Monthly Archives: March 2012

Egypt Seeks Pipeline Solutions but Little Official Support

As Egyptian security and political forces have sought ways to combat attacks in the Sinai Peninsula that have led to 13 pipeline delays since the fall of Hosni Mubarak last year, it has become clear that ensuring the transport line or finding ways to ensure existing deliveries may not be as important as once thought – at least in terms of trade with Israel.

This month saw the country’s People’s Assembly vote to cut off natural gas exports to Egypt’s neighbor in response to allegations that the outgoing Mubarak government had sold to Tel Aviv at under-market prices, angering a government body that has already expressed their intention to review and revise all existing relations with their neighbor.

The move comes following a months-long deterioration of the security situation in the Sinai region of the country attributed to Bedouin groups, which has included both attacks on the pipeline and a third case of kidnapping last week. While unlikely to signal a wider halt to energy exports, some analysts have pointed to the shutdowns and lack of political will as a signal of greater internal use of Egypt’s energy resources.

So far, according to an off the record comment from a state official, the attacks have caused upwards of $160 million in losses for the Egyptian government, according to the country’s Al-Ahram newspaper.

Opened in 2008, the pipeline in question was meant to provide for 20 to 25 percent of Israel’s energy needs, but the country has so far expressed little concern for the long-term consequences of a prolonged or complete halt in deliveries, pointing to the potential of offshore reserves to make up the difference. However, according to a USA Today report, the pipeline shutdown could do much to damage relations between the two countries.

Emerging as the unintended victim of both the attacks and the lack of Assembly support for the situation, Jordan has been left to find viable alternatives to the loss of imports. Recent shutdowns due to the now 13 attacks have resulted in widespread energy shortages. Even efforts to curb their dependence on the pipeline have resulted in spikes in costs as the country’s shifts away from natural gas towards electricity plants that use diesel or crude.

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Algeria Eyes Expanded Position Thanks to Relative Stability

After a steady decline in foreign interest thanks to fluctuating development terms and volatile tax agreements, Algeria is eyeing their relative stability in the region as key to both encouraging a return of international partners and a strengthening of their position in energy marketplace.

Currently the seventh largest provider to the US and the third largest provider of natural gas to the European market, behind just Russia and Norway, Algeria has witnessed a significant decrease in interest in foreign investment and partnerships in the last few years thanks to a steady flow of new government regulations and financial demands on the part of the state and its official energy arm Sonatrach. The result has been viewed as increasingly hostile to firms from outside Algeria, despite the country hosting the third largest proven oil reserves in Africa, behind Libya and Nigeria, with about 12.2 billion barrels.

According to a report released by the Eurasia review, the decline in interest and overall production has arisen from, “the frequent delays involved in Algerian projects, stringent financial terms, and a windfall tax on foreign oil producers whenever the price of oil exceeds $30 per barrel have dampened international companies’ interest in bidding rounds.” Last March, Algeria awarded just 2 of 10 oil and gas permits in a licensing round that marked a third such decline and further hindering the country’s overall production levels.

However, as much of the North African and Middle Eastern region has suffered from bouts of instability, Algeria has remained relatively stable and calm. The country experience only modest protests from student and labor groups last years as neighboring Libya and Tunisia experienced sweeping shifts in political leadership. Resulting production and output delays in these countries and the lingering threat of further shutdowns of oil and gas deliveries resulting from tensions with Iran have pushed leaders in the United States and Europe to reevaluate the country’s place as an energy actor in the region and as an increased producer for the global market.

Writing in the Financial Times earlier this month, Stephen Snyder of Ergo intelligence services suggested that amid security concerns, Algeria’s growing importance as a provider of natural resources had allowed greater acceptance of the country as a regional energy actor and production partner, even in light of questionable domestic actions. Citing a visit by U.S. Sec. of State Hillary Clinton to Algiers, where she met with President Abdelaziz Bouteflika, Snyder said that the volatility seen across the region and the uncertainty about the Iranian situation and the Gulf of Hormuz allowed for new view on the country’s potential.

For their part, Algeria and their state-backed firm Sonatrach have moved towards greater cooperation with foreign firms, opening up the possibility of repairing existing partnerships and easing the restrictions that kept interested parties at bay over the last few years. In December of last year, the country announced a plan to introduce revisions to their Hydrocarbon law that would amend profit sharing agreements and exceptional profit taxes first introduced in 2006.

Speaking in December, Minister of Energy and Mines, Youcef Yousfi stated that the review was aimed directly at garnering much-needed support from international partners with the experience and technological know-how to adequately exploit the country’s reserves. That technical knowledge will be pivotal to the country’s ability to pursue a planned shale campaign in the coming years. Already linked with Italy’s Eni to explore Algeria’s deep-set, shale potential, the country and Sonatrach must first dedicate significant funds to the costly infrastructure and tools required of shale extraction efforts.

“We hope to develop partnerships with all interested stakeholders who have the required technological expertise to develop these resources in our country,” said Algerian Minister of Energy and Mines, Youcef Yousfi at a shale workshop held in Oran in late February, according to Al Monitor. He added that, “this is why we would like to work with companies that have demonstrated expertise in this field.”

In a more specific example of mending fences, earlier this month, US-based Anadarko, announced an amicable end to a long-standing conflict with Sonatrach stemming from the 2006 tax. With the US company insisting that their existing contract required the Algerian firm to bear the brunt of the tax burden and Sonatrach seeking to restructure profit structures originally agreed upon when crude prices were lower, according to the Wall Street Journal, one of the country’s largest foreign operators found themselves at odds with local officials and their production plans. With arbitration initiated in 2009, the two parties finally came to an agreement this month with a plan that would provide about $4.4 billion in funds over the next few years and include stipulations protecting the US company’s tax and profit sharing status. According to the Financial Times, Anadarko is responsible for about quarter of all oil production in Algeria.

The Algerian government’s push and seemingly new willingness to ease restrictions on profit-sharing and tax regulations with foreign firms appears to be part of a larger push to open the country to international cooperation. This past week saw Algiers open the country’s modest stock exchange to foreign buyers for the first time, though they are still required to partner with local buyers for the purchase.

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Greece Eyes Options As Iranian Deadline Looms

Presenting a significant threat to Greece’s energy needs and overall economic well being, the looming EU-backed sanctions on Iranian crude has Athens struggling to find viable alternatives. Earlier this year, Greece joined countries like Spain and Italy in expressing their concern about the sanctions’ impact on their energy needs and were successful in winning a delay until this summer to find other producers. However, even with extra time, credit and production has presented a challenge to finding such options.

The country’s dependence on Iranian crude was highlighted in late February when state media outlets began reporting that a local refinery had been denied the delivery of 500,000 barrels. Ultimately, the reports were cast into doubt by government representatives, including Greece, Greek Environment, Energy and Climate Change Minister George Papaconstantinou who told Reuters that “we have contracts with Iran that are being executed normally.” However, with the July 1st sanctions deadline fast approaching, the reality of going without Iranian crude is becoming all the more pressing.

To make up for the coming crude deficit, leaders in Athens have begun openly exploring increasing deliveries from countries like Libya, though the exact of impact of such a shift has some worried. In the case of Libya, questions have emerged about Libya’s ability to overcome infrastructure deficits to reach pre-conflict goals for existing consumers, not to mention new ones.

For their part, Greek refiners have pointed to options in Russia, Iraq and Saudi Arabia as perfectly viable alternatives to Iranian oil, though funding might still be a stumbling block. Making up roughly a third of Greece’s energy needs, Iranian crude is currently sold under favorable credit circumstances; a situation Athens fears may change under new agreements, adding stress the country’s current economic standings. According to a Reuters report, concerns about access to credit have led some potential providers to avoid new agreements with Greek importers due to worries about national firms and their access to credit.

Reports from Eurostat have suggested a possible increase of Iranian imports ahead of the July 1st deadline, making the stockpiling of reserves ahead of such a significant drop off a possibility.

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Spain’s Energy Sector Dodges Deficit Pressure

As Spain’s new government struggles to deal with an energy deficit before it begins to affect investor confidence and the country’s overall borrowing costs, the country’s varied production sectors have come under new pressure.

Although much of the spending cut attention over the last month has centered on Spain’s renewable sector, with subsidies on new projects halted in later January and reports suggesting further action on even existing projects, solar and wind are not the only energy sectors coming under closer scrutiny by the government. Facing a 24 billion euro energy deficit, accrued over the last few years thanks to poor subsidy planning and domestic energy prices that did not reflect new pressures, the new Industry Minister Jose Manuel Soria has stated that the cost of closing this funding gap must be shared throughout the country’s energy sector.

The energy deficit reduction goal is especially important given the fact that the amount is not currently included in national figures, but would be if not dealt with soon. Spain is currently dealing with EU pressure to reduce the overall deficit to 4.4 percent of GDP in 2012, though the new government has conceded that it will more likely only reach 5.8 percent given the impact further cuts would have on the struggling economy.

However, the last two weeks have seen a heavy push back from both the country’s utilities and lobbyist representing Spain’s oil and gas actors. Intent on shifting the burden of the overall costs away from traditional energy resources, leaders have coordinated pressure on Soria, though analysts have stated that the pressure is sure to be felt throughout the energy sector, especially given the overlapping roles of energy and utility companies. For example, Spanish utility Fenosa was bought by Gas Natural in 2009, which is partly owned by oil and gas giant, Repsol.

For now, Soria and the new government still have the opportunity to look beyond their own budgets for aid, including the possibility of tapping into European Union funds to help expand the country’s much-needed grid connection program. Long delayed thanks to opposition from French industry and political leaders, Spain’s natural gas pipeline connectivity to the north will likely be addressed in a new EU energy grid plan to be released later in the Spring.

Image: http://www.renovablesverdes.com

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Libya’s Production Back on Track but Foreign Partners Could Still Be Frozen Out

As oil and gas production levels continue to rise in post-Gadaffi Libya, government officials have grown more confident that the country’s best chance for economic growth is back on track to meeting and exceeding pre-conflict levels. However, mixed messages to foreign partners and a lack of progress dealing with vital structural and stability issues threaten to derail the energy sector’s return before it can take hold.

By the end of February, members of the country’s appointed transitional government reported that oil production had reached 1.4 million bpd and would likely reach pre-war levels of 1.6 million by mid-summer. The country’s natural gas output also increased to 2.3 billion cubic feet during the same period from 2.2 billion at the end of January. Adding to the good news, Libyan officials have reported that new exploration efforts have finally become possible again.

However, reports detailing a national energy infrastructure unprepared to cope with a return to service and certainly unable to host the sort of production expansion the country has set as an overall goal have cast doubt on Libya’s production future. Even before being damaged in the violence that halted most energy activity last year, Libya’s energy infrastructure was viewed as out of date and insufficient for modern operations, causing an unrepresentative contribution to global markets despite hosting the continent’s largest proven reserves. Attributed to the country’s economic isolation under the leadership of Muammar Gadaffi, the infrastructure deficit had seen some signs of improvement since sanctions were lifted in 2004, but not nearly enough.

Attracting foreign investors and project partners has emerged as pivotal to Libya’s ability to return to adequately exploit their energy potential, but a series of mixed-messages about requirements has continued to hurt that process. While the country’s transitional government stated energy efforts would favor those firms from countries that had supported their anti-Gadaffi campaign, the actual approach has been more scattered. While both China and Germany did not initially vote in support of international military action in the country, Chinese firms have recently received a series of new contracts while many arriving from Berlin and Frankfurt have found themselves frozen out, according to a recent report in Der Spiegel.

Still, the progress thus far has been heralded by government representatives, like Deputy Minister Omar Shakmak, as proof of the country’s progress, adding in local press reports, that the production return had come with the help of local staff.

“All oil and gas facilities are now being managed by Libyan engineers and workers, a remarkable achievement by Libyan work force which has proved to be well trained and without technical assistance from outside the country,” Shakmak told the Tripoli Post. Shakmak has also told a number of media outlets that he too expects the country to reach 2010 levels by mid to late summer, though with elections planned for June, it’s unclear just how many current leaders will be around to answer for such an estimate.

The minister’s assertion comes as several international firms continue to weigh the risks of the country’s political and security uncertainties and returning their staff and overall presence to pre-conflict levels – a development seen as necessary to helping Libya get production levels back to form.

In addition to questions of overall security and repairs to the country’s energy infrastructure, which experienced damage during Libya’s civil war last year, foreign firms have expressed caution about the country’s political future.

“It is a question of what framework we are going to have. We are waiting for a long-term sustainable situation in the country. How long it would take, I don’t know,” Wintershall Chief Executive Rainer Seele told Reuters. The German firm represents the country’s largest foreign partner until violence forced the company to halt operations at the end of last year. Since returning, Wintershall has tripled production levels since last fall but has said that it could easily reach 90,000 bpd if not for the country’s out of date infrastructure.

Meanwhile, Libya’s largest foreign partner, Italy’s Eni, has steadily worked to return to their pre-conflict production levels after a slight, early misstep when it appeared uncertain whether anti-government forces would succeed in ousting Gadaffi.

When asked about progress last week, Eni press officer Fabio Cesaro stated that since the conclusion of the internal conflict, and the gradual return to political and social normality in the country, “we have stepped up our efforts to fully resume production at our Libyan sites and facilities and gas exports through the Greenstream pipeline on the back of our stable contacts with the Interim Transitional National Council and continued collaboration with the NOC.”

Citing major milestones achieved in the final part of the year, including the restarting of oil production at the Wafa and Bu Attifel fields in September, the reopening of the Greenstream and gas production at the Wafa field in October, and the return to production of the Sabratha gas platform at the Bahr Essalam field in November, Cesaro said the company was aiming to reach pre-conflict goals by the second half of this year.

Still, the country’s overall economic and political uncertainty has kept other foreign firms at bay. Previously, BP press representatives expressed caution to suggesting that they would return when security for all company staff, both foreign and local, could be assured. So far, this level of confidence has not been reached.

Image: Telegraph UK

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