Monthly Archives: October 2012

A Spotlight on Greece’s Energy Potential But Roadblocks Remain

As Athens struggles to find a viable path out of Greece’s current economic morass, the country’s oil and gas potential have come under scrutiny as possible keys to future growth. However, despite early reports detailing potential across the Eastern Mediterranean and Aegean seas, accessing those reserves may prove more difficult than government officials are letting on.

According to NBC News, Prime Minister Antonis Samaras released a study earlier this summer suggesting as much as $600 billion worth of offshore natural gas in waters accessible by Greece. The report pointed to 3.5 Tcm and the equivalent of 1.5 billion barrels of oil off the southern coast of Crete that might equal or surpass reserves found in the Eastern Mediterranean Levantine Basin. The Levantine Basin is currently the focus of a surge in activity and investment from Cyprus and Israel.

In hopes of replicating the Eastern Mediterranean natural gas rush, Athens has begun offering licensing rounds and seismic studies of the region to move forward with a sector that they feel could be a path towards erasing their debt and addressing the heavy costs of current energy imports. Greece currently spends about 5 percent of GDP on foreign oil and gas each year.

Despite such potential, reaching Greece’s reserves could be particularly challenging and unrealistic for short-term economic recovery efforts. Facing significant pressure from Brussels to reign in spending and address massive debt obligations, Athens has pursued a program of austerity that has done little to ensure political stability or investment confidence.

With little funding to spare and possible benefits years off, the idea of dedicating money to early hydrocarbon development appears increasingly impractical in the eyes of the country’s economically stressed population. The country’s licensing rounds offer one path forward, but it is still too early to tell whether foreign investors are willing to enter the still volatile Greek economy. Further, the country’s privatization push includes the sale of domestic natural gas provider DEPA and its transmission system operator, making the bridge between significant future hydrocarbon revenues and the state all the more unclear.

Still, Athens appears willing to move forward with the energy exploration effort and has also begun exploring the possibility of establishing themselves as a transmission hub for gas from the Levantine Basin when Cypriot and Israeli efforts begin to mature.

Image: Hellenext

Originally Posted: Newsbase EurOil Monitor

 

 

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Algeria’s Downstream Deficit on Display

The impact of Algeria’s downstream deficit became clear this month as a tighter European refining market threatened a series of gasoline deliveries scheduled for mid-October. Despite substantial oil and gas reserves and high export rates to the United States and Europe, Algeria does not currently offer the downstream capacity to meet growing domestic needs. Recent refinery closures and site maintenance in Europe and a sharp increase in car ownership locally have exacerbated the country’s energy challenges by reducing accessibility to refined products, according to a Platts report and comments from Energy Minister Youcef Yousfi.

As of January 2012, Algeria boasted a total crude oil refining capacity of 450,000 bpd at four facilities. This capacity is not on track to meet rising domestic demand for refined materials, promoting an increase reliance on imports, which rose from 1.3 million tones in 2010 to 2.3 million tones in 2011. This situation has hardly been helped this year with the six-month closure of their largest facility, the 335,000 bpd refinery at Skikda in July 2012.

To address this deficit, Algeria has launched a series of renovation efforts at each of the facilities with an aim of being able to increase output to meet domestic demand by 2014. These efforts include the construction of a Liquefied Natural Gas (LNG) plant and three Liquefied Gas Facilities at the Skikda location, an expansion of 20,000 bpd at the Algiers location, an increase of 30,000bpd at the Arzew location and a plan to build three new LNG trains at the Hassi Messaoud site.

In addition to improving sites to meet current demand, Algeria must also prepare for expanded production efforts, including both traditional, unconventional shale and the country’s push into offshore exploration. Recently, the country’s government and state-backed oil and gas firm Sonatrach unveiled an expanded $80 billion energy investment plan, with about $60 billion set aside for exploration efforts. The government also revised the country’s hydrocarbon laws to appeal to foreign firms willing to support investment into shale projects.

According to a Bloomberg report, Sonatrach CEO Abdelhamid Zerguine has stated that the North African country offers an estimated 2 trillion cubic meters of shale gas which they base on tests carried out in three provinces over 180,000 sq. km.

Image: Arabian Oil and Gas

Originally Posted: Newsbase Downstream MEA Monitor

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Tunisia and an Undefined Shale Future

As the rush to exploit shale reserves continues across the globe, Tunisia’s potential has come into the spotlight due to a number of conflicting reports from interested foreign firms and the country’s new government.

Facing expected increases in local demand and a weakened post-Arab Spring economy, which contracted 1.8 percent last year, a Tunisian shale boom would be a helpful step forward in terms of energy security and growth. While modest in comparison to larger shale markets, most notably the United States and China and to a lesser degree, Poland, Tunisia’s shale estimates suggest enough potential to change the energy landscape of this country of 10.5 million. According to a U.S. Energy Intelligence Agency report, as of 2009, Tunisia offered approximately 18 trillion cubic feet of technically recoverable shale gas.

However, despite clearly stated interest on the part of several foreign firms and a lack of viable hydrocarbon alternatives, Tunisia’s current transitional government has avoided a clear embrace of the often-controversial extraction process.

A Growing Caution

As countries across the globe rush to replicate the progress seen in the United States over the last decade, many have rushed to partner with foreign partners with more direct experience with the costly and very technical shale extraction process, known as hydraulic fracturing, or “fracking”. The extraction, according to the UPI, “involves drilling into the rocks horizontally and then cracking them with a high-pressure missile of water mixed with sand and chemicals, to unlock the gas from the impermeable shale rock.”

The complexities of this process and the environmental risks involved have made introducing shale projects difficult into new markets increasingly difficult. Bolstered by reporting and advocacy groups in the United States, opposition has grown due to concern about possible harmful waste, water supplies and the potential impact irresponsible development could have on the local environment and aquifers.  This has resulted in partial or outright bans on shale efforts across Europe and delays in government approval in several more countries.

Early reports suggest that these concerns may have had a hand in the delay or outright denial of licensing rights for shale projects in Tunisia. In late September, Tunisia’s Industry Ministry were pushed to respond to reports that they were preparing to grant an unconventional license to Shell in the Kairouan region of the country. Denying the completed agreement, the Ministry announced that while they had received a related application, they had responded with an appeal for an environmental and water impact analysis, according to an Al Bawaba report.

The water usage issue related to “fracking”, which can require millions of gallons for each well, is especially important for the arid North African region. The Ministry release did allow that government was considering shale options, stating, “Tunisia is mulling over producing shale gas to meet its growing domestic demand and the expected drop in traditional oil stock”.

However, just a few days later, the African Manager website reported that a source close to the case stated that shale efforts would likely be abandoned completely by the current government thanks to concerns about the potential environmental impact. While unconfirmed outside of that source, the report does reflect the lack of a clear narrative about the country’s current position on introducing shale efforts.

Ready and Waiting

However the country decides, they will have a number of potential partners to held lay a shale foundation. Earlier this year, Shell announced plans to pursue unconventional efforts in both Tunisia and neighboring Algeria, which has been much more assertive in their support for shale development. So far, Algiers has signed production agreements with Italy’s Eni and Shell, among others. Going so far as to introduce new hydrocarbon legislation to entice foreign investment in unconventional energy projects, Algeria has set a course for energy diversification, addressing a steady increase in domestic demand and allowing an increase in export revenue.

For Tunisia, the addition of shale to the country’s energy options would address more modest goals of just easing dependence on costly refined oil imports and the burden of steadily declining local oil reserves.

In addition to Shell, Winstar Resources have also expressed a strong interest in pursing what they feel is Tunisia’s vas energy potential. Despite reports of a possible sale of their Tunisian interests earlier this year, the Canadian company included a positive outlook of their access to the country’s shale potential in their August, second quarter corporate report. Earlier this year, representatives from Italy’s Eni suggested they might extend their shale reach beyond Algeria and were “thinking of entering the Tunisian shale gas market,” according to a Dow Jones report.

In late September, the country’s shale reserves also took center stage at the second annual Tunisia Oil and Gas Summit, where the keynote session explored Tunisia’s unconventional, including input from a number of foreign E&P firms and sponsor Halliburton. The US company has been at the forefront of shale excavation technology for decades.

It should be noted that even if the country’s transitional government side against introducing shale to the Tunisian landscape, presidential and parliamentary elections have now been scheduled for June of next year. With new leadership in sight, any opposition could face a limited lifespan. For their part, Shell has not included any information about unconventional projects in their online literature related to Tunisia, but did recently announce a $150 million oil exploration deal in the country.

Image: Agency Tunis African Press

Originally Posted: Newsbase’s AfrOil Monitor

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Algeria Revises Hydrocarbon Law But Real Sector Changes Remain Unclear

After months of speculation, Algeria’s Council of Ministers finally announced that they had passed a revised hydrocarbon law, erasing the outdated 2005 legislation in hopes of reversing the country’s waning production levels. However, lacking precise details and missing expected reforms for existing projects, the new law ‘s impact on the country’s weakened production efforts may not have the impact they hoped for.

Passed earlier this month, the legislation was accompanied by an announcement from the national government outlining a plan that focuses on creating a more inviting investment environment for potential development partners who can help Algeria make the most of their potential shale reserves. However, the revisions appear to have little effect on existing or more traditional efforts, which have seen a steady decline in recent years.

According to a Bloomberg report, Algeria is sitting on an expected 2 trillion cubic meters of shale gas which they base on tests carried out in three provinces over 180,000 sq. km. However, reaching the country’s reserves remains a challenge for the government and its state-backed firm Sonatrach because of high initial production costs and a lack of domestic experience and equipment.  The shale push figures into the country’s wider $80 billion energy sector investment plan over the next five years, with 60 percent of funds dedicated to excavation and production efforts, including “150 exploratory wells and expand crude-processing capacity at three oil refineries.”

To meet the requirements of launching a local shale effort, Algeria has turned to foreign partners to help guide the process and provide needed technical experience, including Italy’s Eni, Royal Dutch Shell and Exxon Mobil. The new legislation was meant to appeal to these firms, opening up significant new streams of revenue to a country heavily dependent on hydrocarbon exports to meet government spending needs.

An Uncertain Energy Landscape

Almost exclusively dependent on oil and natural gas revenue to fund government spending and operations, Algeria has long realized known that the secret to keeping the country politically and socially calm is a strong energy sector. However, in recent years, sector uncertainty and misuse helped create a working environment seen as hostile to a number of necessary foreign firms, leading to both cancellation of existing projects and dwindling interest in new ones. The most glaring example of the country’s waning attractiveness to outside investors came with a round of ten possible licenses which attracted only two bids, one of which came from the country’s state-backed energy firm, Sonatrach.

The decline began with the adoption of new revenue sharing laws and taxes in 2005, including a new policy in 2006 that would impose heavy costs on revenue when oil climbed over $30 a barrel. Interest continued to waver, spurring a decline in the country’s output, which dropped more 5 percent in 2009 alone. Algeria’s production environment grew more and more unattractive to foreign investors, spurring threats from international firms that they would leave if conditions did not improve.

This process began with a wide-reaching corruption investigation at Sonatrach, resulting in an overhaul of the company’s leadership. Accused of selling exploration rights and claims to family members and friends, the Sonatrach leadership was shown the door in a way Algiers hoped would rebuild some level of confidence among international investors.

The energy sector leadership in Algiers continued this process with new support for novel avenues of local exploration, including new natural gas efforts and adopting unconventional strategies, including seeking out the kind of deep-set shale reserves that have transformed energy markets in North America, China and potentially Argentina. However, Algeria realized that to diversify, they must seek out ways to appeal to wary funding partners abroad.

In order to appeal to necessary foreign production partners, Algerian officials announced a revision earlier this summer, noting that an overhaul was necessary because the 2005 law was passed when pricing and technology required a very different approach to excavation and production strategies.

Now passed and announced by the government, the legislation has fallen short of analyst expectations, including keeping a 51-49 percent ownership requirement for Sonatrach in place. Additionally, the new laws will not apply on existing excavation projects, giving little relief to those companies already operating in country. Instead, government officials announced only that undefined tax incentives would be offered to foreign partners to encourage unconventional efforts, which require significant investments in technology and personnel.

An Wider Expansion Effort

Algeria’s move into unconventional exploration efforts comes as the country tries to broaden their energy base, for the benefit of both growing domestic demand and vital revenue streams. In addition to supporting the development of shale projects, Algeria has also begun appealing to development partners for renewable projects to the tune of $60 billion, according to a Bloomberg report. The push is intended to move the country towards a 40 percent adoption of renewable power by 2030, easing domestic demand and increasing the amount of domestic hydrocarbon reserves available for export.

Image: Sweet Crude Report

Originally Posted: Newsbase’s Afroil Monitor

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