Monthly Archives: November 2012

Libya’s Lofty Goals Remain But So Do Challenges

After rebounding faster than many thought possible, Libya’s oil and gas sector has set its sights on further expansion with new production goals for this coming March and significant expansion over the next five years. With a plan that includes gradually broadening their exploration efforts, increasing refining capacity and even venturing into unconventional options, including shale, Libya appear poised to finally live up to their energy potential in the region.

Despite such confidence and political will, the North African nation now faces more than its share of challenges standing in the way of those lofty production goals. More than just an additional revenue stream for the country, Libya’s energy output represents the country’s clearest and surest path towards sustainable growth and stability over the coming decade. Currently, Tripoli looks to hydrocarbon revenue for 80 percent of GDP and 97 percent of export earnings, making the sector’s stability and growth all the more vital to Libya’s post-war future.

However, questions about security, shared domestic benefits and confidence among needed foreign partners have cast some doubt about whether the country’s new political leadership have a plan in place to make this happen.

A Quick but Unsure Recovery

With more than 46.4 billion barrels of available crude, Libya is home to Africa’s largest proven oil reserves. Despite the country’s potential, Libya has seen a steady decline in production levels from a 3 million bpd peak in the 1960s. This slowdown was the result of an insufficient infrastructure and political isolation under the leadership of Muammar Gadaffi. Production efforts began to rebound after international sanctions were lifted in 2004, though the government’s handling of the energy sector and underperforming efforts created a cautious atmosphere among foreign firms. The collapse of the Gadaffi government amid widespread violence last year dealt another blow to production efforts last year, but quick action on the part of the transitional government helped output rebound ahead of analysts’ predictions, reaching 1.6 million bpd this month. While still far short of 1960s’ highs, the recovery has offered some confidence, setting up a production goal of 1.72 million bpd by late March and 2.2 million by 2017.

Libya has also been able to increase natural gas output, producing 2.5 billion cubic meters (bcm) a day as of this month, with plans to increase to 3 bcm by the end of the year.

Members of the country’s National Oil Corporation (NOC) have suggested that the country’s’ short-term goals can be met with only existing projects, moving beyond that amount will require expanding both up and downstream efforts in the coming months.  This will include new production licenses within the next year, according to Reuters, as well as following up on projects that were delayed as a result of the conflict. After signing a $900 million exploration agreement in 2009, BP announced their intent to return to Libya with both on and offshore projects planned.

Further, expansion efforts will include improvements to the country’s refining capacity, which now stands at 378,000 bpd, across five facilities, according to a recent European Commission report. The growth of the country’s refining capacity will be especially important moving forward to address export demands, as well as domestic needs. Libya currently relies on imports for three-quarters of its gasoline needs.

However, the NOC and the country’s new political leadership must first deal with a series of domestic challenges standing in their way, most stemming from the violent conflict that led to the collapse of the Gadaffi government.

In addition to dealing with damage to the country’s energy infrastructure during the civil war, Libya has also been plagued by uncertainty about the country’s security situation. While some companies, including Italy’s Eni and Spain’s Repsol, made quick returns after the war ended, others have remained cautious, with many of the militias that rose up during the conflict still active and armed.

This situation has become more pressing as some of these groups have begun using up and downstream faculties as tools of protests. Recently, a group demanding medical care and compensation for their role in the war halted production at the Zawiya Refinery for three days in protest, costing the country an estimated $30 million in lost revenue, according to Reuters. In addition to lost earnings, the protest spurred action among local workers who threatened protests of their own to demand better security at the facility. So far, Tripoli have been able to avoid such protests with a pledge to hear out workers’ concerns, though no long term solutions have been put on the table. This lack of clarity has been made worse by an ongoing struggle for political influence between the traditional central government in Tripoli and the unofficial capital of the oil-rich east, Benghazi.

A Stable Setting for Foreign Investment

Whatever solution is finally applied to the country’s security situation, it will need to come quick to ensure needed international investors. This is especially true with the country’s current and anticipated energy infrastructure. In addition to boosting transport lines, Libya will need significant investment in unconventional technology if it hopes to reach the estimated 290 trillion cubic meters of shale gas the U.S. Energy Information Administration believes the country holds.

While Libya has not traditionally relied on gas production, the country’s shale potential has forced a reevaluation of its role in the energy sector and the country’s ability to move beyond pre-conflict production levels, NOC Chairman Nuri Berruien told Bloomberg. Reaching those reserves will require costly early investment and appeals to foreign firms with more direct experience with hydraulic fracturing, or ‘fracking’ – the process necessary to extract deep-set shale deposits.

Image: The Wall Street Journal

Originally Posted in Newsbase, Afroil Monitor

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Spanish Oil and Gas Adjusting to New Reality

Facing a sustained economic crisis and unfavorable legislative responses, many in Spain’s energy sector are working furiously to adjust expectations and strategies for what could be a very different domestic marketplace.

The country’s new energy reality became a bit clearer at the end of last month as a collapse in local demand and stronger than expected needs from across Europe helped make Spain a net diesel exporter for the first time on record, according to a Reuters report. The shift was also the result of 5 billion euros in refinery upgrades over the last few years, increasing Spanish capacity and helping avoid one facility closure. While this development stems from Spain’s diminished domestic diesel market, reflecting slower growth and demand, it has provided a way for needed revenue from stronger diesel demand elsewhere in Europe.

Meanwhile, larger firms, including Repsol and Gas Natural, have worked to insulate themselves against the diminished Spanish and wider European demand by attempting to expand their footprint in emerging markets in South America and North Africa. Despite these efforts, many have faced further challenges at home thanks in part to exposure to the domestic market and the weight of the country’s sovereign debt challenges. In early October, Standard & Poor’s downgraded energy giant Gas Natural from stable to negative as concerns grew around a possible sovereign bailout appeal by Madrid.  On October 19th, Reuters reported a slight reprieve for the energy sector as the government sidestepped a lowering to junk rating on sovereign debt, though considering the government’s current energy debt and status, this development hardly brings them out of the woods.

For the country’s natural gas actors, further adjustments may soon be necessary thanks to a revised national tax program that will apply a 6 percent flat rate on power generation, as well as an additional “green tax” for gas-fire generation. Alongside the government’s recent cuts in energy subsidies, this new tax is part of an effort to ease Spain’s current energy deficit of around 24 billion euros.

Image: Eurogascorp.com

Originally Posted in Newsbase’s Euroil Monitor

 

 

 

 

 

 

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Cairo’s Sinai Efforts Falling Short

Weeks after the Egyptian government pledged action to halt growing unrest in the Sinai Peninsula, military action appears to have had minimal effect on stopping violence and safeguarding the country’s energy trade route to Jordan.

The promised action followed months of growing instability in the region, beginning shortly after the fall of the government of Hosni Mubarak. In addition to a growing number of kidnappings, the Sinai saw 15 direct attacks on natural gas pipelines bound for Jordan and Israel. In early August, a single attack that led to the deaths of 16 Egyptian soldiers spurred newly elected President Mohammed Morsi to launch a military initiative aimed at bringing the region back under control. However, as recently as this weekend, attacks have continued, including one that resulted in the deaths of three police officers in El-Arish.

This latest event was followed by the dismissal of the North Sinai security chief, General Ahmed Bakr as well as protests among local police groups demanding greater attention from government forces and the passage of emergency laws. In response, Morsi once again pledged direct action, but will likely face resistance from a local Bedouin population with a long history of conflict with Cairo.

In addition to the clear goal of returning order to the country’s eastern region, the government’s efforts are especially important to protecting a natural gas export route to Jordan and beyond. Although exports from Egypt have recently halted as Cairo deals with a surge in local consumption and dwindling supply, the country’s ability to exploit domestic reserves for future growth will rely on a dependable export route to the east. According to a Jordan Times report, talks between the two governments have suggested that exports could resume as soon as next month, with a possible boost in quantity on the table.

While the government is working to address local consumption issues through a reassessment of subsidy programs and energy diversification, they have also begun pushing for greater exploration efforts, including both on and offshore projects. Recently, the Morsi government offered tenders for fifteen on- and offshore blocks for natural gas exploration.

Image: The Guardian

Originally Posted in Newsbase’s MEA Downstream Monitor

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