Monthly Archives: September 2012

Italy Tables All Options for Energy Needs

Over that past 24 months, a series of unfortunate events have chipped away at Italy’s already narrow energy options. Compounded by the country’s current economic morass, Italy’s energy sector has been left struggling to find an effective path forward. Now considering and promoting production relationships and strategies long thought to be off the table, the Southern European nation faces an uphill battle towards energy security. With new local efforts and legislation in the pipeline, Rome is hoping for some good news soon. However, with only modest domestic potential and an uncertain political landscape beyond its own border, the question remains, will it be enough?

Long dependent on foreign resources for most of its energy needs, Italy witnessed its limited options for meeting domestic demand fade over the last two years due mostly in part to events far from home. After the Deepwater Horizon disaster in the Gulf of Mexico spurred a ban on offshore drilling in waters within five miles of the Italian coastline, the country suffered another hit to available energy options as the political situation in North Africa flared up. While Algeria, which provides substantial contributions to Italy’s natural gas needs, largely escaped widespread political protests, neighboring Libya did not. After spending a decade and billions of dollars cultivating an energy trade relationship with the government of Muamar Gadaffi, Italy was knocked back to square one as the government fell to opposition movements based in the oil-capital of Benghazi. Left to build a new relationship with a Libyan leadership wary of anyone who had worked closely with the ousted government, Italy then faced pressure from the United States to cut ties with Iran who provided significant amounts of crude to the Italian market. Finally, the country’s unconventional options were dinged by a cash-strapped renewable subsidy program and a nuclear resurgence that fizzled as Japan’s Fukishima disaster reminded Italians why they’d banned it in the first place.

Two years on, Italy is now putting all options on the table to help achieve some sort of progress towards energy security, starting with the ban that started it all. This month saw the Italian government look past public and political protests that came to define the Deepwater Horizon summer and announce that they would re-open coastal waters to exploration efforts. This move has cleared the way for those smaller operations, most notably Mediterranean Oil and Gas, to return to local waters.

This month also saw Rome granted a 180 day reprieve from the US and EU-led sanctions against Iranian crude, allowing some breathing room to help cultivate or expand new trade agreements to replace expected losses. Of all those EU member states expected to be affected by a cut off in Iranian crude, Italy and Spain emerged as those nations with the most to lose. To do this, Italy has looked to expand their presence in Algeria, where the state-associated Italian firm Eni has signed on to help support the expansion of shale gas projects in North Africa. They are also now waiting on final approval for the construction of the planned Galsi Pipeline, which would increase the natural gas flow from Algeria to the Italian market by way of Sardinia.

After quickly reversing their support for the Gadaffi government after violence split Libya in half last year, Italy and Eni have worked to build a strong energy relationship with Tripoli and Benghazi, including a pledge to dedicate several billions towards production and infrastructure development over the next decade.

However, the country’s continuing challenges with security and political stability have caused some concern whether foreign firms will be able to stage full returns to production. This has become especially worrisome in recent weeks as violence spurred direct diplomatic warnings to outsiders operating in the country’s eastern half, also home to the majority of Libya’s oil and natural gas operations, as well as the recently re-opened Ras Lanuf refinery. Even before this month’s direct attack on a US consulate in Benghazi, energy firms had stepped up protection and prevention efforts following a series of actions taken against Western operations in the country.

Locally, Italy has also moved to encourage the country’s natural gas competition with the planned purchase of a 30 percent stake in Snam – the natural gas distribution unit. The deal comes thanks to the government’s sale of 1.7 percent of their stake in Eni, earning them $1.4 billion towards the Snam effort. According to an Associated Press report, Snam has pledged to spend $8.8 billion towards infrastructure development across Italy.

While the country’s economic challenges of the last three years have hardly helped Italy’s energy options, they may have helped only in easing domestic demand, noted in a Reuters report from this week. According to the report, Italy has seen a steady decline in demand for energy products, including 10.1 percent decrease in petrol during the month of August and 8.6 percent for oil products during the same period. Overall, during the first eight months of 2011, “demand for oil products fell 8.6 percent year-on year 43.32 million tonnes, with petrol demand falling 9.7 percent and diesel demand down 9.1 percent.”

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Qatar Lays Downstream Foundation in North Africa

As investors and development teams from Europe and the United States keep their cautious distance from the uncertainty of North Africa after the Arab Spring, some financial support and confidence is arriving on the Mediterranean shores, perhaps none more substantial than that of Qatar.

Active and present from early on in the rapidly changing capitals of Cairo and Tunis, Qatari representatives have stepped up their support in recent weeks, signaling a willingness to contribute, including downstream efforts that could prove vital to the region’s recovery and future growth.

Eager to strengthen ties in the region, especially in those states that have seen a shift in political leadership over the past year, Qatar began outlining a series of financial programs earlier this year. In Tunisia, a dormant refinery project was revived in May after Qatar announced that they would again put forth the $2 billion necessary to support a refinery project that could see the country’s output capacity increase fourfold. Boasting an initial output of 120,000 bpd, the plant will eventually produce 250,000 bpd upon completion, as well as 1,200 jobs. By aiding in a post-Tunisia’s efforts to reduce heavy dependence on foreign energy resources and even move them towards a possible role as refined product exports, Qatar is hoping to sew the seeds of good will with the post-Ben Ali government.

In addition to cultivating a relationship with the new government in Libya, Qatar has also worked to help the development of downstream energy projects in a post-revolution Egypt. Earlier this year, Qatar announced a $3.7 billion financing agreement with the Egyptian Refining Company to help support a refining project there, with the Qatar Petroleum set to take on a 25.3 percent stake in the effort, according to a Bloomberg report. Shortly after, the Qatar Investment authority announced a sprawling $18 billion investment plan, with $8 billion set aside for electricity and natural gas projects to the East of the Suez Canal.

The expansion of a North African footprint comes as Qatar has extended its reach into the energy sector, including several recent purchases and expansions of stakes in energy companies across North Africa and Europe. The new funding agreements also challenge the tide of recent state and private investors who have acted with caution when dealing with North African nations.

Image: North Africa United

Originally Posted in Newsbase’s Downstream MENA Issue

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Ras Lanuf Re-Opens But Libyan Recovery Doubts Remain

As Libya became the center of global attention for all the wrong reasons last week, the country’s energy sector took a significant step towards recovery as deliveries from the Ras Lanuf refinery resumed after a year of closure. Responsible for more than half of the country’s oil and gas refined output, the return of production was a welcome step towards reaching and surpassing pre-conflict production levels.

However, lingering concerns about security throughout the country and a slowing production recovery have cast doubt on whether the country can continue to increase its output levels for both domestic energy and government spending needs.

According to the Libya Herald, Tripoli has outlined an annual operating budget of $55.3 billion and estimates they can earn $54.9 billion in oil and gas revenues over the next year. With little else in the way of exports or local development, Libya’s hydrocarbon output is the country’s surest way towards keeping the state moving towards stability and recovery. The reopening of the Ras Lanuf refinery after it was closed during last year’s civil war is a significant step in that direction.

Before closing its doors last year, Ras Lanuf was a leading producer of naptha and jet fuel and was capable of producing four cargoes of low-sulfur fuel oil a month, according to a Reuters report. After a series of delays, the plant came back online late last month, producing about half of its 220,000bpd capacity. The plant is overseen by the Libyan Emirati Refining Company, a joint-venture between Libya’s state oil company National Oil Corporation and UAE-based Al Ghurair group.

Despite the good news for the country’s recovering energy sector, the reopening comes as Libya’s return to pre-conflict levels has begun to slow. Earlier predictions that output would recover by this October as output began to stall around 1.38 million bpd in August, according to the Financial Times. Further recovery has also been shadowed by growing concerns that Libya’s security situation is not yet stable enough for a full return for much-needed international investors – a feeling that became very real last week as attacks on Western interests spurred strict travel warnings from the US and United Kingdom.

Originally Posted with Newsbase’s Downtream Monitor

Image: Maghreb Panorama

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Egyptian Downstream Impact Being Felt

As Egypt’s natural gas potential quickly emerges as one of the country’s strongest forces for recovery, its downstream sector is coming under increasing scrutiny as the reality of questionable capabilities and cancellations start to take effect.

Highly dependent on domestic natural gas reserves for both electricity production and export revenue, Egypt has placed the country’s promising sector at the heart of the post-Mubarak recovery. However, despite a steady increase in interest in exploration and production efforts from outside energy firms, Egypt’s downstream operations remain a sore spot for natural gas sector growth, affecting both needed earnings and domestic energy demand.

The most glowing example of this comes with the country’s pipeline system through the Sinai Peninsula, which has remained a volatile point of militant activity since the fall of the Mubarak government in February 2011. Since then, the pipelines allowing valuable exports to Israel and Jordan have been attacked on 15 occasions. These delays were followed by a cancellation of exports to Israel after the controversial nature of the two countries’ trade agreement became clear. The fragile state of Egypt’s Sinai pipelines claimed its first business victim recently when Israel’s Ampal filed for Chapter 11 due to the loss of revenue as a result of the halt in trade this past April. The company held 12.5 percent of EMG, the institution responsible for delivering Egyptian natural gas to Israel. While the company’s ability to meet debt obligations began as early as December 2011 thanks to the repeated attacks, the April cancellation proved to be the final straw for the firm, according to the Egyptian Ahram Online.

In addition to launching a military offensive in the region to help quell unrest, the Egyptian government is looking to outside funding options to help improve the downstream outlook. Some relief may come from a recently announced $18 billion investment pledge from Qatar, $10 billion of which has been set aside for gas, power, iron and steal plants, according to The Chicago Tribune.

Cairo’s largest energy challenges are rooted in the country’s generous oil and gas subsidy program, which increased 40 percent last year to cost the state $16 billion, or one-fifth of its operating budget, according to Reuters. However, the country’s downstream operations have also become an obstacle to recovery as outside interest has focused on E&P efforts, including a recent $10 billion BP plan over the next five years according to Bloomberg, instead of infrastructure investment.

Originally Posted with Newsbase’s Downstream Monitor

Image: Bloomberg

 

 

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Enthusiasm for Eastern Med Gas Still Strong Despite Pitfalls

In the short time since news first broke that the Eastern Mediterranean held enough offshore natural gas to keep the region’s energy need met for decades, the area has become a hot bed of tension thanks to conflicting claims and revenue sharing agreements. Recently, local actors Israel and Cyprus has signaled efforts to move production plans forward, but despite advancements, accessing the region’s potential remains fraught with political and security pitfalls.

Set in waters between Israel, Lebanon, Syria and Cyprus, the Levant Basin holds an estimated 120 trillion cubic feet in accessible natural gas to those who can access it.

However, its deep set placement and differing geological challenges have set limitations on just who can take a realistic chance on reaching the reserves from their respective waters. Combined with unclear maritime borders between some regional neighbors and deep political and diplomatic divisions, the limitations have created an often-tense environment for relevant regional actors. Further, foreign firms hoping to take part in exploration efforts that might demand a local partnership have found themselves at odds with both competing countries and collaborators in other parts of the world.

According to a Bloomberg Businessweek report, Fadel Gheit, an analyst at Oppenheimer & Co. told them that, “the world’s largest energy companies like Royal Dutch Shell Plc (RDSA), Chevron Corp., and Exxon Mobil Corp. will be deterred from investing in Israel because of interests they have in the rest of the Middle East.”

While they hold no official claim to the waters in the Levant Basin, Turkey has recently stepped up exploration efforts of their own, stating that they hold authority over waters to the north of Cyprus. Further, Greece has stepped into the discussion with offers to act as a transport hub for natural gas bound for the European market.

On the national level, uncertainty about how best to move forward could also spell further delays, including how best to split earnings across the many political factions in Lebanon and how to address growing environmental concerns in Israel. The latter concern has strengthened the argument for partnering with Cyrus to host Israel’s LNG facilities.

None of these concerns appear to have immediate solutions, though few seem to be dampening enthusiasm for the Eastern Mediterranean’s true natural gas potential.

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