Monthly Archives: February 2012

Sinai Pipeline Safety Suffers As Egypt’s Nat Gas Sector Falls

A twelfth attack on natural gas pipelines linking Egypt with vital trade partners in Israel and Egypt has case a spotlight on growing instability in the eastern Sinai Peninsula and the ability for the new government to keep things under control.

Attributed to a new group called Ansar al-Jihad by Israeli media outlets, the most recent attack saw deliveries of natural gas to two of Egypt’s most important trade partners, threatening an economy already reeling from a collapse of the tourism sector. Governments in both Jordan and Israel have expressed their intention to seek out alternative fuel resources as the attacks highlight the limitations of the new government to address the impact of armed opposition groups in the region.

After earlier attacks on pipeline projects earlier last year, Cairo sent several thousand troops to the Sinai to combat these groups, but have been hindered by diplomatic restrictions and a lack of support from local residents.  Until recently, the Sinai Peninsula remained largely peaceful, but also mostly ignored by much of the Egyptian establishment in Cairo. Although the region represented the border between Egypt and Israel, Cairo’s military presence in the area was restricted according to the 1979 peace treaty between the two countries. Before sending in troops to help protect the pipelines, leaders in Cairo had to seek permission under the 1979 agreement. Further complicating their mission, the Sinai’s mostly Bedouin population has long expressed their discontent with the country’s leadership, offering a vacuum of influence in the region. While legislative solutions have been proposed to address the lack of support for the Sinai population in terms of economic and development guidance, short term solutions to ensuring regional and pipeline stability have only come in the form of additional troops.

The attacks reflect a broader growth of instability in the region, including an increase in kidnapping and incidents between local groups and the Egyptian military. This growing tension also serves to add pressure to diplomatic and trade relations between Israel and Egypt, which has seen public attacks on the Israeli embassy in Cairo as well as the country’s border area.

Image: MSNBC


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Spain Moves Closer to French Connection

Following long delays thanks to French political critics, Spain has moved closer to the possibility of more access to the European natural gas network with an European Union push this spring.

The natural gas connection between the two countries has long been viewed as insufficient by Spanish energy actors, with pipeline systems across the Pyrenees meager in comparison with the large transport systems connecting Spain with North Africa. This connection expanded still further with the opening of the Medgaz pipeline linking Algeria with Southern Spain. Furthermore, the country’s LNG capacity has continued to expand despite a lack of adequate connections to the European energy grid, keeping supplies high. This environment has left Spain and Portugal isolated, especially when it comes to aiding in the EU push to reduce dependence on Russian exports over the last few years.

Energy actors in Spain have largely blamed the lack of progress on the issue on French companies who do not want to open their lines to the Spanish market. However, regional observers have pointed to France’s imports from countries like Norway and suggested that it is not yet economically viable to pursue expansion projects across their southern border given their current connections.

Spain’s case is expected to receive some support this spring with a planned EU energy strategy report that analysts in the region expect will address the transport deficit with political and possible financial support for expansion. The report is expected to address a larger challenge of European grid connections, including the France-Spain case.

Any such support is likely to be well received in Madrid, where the new government led by Mariano Rajoy now faces the daunting task of addressing a 24 billion euro energy deficit, forcing a broad re-evaluation of the country’s energy sector. So far, the review, led by Industry Minister José Manuel Soria López, has resulted in suspensions and planned reductions in renewable subsidy opportunities, alongside pledges to not add new taxes to gas, nuclear or coal programs.

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Energy Firms Included in Debt Reduction Efforts

As European Union pressure forces both member governments and banks to distance themselves from debt burdens to help build confidence in their ability to weather the storm of the Union’s financial crisis, some energy actors are finding themselves at the center of the conversation. This confidence has emerged as pivotal to ensuring bailout funds from the IMF and European Union.

For governments, this has meant unloading anything they can to raise available capital and reduce costly endeavors. For Brussels, this has meant pushing to strengthen EU banks’ core Tier 1 ratios, a measure of a bank’s ability to weather financial shocks, to 9 percent by June, according to the Wall Street Journal. The pressure and deadline has sent many banks and governments to their books in search of viable options for cuts.

Ultimately, it is the government actions that will have the most impact on energy actors in the region, as banks have found their greatest burden to come in the form of bad real estate debt. In the last few weeks alone, governments in Portugal and even Greece have laid out new or revised privatization plans that will see energy firms removed from the public sphere. Last week, Portugal’s treasury secretary

Announced that China’s State Grid International Development Ltd. and Oman Oil Co. would purchase a 40 percent stake in power grid and natural gas pipeline operator Redes Energeticas Nacionais (REN) for 592.2 million euros. Oman Oil has agreed to buy additional stakes. The announcement comes after a December purchase of 21 percent interest in EDP-Energias de Portugal SA by China’s Three Gorges Corp.

The REN sale is a part of the cuts required to guarantee a 78 billion bailout request by Portugal and will be followed by the sale of seven percent of the country’s oil firm, Galp. According to Bloomberg, these sales will be followed up with additional privatization efforts later in the year, though no specifics were offered.

In Greece, EU and investor pressure has forced a privatization campaign that will include the country’s natural gas state monopoly and state oil refiner, among many other public utilities. These will need to be removed from the government roster within the first six months of this year, despite being large sources of revenue for the government.


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Rajoy, Reform and the Burden of Employment Expectations

As thousands took to the streets this past weekend, it quickly became clear that the Partido Popular’s approach to job creation had more than a few critics. Focusing their anger on reforms passed on the 9th of February, critics called out the new government’s efforts to reduce mandatory severance pay from 45 to 33 days per year worked and allowing what they felt was an unfair freedom for companies to opt-out of collective bargaining agreements and adjust wages and hours according to their unique financial standing.

Explaining their approach, the Rajoy government explained that “it wants to give firms the ability to modify workers’ hours in response to demand rather than simply laying them off, bringing an end to the rapid rise in temporary contracts that has helped push youth unemployment to just shy of 50 percent.”

Really, the reforms proposed and passed by the dominant Rajoy government, who earned a powerful legislative majority during November elections, should not have come as much of a surprise. They are, after all, the country’s conservative party so supply-side reforms to the labor market should have been an expected part of the package. Alongside promises of widespread cuts in public spending, business-friendly labor reform seems as much a part of the conservative platform as reversing anything that offends the Catholic Church. Prior to early elections, Rajoy and company promises such an approach and with a strong parliamentary majority, they delivered.

Still, now that the reforms have passed, it should be asked, is that all they have to offer? Its hardly a novel observation that massive cuts, no matter how much they are required by Brussels and Berlin, are not a sure fire way to spurring growth.

“They don’t have much of a strategy apart from the typical laundry list of structural and labor market reforms, which is fine, but that is not going to deliver much in the short-term,” Guntram Wolff, deputy director of Bruegel, a Brussels think-tank told Reuters. “It’s become clear that this focus on austerity and fiscal consolidation is not enough, so they need the economic growth and employment element.”

So, are Rajoy’s labor reforms the only other solution they are offering to resolve Europe’s worst unemployment rate?

The short answer is no. Rajoy and his PP-controlled parliament have pledged that more should and will be done. Though, this promise has come with few actual specifics and a warning that given the country’s current trajectory, things will likely get worse before they get any better. Indeed, analysts at BBVA predict an increased 24.4 percent unemployment rate by the end of this year and a likely 24.6 in 2013.

Specifics on this pledge have been light, though Rajoy and EC President José Manuel Barroso have both called for additional funds from the European Regional Development Fund (ERDF) and the European Social Fund (ESF) to be put aside specifically for job creation programs. Of the countries with accessible funds, Spain boasts the most with 10.7 billion euros.

Perhaps a more relevant question for analyzing the Rajoy approach is will the reforms do enough to address the structural challenges that led to such a daunting 22.9 percent unemployment rate in the first place. Will it be enough to reverse what Profs. Samuel Bentolila, Juan Dolado and Juan Francisco Jimeno call Spain’s “insider-outsider” labor economy? In a report published just days before Rajoy presented his labor reforms, the three argued for greater attention to the country’s temporary contract economy, which accounted for 1.4 of the 1.6 million jobs lost since 2007 and efforts to combat the country’s nearly 50 percent youth unemployment rate.

The answer to this question comes with a deeper look at Rajoy’s proposed reforms aimed at providing tax breaks for hiring workers under the age of 30 and reducing the time needed to ensure a permanent contract from 3 to 2 years. While straying slightly from the party’s supply-side approach, the reforms do little to address issues of training, education and diversification in a labor market previously led by now dormant industries.

Rajoy has been quick to defend his government’s approach, stating that it will not only increase Spanish employment, but also put the country’s economy on equal footing with the rest of Europe.

“We are planning an economic policy which coincides substantially with what is being planned at the European Union level — so we support that and will be at the forefront in all these things, particularly in budget consolidation and structural reforms,” he told a press conference in Madrid last week in response to labor reform criticism, according to Reuters.

However, even he has warned that the results will be slow to materialize. Echoing the aforementioned BBVA predictions, Rajoy has stated that the country’s employment numbers will likely rise before falling. That warning may sound dour for those hoping for a rebound this year, but it may just buy the new government some time and tapered expectations to allow for his labor reforms to start showing progress. Once that time is up, it’s difficult to imagine even his supporters in Madrid and Brussels to stay quiet for very long.

Image: Libre Mercado

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Tangiers Terminal Expands Moroccan Reach

Morocco continued its push towards easing its heavy energy dependence with a sharp increase in domestic storage and distribution with the opening of the country’s second oil terminal in the northern coast city of Tangiers. Central to the country’s energy strategy in terms of both capacity and location, the Tangiers terminal will increase Moroccan oil storage abilities by a third and allow greater access to providing fuel to the busy shipping lines through the Strait of Gibraltar. Last week’s opening has positioned the Moroccan port city to compete with similar efforts in Ceuta and Algeciras in competing for the business of the more than 70,000 ships that pass through the Mediterranean gateway each year.

Moreover, the opening of the terminal has moved the Moroccan energy market closer to a goal of greater autonomy and diversification. Currently, Morocco depends on imports for 95 percent of their energy needs and has recently experienced the effect that price fluctuations can have on overall costs. To remedy this situation, political and energy leaders in the country have been pushing for greater storage capabilities and diversification. These have included both efforts to initiate new offshore and shale projects, as well as offering support for renewable projects on a community and large-scale level.

The opening of the Tangiers terminal this month has served to boost the country’s storage abilities, making it less susceptible to the kind of price increases seen over the last year as regional trade partners struggled with economic and political uncertainty. During conversations with a government energy official in Rabat last week, the sharp increase in energy costs in Morocco seen in the last two years was cited as the reason for the country’s new energy strategy.

The product of an effort by a HTT, a group put together by Emirati Horizon Terminals Ltd., Moroccan company Afriquia SMDC and Kuwaiti firm Independent Petroleum Group, the $180 million terminal will hold 3.2 million barrels, with 53 percent dedicated to gas and diesel and 43 percent set aside for fuel oil and fuel additives, according to a Reuters report. The project’s storage capacity will provide enough space to provide for 60 days of Moroccan demand, adding to the capacity of the only other such terminal, located in Mohammedia; home of the country’s single refinery, Samir. The group was awarded a 25-year concession, that included the responsibilities to conduct the design, financing, construction and commissioning of the terminal structure, as well as develop the project’s commercial activity. According to a report in Morocco Tomorrow, the terminal will provide a deep-water post that can host 280 linear meter tankers and boasts 35km of pipeline and 19 storage tanks.

Image: Gulf News


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The Narrative Starts to Take: Greece is Out

Amid all the back and forth about Greece’s path back from fiscal oblivion, a frustrated narrative has begun to emerge in Athens – all of this is for naught because ultimately the EU and leaders in Brussels and Berlin never had any intention of keeping the beleaguered economy in the union. Sounding a bit hurt and a tiny bit paranoid at first, this take on the situation has gained steam as what appeared to be a finish line for promised cuts and assurances that Athens would indeed play ball, regardless of how painful it was or how little actual support they had from their citizens, kept changing. Frustration turned to outright allegations yesterday as the proposal was floated that any aid package would be held in limbo until after the country’s national elections were held. The response first came with charges that the troika was trying to use the package to manipulate the country’s elections to support the success of a new government that would ensure the further austerity they hoped for, but has now devolved into a discussion of whether the whole process is just a thinly veiled attempt to squeeze Greece out of the union completely.

“There are many in the eurozone who don’t want us any more,” Greek Finance Minister Evangelos Venizelos said during a meeting with President Karolos Papoulias, according to The Guardian. “We are constantly being given new terms and conditions.”

The discussion about Greek’s future has never been particularly pleasant, but recently, the atmosphere has grown toxic and days like yesterday hardly help the matter. With Greece facing down €14.5 billion ($19 billion) in debt set to mature within a month, its no wonder pressure has begun running especially high but if a solution is to be found – if all parties really want to find one – tempers need to calm and they need to do so fast.

Image: Economia

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Greece, Trust and the Inevitable

It’s been difficult to keep track of the back and forth on Greece’s chances to secure a bailout package in time for the country’s March deadlines. As soon as solutions are found and touted, someone finds a way to dash all hope with fresh demands or new criteria for acceptance. In the course of a single day, the bailout package can go from assuredly approved to dead in the water and back again. Its debatable which side has been guiltier of delaying or moving the finish line, but ultimately, the consequences are severe for both sides.

Most troubling about this back and forth, is what it means for the little remaining trust that exists between the Greek government, the general population and the country’s many creditors. The people are suspicious of the parliament and technocrat government, the country’s political leaders are wary of anything that resembles intervention from outside and the EU and IMF don’t appear to trust a word coming out of Athens. No one, it seems, thinks the other is acting in their interest. Today hardly helped that process as a few pivotal EU leaders presented a plan that would push any bailout package back to April, following Greece’s national elections. The move, pushing any distribution past the March bond deadlines, appears to critics as a move to either force default or influence the election outcome by hinging approval on a government that would be sure to institute what the Union leaders want most – more cuts.

Leaving aside the argument of whether austerity is really the best approach to getting Athens out of the ditch – that will come in a later post – its difficult to see what the purpose of this proposal actually is. Greece appears close to the edge for so many reasons, with Iran’s oil cuts adding to the list today, why would EU leaders add more stress to the situation if they really wanted it to succeed?

This question goes back months to when Angela Merkel appeared to offer little hope for certain countries to rebound, sewing doubt where one would think she would offer a bit more optimism. Since then, she has been a voice of reason but also one of cautious doom, keeping the process moving but without much confidence that it would lead anywhere or really even be seen through. From the Greek side of things, I can see how the pessimism, added to the actual, real-life pressures they are dealing with, is starting to grow heavy. Are the country’s creditors actually doing something to solve the problems – to find a solution – or just staving off the inevitable? Would an outside plan work, even if complete control was handed over to Germany? Is it preferable just to face the obvious sooner than later or is there really a viable path forward that does not mean giving up any sense of control or autonomy?

Image: The Financial Post

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Local Protests Target Med Offshore Drilling

A recently quiet opposition movement against drilling oil and natural gas exploration off Spain’s Andalusian coastline has come alive in 2012 as local communities have begun calling on the new national government to reverse local offshore licenses.  With protests coming from across the political spectrum, including members of the local Green Party as well as the conservative Partido Popular, the projects have been targeted for their potential impact on the region’s tourism and fishing industries. Already weighed down by a near dormant national economy and a real estate market that has all but collapsed since 2008, the Andalusian coastline has become especially sensitive to any perceived threats to the remaining tourism market, which stands as the region’s largest economic factor for jobs and development.

The most recent project to come under fire includes an area of 130,000 hectares off Almuñecar, Salobreña and Motril (Granada) and Nerja and Torrox (Malaga), led by Canadian firm, CNWL. The project is the result of a 2006 appeal for exploration rights by CNWL but was delayed until last year after local opposition slowed the approval process. Local political and environmental groups have begun calling on the new government of Mariano Rajoy’s Partido Popular to reverse the project approval, including calls from members of his own party. The protests follow a similar pushback against exploration efforts on the part of Repsol off the nearby coast, in front of the tourist havens of Mijas and Fuengirola.

CNWL responded to local press queries, stating that they had no firm date to begin exploration efforts, though they were aiming for June of this year and would be pursuing natural gas finds, not oil, according to La Opinion of Malaga.

Although the protests have only occurred at a local level, the opposition to offshore efforts in Andalusia reflects a larger Mediterranean aversion to such efforts. In the months following the Deepwater Horizon spill in the Gulf of Mexico, political and environmental groups rallied behind new legislation and public protests, successfully slowing or halting offshore efforts in Italian and Spanish waters, as well as Libyan waters amid worries related to BP’s safety record. The efforts received a boost of support from European Commissioner for Energy Günter Ottinger, who proposed the idea of a moratorium on offshore efforts in European waters.

Image: Today’s Zaman

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Hoping to Leave Challenges Behind, BP Eyes Libya Return

Following a year and a half of political and military delays, BP is poised to pick up where they left off in Libya, joining the roster of international firms hoping to make the most of Africa’s largest proven oil reserves. Despite the presence of many of the same obstacles that put a halt to their efforts in the North African country in the summer of 2010, BP officials remain confident that they will soon be able to achieve the production goals they set out almost five years ago.

The result of a $900 million deal made in 2007, the BP’s Libyan projects were expected to receive more than a billion dollars worth of company investments over the next seven years. The original agreement outlined an exploration project that would cover 54,000 square kilometers of the onshore Ghadames and offshore frontier Sirt basins, allowing for 20 appraisal wells if initial efforts were deemed successful, according to company literature. The company’s Libyan presence would include both on and offshore efforts, allowing for the company’s first projects in the country since 1971 when the new government nationalized all of BP’s assets.

However, those efforts soon came under fire, initially due to allegations that the company had pushed UK political figures to support the release of the convicted Lockerbie bomber, Abdelbaset Al Megrahi in exchange for the new contracts. Facing calls for project delays from both the US and UK, the company worked to calm political waters, but soon found themselves at the center of the year’s largest environmental disaster.  Confidence in the company’s safety record took a hit during the summer of 2010 after the company’s connection to the Deepwater Horizon spill in the Gulf of Mexico spurred a sharp backlash among EU environmental and political groups. The backlash forced a delay in activity, just as BP was concluding a sprawling seismic survey of their offshore licenses. EU political figures began demanding for greater oversight of BP activities in the Mediterranean as well as proof of the company’s capabilities to financially address a possible spill.

However, Lockerbie and environmental concerns took a backseat during the summer of 2011 when Libya’s political environment became too unstable for BP to keep their expatriate staff in place. As anti-Gadaffi forces moved west from Benghazi, followed by the arrival of supporting NATO forces, violence forced a complete halt in production and export efforts, resulting in an evacuation of all international staff by foreign firms.

Now nearly four months after Gadaffi’s death and the recognition of the country’s transitional government as the Libya’s legitimate political leaders by even ardent critics of the anti-government movement, BP is focusing on building their earlier efforts. However, obstacles to a full return remain.

“We are making preparations (we still have just under 100 local staff) to resume our activities but the security situation is still too uncertain,” remarked BP media representative Robert Wine last week. Although members of the transitional government have worked to calm worries about lingering violence, some foreign firms have not reached a level of confidence in the country’s ability to ensure the safety of their workers. Other international firms have been quicker to return to their Libyan efforts, including Spain’s Repsol, France’s Total and notably Italy’s Eni who have come close to reaching pre-conflict production levels.

“We do intend to pick up where we left off, but the circumstances on the ground have to be safe first,” Wine wrote, adding, “Security means safety for anyone working there. Until then, we won’t ask people – not just international staff – to work where it’s dangerous.”

Responding to whether BP foresaw any obstacles to working alongside the country’s transitional government, who have previously offered strong warnings against countries and companies that had previously worked with the Gadaffi government, Wine wrote that he was confident they would be able to work for and with them to fulfill their contracts.

A quick and stable return to Libya may help BP restore some of the investor confidence lost in light of their involvement in the Deepwater Horizon spill and its subsequent lawsuits. Currently facing 600 civil lawsuits from plaintiffs across United States Gulf Region, BP has announced its intention to vigorously fight the cases, though they have allowed that the ongoing legal issues have curtailed interest from investors.

“We have many people who do say, we are interested in investing in BP but not until all this is behind you,” CEO Bob Dudley told a press conference last week, according to the Financial Times.

For now, BP will be able to build upon a return to higher profits with the announcement of $23.9 billion last week, as lower production levels and delayed projects were offset by higher oil prices throughout last year. According to the AFP, the earnings report was accompanied by a higher company dividend, suggesting confidence among company management that any challenges BP faced in the new year were manageable. However, facing a lengthy challenge in US courts, the UK company could likely use all the support it can get.

Image: Arab Money Matters








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Italy’s Pipeline Hopes Dashed by Algeria

After finally winning the support of hesitant Italian authorities, the Galsi pipeline appeared to have been given a new chance at completion with leaders in Rome looked to diversify their vital energy imports. However, opposition is now emerging from the Algerian side of the project, with national officials warning that costs and technical challenges could delay or even halt the transport effort.

Dependent on imports for 90 percent of their natural gas needs, Italy set their sights on broadening their roster of production partners following last year’s political unrest in Tunisia and Libya. Violence and instability in both countries during 2011 led to delays or halts in production and output, threatening to cut Italy’s energy supplies. Libya’s civil war forced an evacuation of the staffs of most foreign firms leading to production shutdowns while Tunisia’s political protests led to a short closure of the pipeline used to ship Algerian natural gas to Italian shores, amounting to 35 percent of the country’s demand.

Eager to avoid such uncertainty again, Italian officials began voicing their support for the completion of the Galsi pipeline, linking Algerian fields with the island of Sardinia and the Italian marketplace. The result of an MOU signed in 2007, bringing to together the interests of Algeria’s state-backed Sonatrach, Euro energy firms Edison, Enel and Hera, the 900km pipeline would mark the second such project linking the North African nation with Italy, via a landing in Sardinia. However, unlike the Trans Mediterranean pipeline, the Galsi would carry an estimated 8 billion cubic meters of gas northwards upon completion directly from country to country, skipping a passage through Tunisia.

In October, Italian political leaders issued an appeal to Algeria to approve and move forward with the pipeline project with haste, allowing for Italian companies to pursue natural gas projects in the country with the assurance that transport lines will be available to them. However, resistance to the project has now begun to emerge in Algeria, with Energy and Mines Minister Youcef Yousfi casting doubt on the viability of the transport line in the near future.

“With regard to the Galsi project, the partners are waiting for technical and economic conditions to be present and also to obtain administrative authorization in Italy to go ahead with the project,” he told a local newspaper, according to Reuters.

Image: Eni

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