepted to farm out to Tullow a 50 per cent interest in its Block 10BA in north-western Kenya.

In the deal that pushed to five the number of Tullow Kenya BV’s operated exploration blocks in northern Kenya, Tullow paid Sh80.7 million ($0.96 million) in historic costs and will finance 80 per cent of future expenditures to a limit of Sh2.5 billion ($30 million).

Fresh prospecting

Officials at the Energy Ministry said applications by several giant firms lining up for fresh prospecting activities continued to swell, despite past failed attempts to strike oil.

Kenya has so far awarded 26 of its existing 38 exploration blocks countrywide, creating a market for farm-in deals between smaller players holding stakes in the blocks and bigger players such as Apache Corporation and Anadarko Petroleum Corporation whose wealth of resources render hope of positive results.

The renewed interest among experienced firms and signs of gas and oil deposits have brought enthusiasm within government circles with Mr Heya looking beyond the prospects.

“When we discover oil ourselves, we shall bring it into production faster than our neighbours – we have the infrastructure, skilled people, a product pipeline, and a refinery – I think we can do it,” he was quoted by the Financial Times saying.

Brent Up 1.5% Near $116; Libya Action Stokes MEast Fears

Brent climbed 1.5 percent on Monday towards $116 after western forces launched a military campaign against Libya, stoking fears that violence will intensify in North Africa and the Middle East, source of more than a third of the world's oil. 

Unrest over the weekend also flared in Syria and Yemen in the wake of popular uprisings that toppled long-time leaders in Tunisia and Egypt earlier this year and a crackdown on protests in Bahrain last week.  

U.N.-backed strikes led by the U.S., the U.K. and France raised the stakes in a civil war that has cut Libya's oil output to less than a quarter of the previous 1.6 million barrels per day (bpd), nearly paralyzing shipments abroad from what used to be the world's 12th largest crude exporter. 

In London, Brent crude for May [LCOCV1  115.35    1.42  (+1.25%)] rose as much as $2.29 to $116.22 a barrel and was up 1.5 percent at $115.69, about $4 from last month's 2-1/2-year high near $120. 

U.S. light, sweet crude for April [CLCV1  102.62    1.55  (+1.53%)] advanced $1.79 to $102.86 after western powers launched a second wave of air strikes on Libya early on Monday, dismissing a ceasefire announced by the country's military late on Sunday.

"With involvement from the West, the uncertainty that has surrounded the region and the fear of upheaval and unrest spreading to countries like Saudi Arabia, where we could lose a lot more crude that what we did Libya, is definitely going to be the main price driver," said Matthew Lewis, an analyst at CMC Markets in Sydney. 

President Barack Obama ordered U.S. forces into the biggest military intervention in the Arab world since the 2003 invasion of Iraq, while Libyan leader Muammar Gaddafi vowed to fight to the death.  

"At this stage, it looks like Libya has further to play. Gaddafi still seems very defiant. We'll see further spikes and shocks in the oil market this week," Lewis said. 

Military action on Libyan air defenses over the past two days, sanctioned by the United Nations in a Security Council resolution on Thursday, has crippled Gaddafi's capability to launch airstrikes and detect foreign aircraft, a senior U.S. military official said on Sunday. 

But Gaddafi's control of oil infrastructure in the long term would probably mean reshaping deals with foreign oil companies in favor of countries not participating in the attacks. 

Libya is considering offering oil block contracts directly to China, India and other nations it sees as friends, Libya's top oil official said on Saturday, instead of opening bidding processes. 

China, India, Russia, Brazil and Germany were the five nations that abstained in last week's U.N. vote to authorize the use of force against Gaddafi. The other ten members of the Security Council voted in favour. 

The weekend's military intervention hit a diplomatic setback as the Arab League chief condemned the "bombardment of civilians".

The strikes began on Saturday, as a coalition of western nations vowed to prevent Gaddafi from launching attacks on civilians as he seeks to crush a rebellion against his four-decade rule.

MidEast Premium

Crowds set fire to a headquarters of the ruling Baath Party in the Syrian city of Deraa on Sunday, while Yemeni President Ali Abdullah Saleh fired his government after a string of allies broke ranks with him as he faces increasing pressure from street protests to step down.

Saudi Arabia and other countries from the Gulf Cooperation Council (GCC) last week sent troops into Bahrain to help quell Shi'ite protests there against the Sunni monarchy. That angered Iran, which denounced the foreign intervention in the island state that lies less than 100 kilometers from the hub of the Saudi oil industry.    

"The key is really how Saudi (Arabia) and Iran play out. Cool heads need to prevail. It's contained at the moment but if things worsen, you see a Mideast premium very quickly," said Jonathan Barratt, managing director of Commodity Broking Services.

Iran's oil minister said on Saturday said any output increase by individual OPEC members aimed at reducing oil price pressures caused by the Libyan crisis would not have the desired effect. 

Some OPEC countries, including Saudi Arabia, have already increased production partly to compensate for the drop in Libyan output and to prevent prices from reaching levels that could derail the global economic recovery. But that has also eroded the group's spare capacity to offset further disruptions.

"None of the OPEC countries have considered it (the current oil price) damaging" to the world economy, Nigerian oil minister Allison-Madueke said on Sunday. 

Oil prices have now recovered completely from a slump triggered by Japan's strongest earthquake on record on March 11. 

Japan hoped power lines restored to its stricken nuclear plant may help solve the world's worst atomic crisis in 25 years, triggered by the earthquake and a tsunami that also left more than 21,000 people dead or missing.

Likely to limit oil's gains was Friday's increase in China's rate reserve requirements as the nation stays focused on stifling inflation, traders and analysts said. 

Phantom ships and crude pricing:What is going on in the oil sector?

Very strange things are happening in the oil sector. On February 14, the State-owned National Oil Corporation of Kenya (Nock) sent out a note to the industry informing them that a ship by the name Volga Tanker with 62,000 metric tons of petroleum products would be arriving in Mombasa on February 26.

That consignment was to be shared by all companies under the so-called OTS arrangement. As is the practice, oil companies checked in international marine registers to establish whether such a ship was, indeed, headed for Mombasa with the said products.

The search showed that the ship did not exist in any register. Volga Tanker was a phantom ship. There were even reports that this specific ship had been scrapped for metal as far back as 2004 in India. Absolutely incredible, to say the least.

Pressed by the industry, Nock said it had nominated another ship by the name MT Adden to deliver 25,000 metric tons between February 17-19. MT Adden did not show up in Mombasa.

At one stage, the industry was given the name of another vessel by the name MT Ratna Sheruti. It did not deliver either.

On February 24, Nock revised the vessel’s nomination for the fourth time, now advising the industry that the performing vessel would be a ship known as MT Ratna Namrata. It finally brought 55,000 metric tons, arriving in Mombasa on March 1.

What happened is an illustration of what obtains when you allow a State-owned firm run by political appointees to participate in such a high-risk business .

With Nock yet to build a full-fledged trading department of its own, a perfect opportunity had been opened for sharks with friends in high places to exploit the situation.

That is how we have ended with this sensational tales of phantom ships, brief-case traders, and oil trading deals gone sour.

I like the way the permanent secretary in the Ministry of Energy stepped in with alacrity to float an emergency OTS tender in order to cure the cock-up by Nock. Someone must be made to account for these phantom ships and brief-case middlemen.

When Nock sent invoices to oil companies asking them to purchase their share of the 55,000 tons consignment on March 2, it sparked a bigger controversy.

Oil companies cannot agree with Nock on what they call ‘‘the applicable month of pricing’’. They say the price at which Nock has invoiced them is way above the price at which the oil company was awarded the OTS tender in February.

They have threatened to boycott the consignment, saying the new prices amount to an additional Sh3 per litre at the pump.

In the past, when the market was liberalised, they could have simply passed on the extra cost to the consumer. They don’t have that choice right now as pump prices are regulated.

If the boycott is effected, there will be no space to accommodate other imports. The stage has been set for disagreements over the distribution of ullage space at both the Kipevu Oil Terminal and the oil pipeline. The controversy will spill over to the next OTS industry tender in April.

This thing could precipitate a major crisis in the whole supply chain whose ramifications will be felt across neighbouring countries of Uganda, Rwanda, Burundi and parts of DRC.

We need to look afresh at Nock’s role in the oil industry. Oil trading is a high-risk business. Among the majors, trading is handled by full-fledged departments staffed with experienced people.

I am not against the idea of Nock playing the role in the market. Let’s not give it more than it can chew. The financial exposure involved is just too high.

As it is, the parastatal has borrowed billions of shillings from a syndicate of commercial banks for working capital to finance crude oil imports.

Technically, these loans are not guaranteed by the Treasury. But they remain contingent liabilities on the government’s books. It’s the taxpayer who is exposed.

I can’t claim any authority on the working of OTS rules. What I know is that any system that allows a player to alter the prices of a competitive bid is flirting with disaster.

This controversy could unravel the whole OTS arrangement. Everybody must be made to play by both the letter and spirit of the rules.