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Purge of Saudi princes, businessmen widens, travel curbs imposed

Saudi King Salman bin Abdulaziz Al Saud poses for a photo with National Guard Minister Khaled bin Ayyaf and Economy Minister Mohammed al-Tuwaijri during a swearing-in ceremony in Riyadh, Saudi Arabia, November 6, 2017. Saudi Press

By Stephen Kalin and Reem Shamseddine

RIYADH (Reuters) – A campaign of mass arrests of Saudi Arabian royals, ministers and businessmen widened on Monday after a top entrepreneur was reportedly held in the biggest anti-corruption purge of the kingdom’s affluent elite in its modern history.

The arrests, which an official said were just “phase one” of the crackdown, are the latest in a series of dramatic steps by Crown Prince Mohammed bin Salman to assert Saudi influence internationally and amass more power for himself at home.

The campaign also lengthens an already daunting list of challenges undertaken by the 32-year-old since his father, King Salman, ascended the throne in 2015, including going to war in Yemen, cranking up Riyadh’s confrontation with arch-foe Iran and reforming the economy to lessen its reliance on oil.

Both allies and adversaries are quietly astonished that a kingdom once obsessed with stability has acquired such a taste for assertive – some would say impulsive – policy-making.

“The kingdom is at a crossroads: Its economy has flatlined with low oil prices; the war in Yemen is a quagmire; the blockade of Qatar is a failure; Iranian influence is rampant in Lebanon, Syria and Iraq; and the succession is a question mark,” wrote ex-CIA official Bruce Riedel.

“It is the most volatile period in Saudi history in over a half-century.”

The crackdown has drawn no public opposition within the kingdom either on the street or social media. Many ordinary Saudis applauded the arrests, the latest in a string of domestic and international moves asserting the prince’s authority.

But abroad, critics perceive the purge as further evidence of intolerance from a power-hungry leader keen to stop influential opponents blocking his economic reforms or reversing the expansion of his political clout.

Prominent Saudi columnist Jamal Kashoggi applauded the campaign, but warned: “He is imposing very selective justice.”

“The crackdown on even the most constructive criticism – the demand for complete loyalty with a significant ‘or else’ – remains a serious challenge to the crown prince’s desire to be seen as a modern, enlightened leader,” he wrote in the Washington Post.

“The buck stops at the leader’s door. He is not above the standard he is now setting for the rest of his family, and for the country.”

 

ACCOUNTS FROZEN

The Saudi stock index initially fell 1.5 percent in early trade but closed effectively flat, which asset managers attributed to buying by government-linked funds.

Al Tayyar Travel <1810.SE> plunged 10 percent in the opening minutes after the company quoted media reports as saying board member Nasser bin Aqeel al-Tayyar had been detained in the anti-corruption drive.

Saudi Aseer Trading, Tourism and Manufacturing <4080.SE> and Red Sea International <4230.SE> separately reported normal operations after the reported detentions of board members Abdullah Saleh Kamel, Khalid al-Mulheim and Amr al-Dabbagh.

Saudi banks have begun freezing suspects’ accounts, sources told Reuters.

Dozens of people have been detained in the crackdown, which have alarmed much of the traditional business establishment. Billionaire Prince Alwaleed bin Talal, Saudi Arabia’s best-known international investor, is also being held.

The attorney general said on Monday detainees had been questioned and “a great deal of evidence” had been gathered.

“Yesterday does not represent the start, but the completion of Phase One of our anti-corruption push,” Saud al-Mojeb said. Probes were done discreetly “to preserve the integrity of the legal proceedings and ensure there was no flight from justice.”

Investigators had been collecting evidence for three years and would “continue to identify culprits, issue arrest warrants and travel restrictions and bring offenders to justice”, anti-graft committee member Khalid bin Abdulmohsen Al-Mehaisen said.

 

“THE NOOSE TIGHTENS”

The front page of leading Saudi newspaper Okaz challenged businessmen to reveal the sources of their assets, asking: “Where did you get this?”

Another headline from Saudi-owned al-Hayat warned: “After the launch (of the anti-corruption drive), the noose tightens, whomever you are!”

A no-fly list has been drawn up and security forces in some Saudi airports were barring owners of private jets from taking off without a permit, pan-Arab daily Al-Asharq Al-Awsat said.

Among those detained are 11 princes, four ministers and tens of former ministers, according to Saudi officials.

The allegations against the men include money laundering, bribery, extortion and taking advantage of public office for personal gain, a Saudi official told Reuters. Those accusations could not be independently verified and family members of those detained could not be reached.

A royal decree on Saturday said the crackdown was launched in response to “exploitation by some of the weak souls who have put their own interests above the public interest, in order to, illicitly, accrue money”.

The new anti-corruption committee has the power to seize assets at home and abroad before the results of its investigations are known. Investors worry the crackdown could ultimately result in forced sales of equities, but the extent of the authorities’ intentions was not immediately clear.

 

“OVERKILL”

Among those detained is Prince Miteb bin Abdullah, who was replaced as minister of the National Guard, a pivotal power base rooted in the kingdom’s tribes. That recalled a palace coup in June which ousted his elder cousin, Mohammed bin Nayef, as heir to the throne.

The moves consolidate Prince Mohammed’s control of the internal security and military institutions, which had long been headed by separate powerful branches of the ruling family.

Consultancy Eurasia Group said the “clearly politicized” anti-corruption campaign was a step toward separating the Al Saud family from the state: “Royal family members have lost their immunity, a long standing golden guarantee”.

Yet many analysts were puzzled by the targeting of technocrats like ousted Economy Minister Adel Faqieh and prominent businessmen on whom the kingdom is counting to boost the private sector and wean the economy off oil.

“It seems to run so counter to the long-term goal of foreign investment and more domestic investment and a strengthened private sector,” said Greg Gause, a Gulf expert at Texas A&M University.

“If your goal really is anti-corruption, then you bring some cases. You don’t just arrest a bunch of really high-ranking people and emphasize that the rule of law is not really what guides your actions.”

Over the past year, MbS has become the top decision-maker on military, foreign and economic policy, championing subsidy cuts, state asset sales and a government efficiency drive.

The reforms have been well-received by much of Saudi Arabia’s overwhelmingly young population, but resented among some of the more conservative old guard.

The crown prince has also led Saudi Arabia into a two-year-old war in Yemen, where the government says it is fighting Iran-aligned militants, and into a dispute with Qatar, which it accuses of backing terrorists, a charge Doha denies. Detractors of the crown prince say both moves are dangerous adventurism.

The Saudi-led military coalition said on Monday it would temporarily close all air, land and sea ports to Yemen to stem the flow of arms from Iran to Houthi rebels after a missile fired toward Riyadh was intercepted over the weekend.

Saudi Prince Alwaleed’s investments: http://tmsnrt.rs/2j5fE04

 

(Reporting By Stephen Kalin, Editing by William Maclean)

 

Canada’s oil sands survive, but can’t thrive in a $50 oil world

FILE PHOTO - Giant dump trucks dump raw tar sands for processing at the Suncor tar sands mining operations near Fort McMurray, Alberta, Canada on September 17, 2014. REUTERS/Todd Korol/File Photo

By Nia Williams

CALGARY, Alberta (Reuters) – Canada’s oil sands producers are stuck in a rut.

The nation’s oil firms are retrenching, with large producers planning little or no further expansion and some smaller projects struggling even to cover their operating costs.

As the era of large new projects comes to a close, many mid-sized producers – those with fewer assets and producing less than 100,000 barrels of oil a day in the oil sands – have shelved expansion plans, unable to earn back the high start-up costs with crude at around $50 per barrel. Larger Canadian producers, meanwhile, focus on projects that in the past were associated with smaller names.

The last three years have seen dozens of new projects mothballed and expansions put on hold, meaning millions of barrels of crude from the world’s third-largest reserves may never be extracted.

Where industry groups in 2014 expected Canada’s oil sands output to more than double to nearly 5 million barrels per day (bpd) by 2030, that forecast has been knocked down to 3.7 million bpd.

This follows a spell of consolidation that has seen foreign majors sell off more than $23 billion in Canadian assets in a year and turn to U.S. shale patches such as the Permian basin in Texas, which produce returns more quickly and where proximity to refiners means the barrels fetch a better price.

“We cannot compete with that huge sucking noise to the south that is called the Permian. Investment dollars are spiraling away down there,” Derek Evans, chief executive of small oil sands producer Pengrowth Energy <PGF.TO> told Reuters in an interview.

Permian production rose 21 percent in 12 months through July compared to a 9 percent increase in Alberta’s oil sands, according to Canadian and U.S. government data.

COSTLY STARTUP PHASE

Mid-sized producers are hurting the most, due to start-up costs that far exceed those in other major producing areas. Oil sands producers have slashed operating costs by a third since 2014, but building a new thermal project – in which steam is pumped as deep as one kilometer (1094 yards)underground to liquefy tar-like bitumen and bring it to the surface – requires U.S. crude benchmark at around $60 a barrel to break even, analysts estimate.

The North American benchmark West Texas Intermediate crude <CLc1> has traded between $42 and $55 a barrel so far this year. The U.S. Energy Information Administration forecasts it will average $49.69 a barrel in 2017 and $50.57 a barrel next year.

There are around half a dozen thermal projects in the costly start-up phase, when engineers steadily increase steam pressure to bring a reservoir’s production up to full capacity.

One of those is Athabasca Oil Corp’s <ATH.TO> Hangingstone project. It was originally conceived as a 80,000 bpd project, but instead will bring output to only 12,000 bpd from the current 9,000 bpd. The project can break even with U.S. crude prices of at least $53 a barrel, meaning right now Athabasca keeps losing money on Hangingstone production. Size is crucial in the oil sands; the more bitumen a company can squeeze out of a plant, the lower fixed costs per barrel will be.

“(Athabasca) was a company built when oil was $100 a barrel. In those days we were going to find funding for joint ventures and build greenfield projects to a massive size. The reality is the world changed,” chief executive Rob Broen told Reuters.

Quarterly filings show why smaller players are struggling. Transportation and marketing costs at Hangingstone, along with the cost of natural gas used to produce steam to extract oil, and other operating costs are much higher compared with Cenovus Energy’s <CVE.TO> Christina Lake project, one of the highest-quality and biggest bitumen reservoirs in the oil sands.

Pengrowth’s development plans are on hold as well, Evans said, because the company needs U.S. crude to stay at $55 for a sustained period to justify investment in its 14,000 bpd Lindbergh thermal project, at one point intended to grow as large as 40,000 bpd.

THE BIG GO SMALL

Large producers have pulled back in response to lower global prices as well. For example, Suncor Energy’s <SU.TO> 194,000 bpd Fort Hills mine, due to start producing oil by the end of this year, is the company’s last megaproject.

Canadian Natural <CNQ.TO> restarted construction on its 40,000 bpd Kirby North project last November, one of a handful of smaller projects to start producing in 2019.

Other companies like MEG Energy <MEG.TO> are planning expansions at existing sites in 20,000 bpd “modules” rather than starting large new projects from scratch. But even such more modest investments are out of reach for smaller companies like Athabasca and Pengrowth.

“It’s very hard (for a small company) to drag itself out of the financing black hole it would have to get in to build a project to start with,” said Nick Lupick, an analyst at AltaCorp Capital. “A large company can take that on their balance sheet without having to leverage too highly.”

(Reporting by Nia Williams; Editing by David Gaffen and Tomasz Janowski)

U.S. yield curve flattens, world stocks dip; focus on possible December hike

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 8, 2017.

By Caroline Valetkevitch

NEW YORK (Reuters) – The U.S. Treasury yield curve flattened to a two-and-a half month low and key world stock markets fell on Thursday, as investors assessed indications from the U.S. Federal Reserve that it may raise interest rates a third time this year.

The Fed, as expected, also laid out plans to begin the unwinding of a decade of aggressive monetary stimulus, but took a more hawkish than expected stance at this week’s meeting.

“The meeting was definitely more hawkish than what the market was anticipating,” said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.

“We were definitely not pricing in another rate hike for this year,” Hurley said.

MSCI’s broad index of global stock markets was down 0.3 percent at 486.72.

The U.S. dollar earlier rose to a two-month high against the yen, while an index that measures the dollar’s strength against a basket of currencies dipped.

A Reuters poll late Wednesday of primary dealers, the banks authorized to transact directly with the Fed, showed that the Fed will resume rate hikes in December and raise borrowing costs three more times in 2018.

In Asia, the Bank of Japan kept its monetary spigots open at full.

The Treasury yield curve between five-year notes and 30-year bonds flattened to 92 basis points on Thursday, the lowest level since July 6. Intermediate-dated debt is more sensitive than longer-dated bonds to interest rate increases.

U.S. stocks pulled back from their all-time highs, though bank stocks cheered the prospect of higher interest rates which should help their profits. The S&P bank index was up 0.4 percent, adding to Wednesday’s gains.

The Dow Jones Industrial Average fell 17.83 points, or 0.08 percent, to 22,394.76, the S&;P 500 lost 3.67 points, or 0.15 percent, to 2,504.57 and the Nasdaq Composite dropped 23.08 points, or 0.36 percent, to 6,432.96.

Emerging markets shares were lower, with an index of emerging markets down 0.3 percent.

S&P Global became the second major rating agency this year to cut China’s credit score, citing worries about the country’s rising debt levels and the risks that posed for financial stability in the world’s second largest economy.FED,

China’s markets were already closed by the time it came but it kept the pressure on emerging markets stocks.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.69 percent lower.

Since the start of 2014, Reuters analysis shows that the big three rating agencies – S&P Global, Moody’s and Fitch – have racked up more than 155 emerging market downgrades between them, which averages out a roughly one a week.

The Japanese yen weakened 0.11 percent versus the greenback at 112.34 per dollar. The dollar index fell 0.29 percent.

Gold fell to its lowest in almost four weeks as investors continued to assess the Fed statement. Spot gold dropped 0.7 percent to $1,291.91 an ounce.

Oil prices were down slightly before a meeting of oil producers that could extend production limits.

U.S. crude fell 0.22 percent to $50.58 per barrel and Brent was last at $55.91, down 0.04 percent on the day.

 

(Additional reporting by Karen Brettell in New York, Marc Jones in London and Hideyuki Sano in Tokyo; Editing by Bernadette Baum)

 

U.N. Security Council to vote Monday on weakened North Korea sanctions

North Korean leader Kim Jong Un claps during a celebration for nuclear scientists and engineers who contributed to a hydrogen bomb test, in this undated photo released by North Korea's Korean Central News Agency (KCNA) in Pyongyang on September 10, 2017.

By Michelle Nichols and Jack Kim

UNITED NATIONS/SEOUL (Reuters) – The U.N. Security Council is set to vote on Monday on a watered-down U.S.-drafted resolution to impose new sanctions on North Korea over its latest nuclear test, diplomats said, but it was unclear whether China and Russia would support it.

North Korea warned the United States that it would pay a “due price” for spearheading efforts for fresh sanctions for this month’s nuclear test, which followed a series of test missile launches, all in defiance of U.N. sanctions.

A U.S.-drafted resolution originally calling for an oil embargo on the North, a halt to its key exports of textiles and subjecting leader Kim Jong Un to a financial and travel ban have been weakened, apparently to placate Russia and China which both have veto powers, diplomats said.

It no longer proposes blacklisting Kim and relaxes sanctions earlier proposed on oil and gas, a draft reviewed by Reuters shows. It still proposes a ban on textile exports.

North Korea was condemned globally for conducting its sixth nuclear test on Sept 3, which it said was of an advanced hydrogen bomb. NATO head Jens Stoltenberg said at the weekend that North Korea’s “reckless behavior”, pursuing nuclear and missile programs, was a global threat and required a global response.

The tensions have weighed on global markets, but on Monday there was some relief among investors that North Korea did not conduct a further missile test this weekend when it celebrated its founding anniversary.

Still, North Korea denounced efforts by Washington to impose new U.N.-backed sanctions against the country. The North’s Foreign Ministry spokesman said the United States was “going frantic” to manipulate the Security Council over Pyongyang’s nuclear test, which it said was part of “legitimate self-defensive measures.”

“In case the U.S. eventually does rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure that the U.S. pays due price,” the spokesman said in a statement carried by the official KCNA news agency.

DPRK stands for the North’s formal name, the Democratic People’s Republic of Korea.

“The world will witness how the DPRK tames the U.S. gangsters by taking a series of actions tougher than they have ever envisaged,” the unnamed spokesman said.

“The DPRK has developed and perfected the super-powerful thermo-nuclear weapon as a means to deter the ever-increasing hostile moves and nuclear threat of the U.S. and defuse the danger of nuclear war looming over the Korean peninsula and the region.”

South Korean President Moon Jae-in said last week during a visit to Russia that shutting off North Korea’s supply of oil was inevitable this time to bring Pyongyang to talks and he called for Russian President Vladimir Putin’s support.

Putin has remained firm however that such sanctions on oil would have negative humanitarian effects on North Koreans.

China, the North’s lone major ally, may be most critical though in deciding if oil sanctions go ahead because it controls an oil pipeline that industry sources say provides about 520,000 tonnes of crude a year to the North.

A Security Council resolution needs nine votes in favor and no vetoes by permanent members the United States, Britain, France, Russia or China to pass.

Chinese Foreign Ministry spokesman Geng Shuang stressed the need for consensus and maintaining peace.

“I have said before that China agrees that the U.N. Security Council should make a further response and necessary actions with respect to North Korea’s sixth nuclear test,” he told reporters.

“We hope Security Council members on the basis of sufficient consultations reach consensus and project a united voice. The response and actions the Security Council makes should be conducive to the denuclearization of the peninsula, conducive to safeguarding the peace and stability of the peninsula, and conducive to push forward the use of peaceful and political means to resolve the peninsula nuclear issue.”

 

FALLOUT

The latest draft of the resolution reflects the challenge in imposing tough sanctions on the North by curbing its energy supply and singling out its leader for a financial and travel ban, a symbolic measure at best but one that is certain to rile Pyongyang.

It will also be a disappointment to South Korea, which has sought tough new sanctions that would be harder for Pyongyang to ignore, as it said dialogue remained on the table.

“We have been in consultations that oil has to be part of the final sanctions,” South Korean Foreign Minister Kang Kyung-wha told a news conference, saying Pyongyang was on a “reckless path”.

“I do believe that whatever makes it into the final text and is adopted by consensus hopefully will have significant consequences on the economic pressure against North Korea.”

There was no independent verification of the North’s claim to have conducted a hydrogen bomb test, but some experts said there was enough strong evidence to suggest Pyongyang had either developed a hydrogen bomb or was getting close.

KCNA said on Sunday that Kim threw a banquet to celebrate the scientists and top military and party officials who contributed to the nuclear bomb test, topped with an art performance and a photo session with the leader himself.

The standoff is also spilling over into the business relationship between South Korea and China.

South Korea’s Lotte Shopping  is considering selling its supermarkets in China and other options should political tensions between Seoul and Beijing continue next year, an official at the retailer told Reuters.

China has pressured South Korean businesses via boycotts and bans since Seoul decided last year to deploy a U.S.-made missile defense system as a deterrent to North Korea. Beijing says the system’s radar can penetrate far into its territory.

South Korea deployed four additional units of the Terminal High Altitude Area Defense (THAAD) system on Thursday after the North’s latest nuclear test.

The heightened tension could have a substantial impact on South Korea’s economy and could also disrupt trade between the United States and China, ratings agency Fitch said on Monday.

Outright military conflict on the Korean peninsula is unlikely but prolonged tension could undermine business and consumer sentiment, Fitch said.

 

(Additional reporting by Christine Kim and Hyunjoo Jin in SEOUL and Philip Wen in BEIJING; Editing by Neil Fullick and Nick Macfie)

 

Meth, coke and oil: A drug boom in the Texas shale patch

FILE PHOTO: Aerial view of oil wells near Midland, Texas, U.S. on May 2, 2017. REUTERS/Ernest Scheyder/File Photo

By Liz Hampton

MIDLAND, Texas (Reuters) – When Joe Forsythe returned to the West Texas oilfields last year after a stint in a drug rehab facility, he figured he had beaten his addiction to methamphetamine.

The 32-year-old rig worker and equipment handler lasted about a year before relapsing.

“It’s easy to get back into that mentality,” said Forsythe, of Midland, Texas, who said he no longer uses drugs after several stints in rehab since 2015. “I’d work 24 hours … I was just plagued with fatigue and needed something to improve my work ethic.”

Forsythe’s experience and others like it reflect a painful flipside of the nation’s shale oil boom – a parallel increase in substance abuse, drug crime and related social ills.

While drug use is a problem among industrial workers nationwide, it raises particular concern in the oil patch as U.S. production surges to record levels in what is already one of the nation’s most dangerous sectors – with a fatality rate about three times the average for other industries, according to 2015 federal statistics.

Drug use is a significant factor in workplace injuries and crimes involving oilfield workers, according to drug counselors, hospital and police officials and court records in West Texas, the epicenter of the U.S. shale sector.

As the shale revolution has spawned waves of hiring here since 2010, law enforcement authorities have tracked a boom in drug trafficking and related crime. In Midland and Ector counties, home to many Permian Basin oil workers, state and local police in 2016 seized more than 95 pounds of methamphetamine – up from less than four pounds in 2010.

Meth and cocaine are stimulants of choice in the oil patch to get though long oilfield shifts, but alcohol and pain killers such as opioids are also widely abused – often to soften the crash after taking stimulants, drug addicts and counselors said.

Drug charges in the industry town of Midland more than doubled between 2012 and 2016, to 942 from 491, according to police data. In neighboring Odessa, total drug arrests doubled between 2010 and 2016, to 1291 from 756, according to Odessa Police Department data.

The increase in drug crime stretched through two boom periods in the West Texas oil patch, before and after a crude price crash that hit in 2014.

Oil companies typically drug test job applicants and often conduct additional random tests on employees. For truck drivers and those involved with hazardous materials, tests are also conducted under federal programs run by the U.S. Department of Transportation.

Several oil firms with major operations in the Permian Basin declined to discuss how they handle drugs in the oil patch or did not respond to inquiries.

Schlumberger NV <SLB.N>, Halliburton Co <HAL.N> and Exxon Mobil Corp <XOM.N> declined to comment. Exxon referred Reuters to its alcohol and drug policy.

Pioneer Natural Resources Co. <PXD.N> and ConocoPhillips <COP.N> did not respond to requests for comment.

The American Petroleum Institute, an industry trade group, declined to comment.

LONG HOURS – ON METH

Despite corporate and regulatory efforts to curb drug abuse, many oilfield workers regularly use stimulants on long shifts of grueling work for relatively high pay, said drug counselors, local law enforcement officials and oil field workers recovering from addictions.

More than a third of clients at Midland’s Springboard drug rehabilitation center are currently involved in the oil and gas industry, said Executive Director Steve Thomason.

Rising oil prices have brought more admissions for methamphetamine abuse, Thomason said.

“People say they can work on it for 24 hours straight,” he said.

Long shifts are common in the oil industry because expensive drilling equipment, often leased at high daily rates, runs through the night, and workers often have to commute to wells in remote locations. Most oil producers subcontract oilfield services to smaller companies that are not unionized.

Springboard’s admissions of methamphetamine users went up 20 percent in the first six months of this year compared with the last half of 2016, he said. The number of rigs operating in the Permian Basin increased more than 38 percent during the same period, according to data from energy services firm Baker Hughes <BHGE.N>.

Corporal Steve LeSueur, a spokesman for the Odessa police, said the influx of drugs in the oil patch is stretching police resources.

“The jail has been full,” he said. “A lot of crimes that are committed are drug-related – simple property crimes, forgeries to feed their drug habits.”

METH AND MURDER

Some offenses are more severe.

In 2016, Shawn Pinson, an employee of a well construction company, was convicted of murdering an acquaintance following a drug-related dispute.

The murder occurred around the same time he was arrested for possession of methamphetamine, police records show. The victim tested positive for meth at the time of the murder, according to an autopsy.

At his trial, witnesses close to Pinson testified he had become addicted to methamphetamine while working in the oilfield, according to a prosecutor and a defense attorney involved in the case.

Pinson did not respond to a letter seeking comment and his current attorney, Michele Greene, did not respond to a request for comment.

When oil jobs are plentiful, companies desperate for labor sometimes will disregard signs of substance abuse, said three recovering drug addicts who worked in the oilfield.

“These oilfield bosses – they party, too,” Forsythe said. “As long as you’re getting the job done and not making a scene, they won’t drug test you.”

One recovering addict, who declined to use his name because he still works in the industry, said he was often high during long-haul trips driving trucks transporting oil.

“I could do a little coke and speed and it would give me the extra stretch,” he said. “It ended up running me to the ground.”

For a graphic on illegal drugs shadow oil boom, click: http://fingfx.thomsonreuters.com/gfx/rngs/USA-OIL-DRUGS/0100507G0H5/index.html

(Reporting by Liz Hampton in Midland, Texas; Editing by Gary McWilliams and Brian Thevenot)

Retail U.S. gasoline prices surge as refineries warn of shortages after Harvey

A note is left on a gas pump in the aftermath of Hurricane Harvey in Cedar Park, Texas, U.S., September 1, 2017. REUTERS/Mohammad Khursheed

By Julia Simon

NEW YORK (Reuters) – Retail U.S. gasoline prices rose 2.8 percent from Friday to Saturday as refineries warned customers about fuel-supply shortages caused by Hurricane Harvey.

They were at $2.59 a gallon, according to motorists advocacy group AAA. It represents a 16.7 percent rise in the average price from a year ago.

Prices have risen more than 17.5 cents since Aug. 23, before the storm began.

Average prices in Texas, the epicenter of the storm, rose more than 3 percent from Friday to Saturday, and are up 12 percent from a week ago.

Refiner Motiva has warned customers along the route of the largest U.S. fuel pipeline to prepare for shortages after Harvey shut refineries and cut supply to the line, said a source at a fuel distributor supplied by Motiva.

Harvey shut refineries that can process up to 4.4 million barrels per day (bpd) of crude. The plants shut down include Motiva’s 603,000 bpd facility in Port Arthur, Texas, the largest refinery in the country.

Nearly half of the U.S. refining capacity is in the Gulf Coast, a region with proximity to plentiful crude supplies including Texan oil fields and also Mexican and Venezuelan oil imports.

“The refineries were built on the Gulf Coast with the idea that we’re going to import,” said Sandy Fielden, director of oil and products research at Morningstar in Austin, Texas, “That’s why we’re having problems today because that’s where they were all built.”

The reduction in fuel supplies has forced the Colonial Pipeline, which supplies fuel from refineries near the Gulf of Mexico to the U.S. Northeast, to reduce supplies.

Convenience store and gas station chain Circle K, a big buyer from Motiva, said the company was working with a limited supply.

Some crude oil pipelines have restarted operations. Magellan Midstream Partners <MMP.N> announced late Friday that it resumed operations on its BridgeTex and Longhorn crude oil pipelines. The two pipelines transport around 675,000 barrels per day (bpd) of West Texas crude oil into East Houston.

The company says it expects to resume service on its Houston crude oil distribution system over the weekend.

U.S. crude production continues to stall following the storm. As of Friday, volume of crude production still shut-in had declined to about 153,000 bpd, down from 324,000 bpd just two days ago.

(Reporting by Julia Simon Editing by Jeremy Gaunt)

Texas crews search for survivors in wake of Harvey’s floods

A Marine Corp vehicle patrols a flooded street as a result of Tropical Storm Harvey in Port Arthur, Texas, U.S., August 31, 2017.

By Emily Flitter and Andy Sullivan

PORT ARTHUR, Texas/HOUSTON (Reuters) – A week after Hurricane Harvey came ashore in Texas, rescuers kept up a marathon search for survivors on Friday as large pockets of land remained under water after one of the costliest natural disasters to hit the United States.

The storm has displaced more than 1 million people with 44 feared dead from flooding that paralyzed Houston, swelled river levels to record highs and knocked out the drinking water supply in Beaumont, Texas, a city of about 120,000 people.

Chemicals maker Arkema SA and public health officials warned of the risk of more explosions and fires at a plant owned by the company. On Thursday blasts rocked the facility, about 25 miles east of Houston and zoned off inside a 1.5-mile (2.4-km) exclusion zone, after it was engulfed by floodwater.

With the presence of water-borne contaminants a growing concern, the National Weather Service issued flood watches from Arkansas into Ohio on Friday as the remnants of the storm made their way through the U.S. heartland.

The Neches River, which flows into Beaumont and nearby Port Arthur, was forecast for a record crest from Friday well above flood levels. The flooding and loss of drinking water forced the evacuation of a hospital on Thursday.

Two of the last people remaining in their flooded home near the river, Kent Kirk, 58, and Hersey Kirk, 59, were pulled to safety late Thursday.

“They were the last holdouts, the last house,” said Dennis Landy, a neighbor who had spent the day in his airboat ferrying people from a small, remote group of houses near Rose City, Texas, close to the Neches’ banks, to safety.

It took an hour of coaxing by a rescuer but Hersey Kirk finally let herself be carried from her wheelchair to the airboat and then to a Utah Air National Guard helicopter.

“I’m losing everything again,” she said. “We got flooded in Ike, in Rita. My husband just got a new car – well it was new to him anyway. It’s sitting in 5 feet of water.”

Harvey roared ashore late last Friday as the most powerful hurricane to hit Texas in half a century. It dumped unprecedented quantities of rain and left devastation across more than 300 miles (482 km) in the southeast corner of the state.

 

COST OF UP TO $75 BILLION

Moody’s Analytics estimated the economic cost from Harvey for southeastern Texas at $51 billion to $75 billion, ranking it among the costliest storms in U.S. history. Much of the damage has been to Houston, the U.S. energy hub.

At least 44 people were dead or feared dead in six counties including and around Houston, officials said. Another 19 remained missing.

Some 779,000 Texans have been told to leave their homes and another 980,000 fled voluntarily amid dangers of new flooding from swollen rivers and reservoirs, according to federal estimates.

Tens of thousands crowded in evacuation centers across the region.

Evacuees affected by Tropical Storm Harvey take shelter at the George R. Brown Convention Center in downtown Houston, Texas, U.S. August 31, 2017

Evacuees affected by Tropical Storm Harvey take shelter at the George R. Brown Convention Center in downtown Houston, Texas, U.S. August 31, 2017. REUTERS/Carlos Barria

A new hurricane, Irma, had strengthened into a Category 3 storm, the midpoint of the five-step Saffir-Simpson scale, on Friday. It remained hundreds of miles from land but was forecast to possibly hit the U.S. territory of Puerto Rico, the Dominican Republic and neighboring Haiti by the middle of next week.

Seventy percent of Harris County, which encompasses Houston and has a population of about 4.6 million people, was covered with 18 inches (45 cm) or more of water, county officials said.

As signs of normal life returned to Houston, the nation’s fourth most populous city, there were concerns about health risks from bacteria and pollutants in floodwater.

The Houston Astros baseball team, forced to play away from the city due to the floods, will return and play at its home field on Saturday. It has invited shelter residents to attend its double header against the New York Mets, Houston Mayor Sylvester Turner said on his Twitter feed.

Flooding has shut some of the nation’s largest oil refineries and hit U.S. energy infrastructure, which is centered along the Gulf Coast. It has sent gasoline prices climbing and disrupted global fuel supplies. [O/R]

The national average for a regular gallon of gasoline rose to $2.519 as of Friday morning, the highest since August 2015, up 17 cents since before the storm hit, according to motorists advocacy group AAA.

The storm knocked out about a quarter of U.S. oil refining capacity and the signs of restarts were tentative.

In major Texas cities including Dallas, there were long lines at gas stations, prompting state regulators to tell people they were sparking a panic and saying there were ample fuel supplies.

Power outages had decreased from peaks of over 300,000 to about 160,000 homes and business in Texas and Louisiana as of Friday morning, data from utilities showed.

 

(Additional reporting by Richard Valdmanis, Marianna Parraga, Ernest Scheyder, Ruthy Munoz, Peter Henderson and Andy Sullivan in Houston, David Gaffen in New York, Jon Herskovitz in Austin, Texas, and Brendan O’Brien in Milwaukee; Writing by Scott Malone Jon Herskovitz; Editing by Chizu Nomiyama and Bill Trott)

 

Exxon Mobil fined for Louisiana refinery explosion that injured four

FILE PHOTO: Storage tanks are seen inside the Exxonmobil Baton Rouge Refinery in Baton Rouge, Louisiana, U.S. on November 6, 2015. REUTERS/Lee Celano/File Photo

By Erwin Seba

HOUSTON (Reuters) – Exxon Mobil Corp has been fined about $165,000 by U.S. regulators for safety lapses including inadequate training and equipment maintenance over an explosion that injured four workers at an aging Baton Rouge, Louisiana, refinery last year.

The U.S. Occupational Safety and Health Administration (OSHA) issued nine citations, several of which echo previous cautions by federal agencies at two other Exxon plants. The citations, issued in May, were seen by Reuters this month.

A separate investigation by the U.S. Chemical Safety Board (CSB) is ongoing and its report on the incident is due by year-end.

Exxon said it is contesting the OSHA citations and fines.

The facility was faulted five years ago by the U.S. Environmental Protection Agency (EPA) for failing to address corrosion on pipes and valves and for inadequate shutdown and emergency procedures provided to workers.

The Nov. 22, 2016 explosion on a sulfuric-acid alkylation unit that makes octane-boosting components of gasoline in the sprawling Baton Rouge refinery and chemical plant injured four workers, two of them severely. Two of the affected workers declined to comment; others could not be reached.

A worker on the alkylation unit removed the cover of a malfunctioning valve on an isobutane line and used a wrench to turn the value stem, Exxon reported to the Louisiana Department of Environmental Quality in a letter. Volatile isobutane is converted in the alkylation unit to a component of gasoline.

As the operator turned the valve stem, portions of the valve fell out, releasing isobutane, according to the Exxon letter, which was ignited by a welding machine 70 feet away.

One worker was knocked off a scaffold next to the alkylation unit and left dangling over the fire, according to two sources. Another worker was burned over most of her body.

Exxon’s safety procedures and training for operators on the alkylation unit were lacking, equipment was not properly maintained, and required inspections were not carried out within required time periods, according to a copy of the citations seen by Reuters.

“We cooperated with OSHA’s investigation and shared extensive information and records,” said Exxon spokeswoman Charlotte Huffaker. “We are contesting the citations and associated penalty.”

Huffaker said “nothing is more important” to Exxon than maintaining a safe workplace for workers and residents near its facilities.

Eight of the nine citations were listed as serious, each carrying a fine of $12,675. The ninth, for failing to carry out external visual and ultrasonic inspections of piping, totaled $63,373.

The latter fine was higher because Exxon was cited in 2016 for violating the same inspection standard at a Baytown, Texas, refining and chemical plant complex, OSHA said in the citation.

In a report issued in May after a two-year investigation of a 2015 explosion at an 86-year-old Torrance, California, refinery then owned by Exxon, the CSB said the company lacked a procedure for operating a fluidic catalytic cracking unit in an idled mode, as was being done when the explosion took place.

Exxon sold the Torrance refinery to PBF Energy Inc in July 2016.

In 2012, the EPA inspected the Baton Rouge refinery as part of a risk management prevention program. It found Exxon had not examined in five years more than 1,000 underground pipes, many of which were corroded, according to the agency’s report on the inspection. The EPA also said emergency and shutdown procedures failed to provide needed details for operators.

Huffaker said in an email that Exxon contested the violations, and said the EPA withdrew all but two of its findings. She did not specify the two violations but said Exxon resolved those issues.

 

(Reporting by Erwin Seba; Editing by Gary McWilliams and Tom Brown)

 

Magellan Midstream Partners pipeline ruptures in Texas, forcing evacuations

By Liz Hampton

HOUSTON (Reuters) – A crude oil pipeline operated by Magellan Midstream Partners ruptured near Bastrop, Texas, on Thursday morning, spilling an estimated 1,200 barrels of oil and prompting an evacuation, the company said.

No injuries were reported, Magellan said in a statement.

Magellan’s Longhorn Pipeline, which transports crude oil from Crane, Texas to Houston, ruptured about 4 miles (6 km)southwest of Bastrop. The company shut the pipeline and isolated the affected segment, it said.

People within a two-mile (3-km) radius of the spill were advised to remain indoors, the sheriff’s department and local emergency officials said. Several families near the site of the pipeline break were temporarily evacuated, and part of a nearby road was closed, the company said.

The pipeline was ruptured when a contractor doing maintenance work hit a fitting, Magellan said. The line was in service at the time.

Emergency responders, company representatives, environmental agencies and clean-up crews were at the site, the company said.

The Pipeline and Hazardous Materials Safety Administration (PHMSA) said in an email that it had dispatched an inspector to the site.

The Longhorn Pipeline has the capacity to transport to transport 275,000 barrels of day of oil from West Texas to the Houston area.

Crude oil prices in West Texas slid following news of the event. West Texas Intermediate (WTI) at Midland, Texas, fell to about a $1.45 a barrel discount, off around 15 cents a barrel from Wednesday, traders said.

(Reporting by Liz Hampton; editing by Jonathan Oatis and Richard Chang)

Russian economy seen growing from 2017 onwards: World Bank

A man walks in front of the Novokuibyshevsk refinery near the city of Samara, October 28, 2010. REUTERS/Nikolay Korchekov/File Photo

MOSCOW (Reuters) – Russia’s oil-dependent economy is expected to grow from 2017 onwards, supported by higher global crude prices and oil production rising to new post-Soviet highs, the World Bank said on Tuesday.

The international lender said it expected Russian gross domestic product to grow by 1.3 percent in 2017 and by 1.4 percent in 2018 and 2019, following two years of economic contraction.

Greater oil earnings would “positively influence consumer and investor sentiment, leading to a recovery of domestic demand and modest economic growth in 2017-19,” the World Bank said in a semi-annual report.

It said its latest growth forecasts were based on the assumption that crude prices would average $55 a barrel this year, $60 in 2018 and $61.5 in 2019, and that an OPEC/non-OPEC agreement to restrict output was extended.

It cited International Energy Agency data as forecasting that Russia’s oil output would rise to 11.38 million barrels per day (bpd) this year and 11.54 million bpd next year, due to rising production by small- and medium-size energy companies.

The World Bank said rising consumption and a recovery in investment activity would drive Russia’s economic growth, citing the 2018 soccer World Cup that Russia is set to host as giving a potential boost to public investment.

Inflation is forecast to stabilize near the central bank’s target of 4 percent, but Russia’s longer-term growth prospects are constrained by low productivity, it added.

In November the World Bank forecast the Russian economy would grow 1.5 percent this year.

(Reporting by Andrey Ostroukh; Editing by Alexander Winning)