The Weekly Wrap: October 1, 2010

Transition time at BP Bob Dudley takes over from Tony Hayward as CEO of BP today, and even before taking the reins the new chief has promised some sweeping changes at the British oil giant. Dudley will divide the company’s powerful upstream division into three divisions, likely forcing out the division’s head in the process. BP will also establish a new company unit to monitor and audit its safety practices, and it plans to review its procedures in dealing with third-party contractors. The moves are all part of a concerted effort by Dudley to rebuild BP’s tarnished brand after the disastrous Macondo well oil spill earlier this year. That effort is also accompanied by the announcements of a $3.5 billion bond sale to improve BP’s overall financial position and signs that the oil firm will return to paying dividends next year.

Interior Department lays down new drilling rules Interior Secretary Ken Salazar outlined new rules for U.S. offshore drilling in a speech on Thursday, including a tightening of regulations on well casing and cementing, blowout preventers, and safety and environmental standards. After repeated attempts to reform existing drilling standards ran aground in Congress, the Obama administration is using emergency rule-making powers to take a tougher stance on offshore drilling in the wake of the oil spill in the Gulf of Mexico. It’s still uncertain when the deepwater drilling moratorium, in place since April, will be lifted by the Interior Department, though there’s speculation that it will come in advance of its November 30 expiration date.

Shell steps up Iranian oil purchases The Guardian reported on Monday that Royal Dutch Shell increased its oil purchases from Iran over the summer despite the onset of tightened U.S. and E.U. trade sanctions. According to the report, which was based on confidential trading documents, Shell bought at least $1.5 billion worth of crude from Tehran between May and August, an increase of 27 percent over its previous purchases. Total and Italian oil company API were also linked in the report, having raised their oil imports from Iran by 12 percent and 70 percent, respectively, over the three month period. A major incentive for the three companies was the substantial discount they were able to enjoy on Iranian crude purchases. With fewer Western companies buying oil from Iran due to political pressures from their domestic governments, Tehran has a surfeit of oil waiting for export and has slashed prices to attract buyers. Although the purchases by Shell, Total, and API are not illegal, since the sanctions do not actually ban the purchase of Iranian oil, they are likely to place these companies under renewed political pressure to scale back their business ties with the Islamic Republic. Days after the Guardian report, the U.S. State Department announced that Shell and Total would be suspending their investment activities in Iran, though these investments appear to extend only to gas projects and petroleum products sales rather than oil purchases.

From offshore oil to offshore wind on the East Coast A study published by the ocean advocacy group Oceana this week claims that a dramatic increase in offshore wind power could replace fossil fuels as the main energy source in six East Coast states from South Carolina to Massachusetts. Wind turbines placed in waters 30 meters deep or less and between 3 and 24 miles offshore, excluding areas for shipping and military use, could generate up to 127 gigawatts of power, a sum equal to 12 percent current electricity generation in the U.S. However, these findings may be too ambitious, according to Matthew Wald at the New York Times Green blog, who notes that the study overlooked such crucial factors as how wind-generated electricity could extensively replace oil and gas, especially in home heating, as well as the uncertainty of wind-generated electricity prices. Offshore wind projects also face several political hurdles before they can be approved; the Cape Wind project in Massachusetts is so far the only one that has made it off the drawing board. But despite its shortcomings, the study was good news for wind advocates in Washington, and Democratic senators from New Jersey and Delaware have already embraced the idea.

Oil closes September on a high note; cheap gas holds off coal Oil prices climbed to their highest levels in seven weeks on Thursday, rising to a high of $80.19 before closing at $79.97 a barrel yesterday in New York. The 11 percent rise in oil prices for September was the biggest monthly gain since May 2009. The boost in prices, of over $4 since Tuesday alone, can be attributed to an unexpected decline in U.S. petroleum inventories, strong manufacturing data from China, and a U.S. government report showing that economic growth for the second quarter of the year beat economists’ expectations. The dollar also plunged to an eight-month low against a basket of world currencies, making oil – which is priced in dollars – an attractive investment for speculators. Not to be overlooked was the news that OPEC production for September fell to an eight-month low. Natural gas prices remained low at $3.87 per million British thermal units, aided by continued reports of surging stockpiles and expectations of a mild winter. The recent prices for gas have been so cheap that gas is starting to outstrip coal demand along the East Coast.