Egyptian Energy Presses Ahead Despite Criticism

Despite extensive efforts, Egypt has struggled to get their economy back on track in the year since widespread public protests led to the ousting of long-standing president Hosni Mubarak. Political instability and uncertain investors have kept needed international funding at bay, as Cairo works to establish a solid foundation for the country’s first new government after decades of Mubarak leadership. The country’s coveted tourism sector remains weak and despite enormous reported potential, Egypt’s renewable industry has been slow to start as investors and international financing agencies adopt a ‘Wait-and-See’ attitude.

Still, despite the stagnate pace of growth and economic recovery, one sector of the country’s economy has continued to shows signs of life – Egypt’s oil and natural gas producers. According to United States National Public Radio report this week, the country’s General Petroleum Company, the government office charged with making final decisions on exploration and production agreements, has continued to add to the country’s 148 standing partnerships.

The continued rounds of licensing for both on and offshore efforts comes despite strong criticism aimed at how such efforts were carried out under the Mubarak government, with critics leveling complaints at a perceived lack of transparency about pricing and the amount of domestic reserves set aside for exporting.

The continued lack of transparency surrounding the natural gas deals has critics worried that even with Mubarak gone, the Egyptian government may still be allowing the kind of controversial agreements that led to a wave of protest earlier this year. The backlash came soon after an investigation uncovered payment agreements with Israel and Jordan for Egyptian natural gas that assured under-market prices in exchange for benefits for local government officials. While Jordan was quick to work out a renegotiated deal, contested trade agreements with Israel added to existing strain between new political leaders in Cairo and its eastern neighbor.  The situation was further complicated by a series of now 14 attacks on natural gas pipelines in the Sinai region of Egypt, halting exports again and again. Energy relations between the two countries showed little sign of improving after Cairo cancelled a 2005 export agreement with Israel, who currently depend on Egypt for 40 percent of their energy needs.

More than just lost revenues, the decision to cancel Egypt’s 20-year deal to supply natural gas to Israel is now resulting in a lawsuit filed by investors in the East Mediterranean Gas for violations of bi-lateral investment treaties, according to a Bloomberg report.

Despite such criticism, the government may have little choice than to support new production deals under the pressure of mounting debt and wavering interest from existing project partners. According to Australia’s The National, the Egyptian government has accrued about $4 billion in debt to international energy firms due in part to large-scale purchases to allow for heavily subsidized domestic sales. This comes despite the country’s own 78 trillion cubic feet of proven natural gas reserves. This debt has recently increased, according to the report, due to late payments as a result of the country’s recent political instability.

Further complicating the situation for the government and local partners, the country’s recent uncertainty and apparent high cost of operating in Egyptian territory has pushed some international firms to reassess their presence there. In November of last year, Royal Dutch Shell handed back an offshore block, stating that the high costs of operating there overshadowed the possible rate of return.

Still, many firms are looking past the country’s current predicament and ahead to a potentially calmer new year, including Houston’s Apache and the UK’s BP, who are hoping to capitalize on a 2010 offshore effort. In fact, it is the government’s willingness to pursue new deals despite the country’s current challenges that has Apache feeling confident about the months ahead.

“Our operation has continued [uninterrupted] and supported by government partners as evidenced by the issuance of new…leases,” Apache President and Chief Operating Officer Rodney Eichler said, according to a Dow Jones report. “We are optimistic for Apache’s future in Egypt.”

Given the financial limitations of the country’s current government, anything more than new licenses may be too much to hope for. Burdened by significant budget shortfalls, the Egyptian government will be unlikely to consider any price renegotiations with existing production partners, regardless of the additional risks now associated with operating in the country.

However, regardless of either company’s intentions or interests, existing deals could soon come under scrutiny should critics chose to build on the investigation that put a spotlight on the Israeli and Jordanian deals.

“Some terms that are now in question are part of the 2010 deal with BP for the extraction of deepwater Mediterranean gas,” reported NPR. “While many details of the deal have not been made public, it has many critics.”

A similar threat of agreement reviews has foreign partners on edge in Libya, where the country’s transitional government has pledged to take a closer look at those oil and gas agreements completed under Gadaffi.

Originally Published at Newsbase’s Afroil Report. All Rights Reserved.

Image: Modern Egypt.info

Energy Proves Vital in MENA Economic and Political Outlook

A recent IMF report outlining the economic outlook of MENA states painted a positive but cautious portrait of North African states after the Arab Spring, with both potential and obstacles linked to the fortunes of the region’s energy sector.

From Rabat to Cairo, the post-Arab Spring region will depend heavily on energy use and production plans to get them through the next year, according to the IMF’s biannual Regional Economic Outlook Update for the Middle East and Central Asia report.

The Producers

Unsurprisingly, the IMF report painted a rosier picture for oil and gas exporting states in the region, though they were quick to add that significant obstacles to growth and economic stability remained, mostly in the form of political uncertainties, periphery conflicts and the lingering impact of the European debt crisis.

In the case of countries like Algeria, Spain’s second recession in four years does little to help the government’s ability to keep natural gas revenues in line with public spending needed to keep an increasingly agitated population happy. For government officials in Algiers, oil revenues would need to stay at least above $100 a barrel to cover the expense of the country’s subsidy programs and state spending, according to a Financial Times report.

Instead of reducing government support systems, Algeria has moved to expand them with this week’s announcement that they would introduce legislation outlining new incentive programs for the country’s burgeoning shale industry. Pointing to projects in the US and Poland, Algeria have outlined a plan to increase revenue and expand domestic production through tax incentives and a pledge on the part of the state-backed firm Sonatrach to invest up to $80 billion over five years, with 60 percent going towards shale exploration and production, according to a Bloomberg report.

Shared Concerns

“Oil-importing, especially Arab Spring, countries will need to set out on their own paths toward economic modernization and transformation,” read the report. “But they will also need to rely on financial assistance and technical and policy advice from the international community to support homegrown reform agendas. “

Ensuring such outside funding has emerged as the most glaring challenge for both importing and exporting countries due to lingering instability and its impact on

foreign investment and other financial support coming from international institutions. Without political stability across a region heavy with new governments, investors and financing agencies remain cautious, slowing the process of infrastructure recovery in Libya. According to a regional energy analyst at CIDOB, a Barcelona-based foreign policy think tank, the lingering uncertainty about North Africa has forced a “wait and see” approach on the part of European and US investors, as well as funding institutions.

In Egypt, a lack of political consensus has hindered the new government’s ability to ensure a $3.2 billion development loan from the IMF and threatened much largr potential agreements from Gulf state funds. For their part, the IMF cited a lack of a clear direction as reason for pause. This political instability has been most evident in Libya as interest from much needed foreign oil and gas partners is being tested by an interim government seen as dragging its feet on providing opportunities and access to Africa’s second largest proven reserves.

Unfortunately, that stability is not restricted to whether political coalitions can organize in time or ensure safe and effective elections. Across the region, questions about violence and safety have plagued governments, making the prospect of attracting needed foreign investment all the more difficult. Most recently, tension between Sudan and the newly autonomous Southern Sudan boiled over into violence as a result of conflicting claims about oil reserves. The potential for the Sudanese conflict to spread has demanded the diplomatic attention of regional neighbors, including the Egyptian government who sent representatives to help ease tensions.

To the west, the potential threat of the Northern Mali separatist movement spilling over into the Southern Sahara areas of Libya and Algeria have kept officials and investors on edge in those countries.

Seeking Solutions

In the case of Morocco, leaders in Rabat were able to boast one of the North Africa’s only steady increase in per capita income, but pitfalls remain, especially in light of the country’s weak domestic potential and heavy dependence on foreign resources. During a recent conversation with Forbes, Fouad Douiri, Morocco’s newly appointed Minister of Energy, Mines, Water and the Environment said the country will address development and energy issues by targeting renewable projects in favor of shale, offshore or traditional drilling operations. Outlining plans to install more than 2000 MW of solar, wind and hydro power, Douiri said that the government intends to « reduce Morocco’s annual imports of fossil fuels by 2.5 million tons of oil equivalent and to prevent the emissions of 9 million tons of carbon dioxide.”

While confident that they will be able to continue funding such efforts, the Moroccan government face significant fiscal shortfalls thanks to an increase in subsidies and public work jobs offered to calm growing political opposition last year.

Originally Distributed by Newsbase. All Rights Reserved.

Image: Energyboom.com

Catalonia’s Immigrants Face Lonely Road Ahead

Cross Posted at: http://iberosphere.com/2012/04/spain-news-6031/6031

Sitting across the table from Xavier Alonso Calderón, Catalonia’s Head of the Immigration and Labour Relations, it was hard not to feel for everyone within a hundred paces of his office. In one of many sweeping cuts to government spending since coming into office late last year, the Partido Popular-led government had targeted Spain’s immigration and integration fund to nearly nothing. Established under the Zapatero government in 2005, the fund had set aside up to 200 million euros to be distributed to Spain’s autonomous communities to help fund programs aimed at reporting, educating and integrating the country’s foreign born population – a group that had exploded over the past decade, accounting for over 16 percent of the 44 million national population.

In immigrant-heavy communities like Catalonia, the funds had paid for Calderón’s department and their efforts to draft a new, sweeping Law of Reception, outlining the responsibilities of officials at every level of the foreign-born communities and establishing a reporting system that would be used for all those applying for permanent residence. While the reports would be non-binding on the national level, they would help normalize education and outreach efforts and get the community more involved in the integration process.

Nearly two years on since our first conversation, the law had been passed and over 26,000 reports had been filed since the program was put into place in June of last year, all completed by Calderón’s team of 26. This week, Calderón faced a decidedly different set of circumstances. With the national fund reduced to next to nothing, the department would be cut in half, leaving a baker’s dozen to do what is being asked of more and more across Spain these days – do more with less.

While this is hardly a novel concept in light of Spain’s current budget woes, it does signal a new and rather absolute approach to the country’s foreign-born population – if you want to stay, its not going to be easy.

It’s hardly a new concept that in times of economic woe, a country’s foreign-born populations stand to suffer, but Spain and especially immigrant-heavy communities like Catalonia may provide exceptional cases. Beginning in the mid-1990s, Spain’s immigrant population began to grow on the back the country’s real estate boom, attracting mostly low-skilled workers to Spain. Those arriving found steady supply of vacancies left behind by a near simultaneous spike young Spaniards seeking college degrees. The population continued to grow throughout the 90s and naughts, peaking in early 2007. Tied as it was the country’s economic expansion, the influx of foreign-born workers and their families ebbed a bit as the economy slowed from 2008 on. The numbers from several countries, especially Morocco and Latin America began to fade as revere migration took hold and economic development grew in other places. However, a mix of momentum and the global nature of the economic crisis kept people coming. While the flow from countries like Argentina may have leveled or decreased, the economy in places like Pakistan have not proven to be enough of a pull to make much of a dent in Catalonia’s nearly 40,000 residents that hail from there.

Readily accepted and welcome for much of the period of Spain’s growth, these groups increasingly became political fodder during recent elections, with local and national parties making cautious forays into immigrant-targeted rhetoric during campaigns. One conservative candidate in Catalan elections showed up in an immigrant-heavy suburb of Barcelona with citizenship contracts shortly before regional elections. While Spain’s foreign-born population has so far escaped the kind of direct attacks by political figures in Italy, the Netherlands, Greece and France, the election season and dour economic outlook has left them on the defensive as they look to the next few months.

This feeling was compounded by the PP’s reduction of the national fund, a move that will likely result in far-fewer opportunities for education and integration among Catalonia’s foreign-born communities. Calderón stopped short of suggesting that the reduction of the national fund, or even the total cut in medical care available to “irregulars” last week, were motivated by anything more than budget constraints, but he did allow that the ideology of the current leadership both on the community and national level made it clear that funding would not likely come back soon. In practice, this reduction is going to mean fewer workers to implement Catalonia’s integration law and less overall support for those in search of the requirements needed to qualify for residency.

Still, Calderón remained upbeat despite the coming months. “We just have to be more efficient,” he said, adding that there were still options for offsetting some of the lost fund from EU funds. Echoing the sentiment of more and more state workers now faced with a sudden absence of funding and support across Spain, Calderón looked at the challenges ahead and simply said, “We have to do it, we have no choice.”

Image: Undhimmi.com

Southern European Energy Looks for Footing in New Economic Environment

As governments across Southern Europe struggle to adjust to a new and limited political reality, many state energy policies are reflecting a more conservative planning approach. While most attention has been paid to how these new policies stand to affect renewable sectors in Spain, Italy and Greece, state strategies to conventional energy resources will also be influenced by fiscal limitations and new political leadership.

At the heart of most energy policy decisions from Madrid to Athens is the effort for new governments to reign in spending and reduce budget deficits to meet goals laid out in conjunction with stakeholders on the European and international market level. This environment has increased uncertainty among foreign investors, a sharp reduction in the amount of government funding available for any new energy endeavors and an almost across the board increase in energy prices for consumers.

In the case of Spain, a precarious energy landscape and daunting 27 billion euro sector budget deficit has been met with a pledge by industry minister José Manuel Soria that the financial burden will be shared across the industry. While that pledge has so far only affected renewable and coal subsidies and an increase of consumer prices of 7 percent for electricity and 5 percent for gas, there is worry that it could soon spread to more traditional efforts. Heavily dependent on foreign resources, Spain has seen new domestic exploration projects in the form of shale efforts in the north and offshore drilling near the Canary Islands.  

Similarly dependent on foreign resources, Italy and its technocrat government led by Mario Monti has pledged a wide-array of cuts to existing traditional and unconventional energy endeavors, though they have so far not seen a spike in consumer prices thanks to a steady decline in demand brought on by economic pressures. Having faced a steady decline in available energy resources as a result of both foreign challenges (Iran, Libya) and those closer to home (offshore bans, the failure of nuclear resurgence), Italy has signaled a focus to shift support towards less traditional energy support as opposed to revisiting conventional options. Last week saw the Monti government introduce the idea of a carbon tax aimed at providing funding for sustained support for green energy options.

In Athens, the government’s aim of debt reduction has spurred a move away from state-backed energy endeavors with a host of privatization efforts planned for this summer. After signaling a willingness to seek investment for a sprawling 20 billion euro solar farm project, the appointed Greek government announced an effort to sell off state holdings in Hellanic Petroleum and the state natural gas firm DEPA. The move comes as many in the region have expressed strong interest in further investment in natural gas discoveries in the Eastern Mediterranean.

In all cases, such privatization efforts come at the very real risk of losing out on significant future revenues in favor of short-term fiscal relief.

David Parker, Emeritus Professor of Privatization and Regulation at the Cranfield School of Management told Reuters, “We are certainly going to have a risk that the government sells off industries without really thinking about the long-term implications.”

Repsol’s Year Just Keeps Getting Worse

Despite winning approval from Spain’s government to pursue offshore exploration efforts near the Canary Islands, Repsol appear to have few allies in the company’s efforts to kick-start domestic production.

Since receiving the support of the government of Maraino Rajoy on March 16 to restart offshore efforts 70 km off the coast of the islands of Lanzarote and Fuerteventura, Repsol have faced a steady stream of legal challenges and protest movements from across Spain. Spain’s Socialist opposition party has joined residents of the islands to oppose the project on the grounds that it could threaten the archipelago’s most important source of revenue – tourism.

Originally initiated in 2001, the Repsol effort – a consortium with Australia’s Woodside Petroleum Ltd. and RWE AG of Germany – has been stalled as a result of an earlier court ruling. Now equipped with the encouragement of Rajoy and Spain’s new Minster of Industry, José Manuel Soria López, the effort will move forward, but not without its challengers.

Since mid-March, protest movements have grown both in the Canary Islands and on the Spanish Peninsula aimed at reversing the decision. These efforts come

despite claims by Soria that the project could help ease the country’s energy needs to the tune of 10 percent of Spain’s oil overall demand with an estimated 140,000 bpd.

Soria’s support for the exploration effort and reference of the impact a successful discovery could have on the country’s energy needs comes as the new minister struggles to deal with a daunting financial deficit. 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, Soria has been charged with reducing this amount through any means necessary, insisting that the weight of it must be shared throughout the country.

Further complicating the issue is the proximity of the project to the maritime border with Morocco, whose government has also launched exploration efforts in the area. As the border is not officially set, the two countries could see conflicting claims to possible discoveries.

Similar fears led to the delay of another Repsol project off the coast of Cuba earlier this year, requiring lengthy inspections and environmental reviews by U.S. political leaders amid fears that a potential spill could harm local coastlines.

For now, Repsol appear intent on moving forward despite the opposition, thanks mostly to the support of Rajoy’s Partido Popular and will work towards the next step by completing a necessary environmental impact study.

Image: PressTV

 

Egyptian Energy Sees Some Return to Stability but Challenges Remain

In the months since the collapse of the long-standing government of Hosni Mubarak, Egypt has struggled to stabilize their energy sector amid widespread shortages and a seemingly endless series of attacks on vital transport lines. Despite the uncertainty these setbacks have provided, Egypt’s oil and gas industries have seen some progress, making a needed return to stability an achievable, if still difficult goal.

Egypt’s energy sector began experiencing delays almost as soon as public protests forced military attention away from the Sinai Peninsula and towards volatile city centers. The military exit allowed rebel groups in the region to mount a series of attacks on natural gas pipelines serving customers in Israel and Jordan, halting exports and much needed revenue for the Egyptian government. The natural gas sector received another setback as allegations emerged detailing below-market deals for Israeli and Jordanian customers in exchange for payments to Mubarak officials. Both counties have begun exploring import alternatives as rising tension and repeated shutdowns have made Egyptian natural gas unsustainable.

Making matters more difficult, Egypt has experienced two massive fuel shortages brought on by panicked purchasing amid reports that the government will soon slash fuel subsidies to help deal with a mounting budget deficit.  Currently, about two-thirds of Egypt’s total subsidies go towards fuel costs – an amount that is expected to increase 40 percent this year to reach $16 billion, according to the Council on Foreign Relations.

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However, despite the steady stream of bad news, many oil and gas actors in the country are making strides towards sustaining and even expanding operations in Egypt’s new political and economic environment.

According to Market Watch, Houston-based Apache announced a 3 percent increase in production in Egypt’s Western Desert, reaching 203,000 barrels of oil and 880 million cubic feet of gas per day thanks to the development of seven new leases in the Faghur Basin.

Last week, Ukrainian Minister of Energy and Coal Industry Yuriy Boiko announced the country’s intention to boost production efforts in Egypt with the signing of two concession agreements for the development and operation of oil and gas fields in the Wadi El Mahareeth and South Wadi El Mahareeth oil blocks in the Eastern Desert in Egypt, according to a government release.

Meanwhile, the PetroSinai joint venture, which operates on behalf of the Egyptian Petroleum Company and MENA, announced the successful re-entry in the Lagia 6 oil field. The move is a part of a proposed development plan that will include up to 55 wells aimed at developing the Lagia Development Lease. Australia’s Beach also recently announced their intention to expand their Egyptian footprint with the development of oil finds in the country.

Challenges Remain

However, further progress in Egypt, especially among larger energy investors, could be hampered by an ongoing struggle over hydrocarbon E&P authority, which is currently under the control of the country’s military. According to Lebanon’s Daily Star, a holdover system from the Mubarak government places the final authority over exploration and production efforts in hands of generals and “military permits” that dictate when, where and how projects move forward.

The existing system was at the center of a meeting held late last month between the country’s oil ministry and representatives of companies active or interested in Egyptian projects, including BP and Enap Sipetrol.

“Egypt is investor friendly, but army restrictions make the lives of people harder,” said Marwan al-Ashaal of Enap Sipetrol, according to The Daily Star.

The meeting saw company representatives call for an overhaul of what they saw as dated production sharing agreements in order to spur needed investment and foreign partnerships.

Revising such dated systems related to the country’s energy sector could be vital to ensuring public support, but will also require a demonstration of shared benefits to the general public, not just select government officials, remarked a UN official close to energy development in Egypt last week.

In an effort to cope with the loss of revenue from severed ties with Jordan and Israel, the Egyptian government has pushed for greater trade cooperation with Sudan. Originally built on an export agreement signed in October of last year, this effort now requires Egyptian officials to take on a diplomatic role in hopes of calming tensions between Sudan and South Sudan over the disputed Heglig oilfield.

As for the capital’s struggle to deal with the now 14 attacks on natural gas pipelines in the Sinai, the government has announced a series of military efforts, stepping up their presence in the region to combat rebel groups and even collaborating with Israeli troops to address rocket attacks across the two countries’ border. The dual effort is especially difficult, as public sentiment has turned against stronger ties with Israel due to the natural gas controversy and the rise of political leaders strongly opposed to diplomatic ties of any kind between the two countries.

Despite these efforts, this week saw another attack on an oil facility in the town of El-Arish, resulting in the death of two policemen and injuring a third, according to the Associated Press.

Image: CNN Money

Mali’s Uncertainty Spurs Concerns Across Central Africa

While not directly connected to Mediterranean affairs, the situation in Mali could have far-reaching effects in North Africa.

Continued uncertainty about the actions of both government and separatist forces in Mali have stoked fears that the country’s recent instability could spread throughout the region and threaten the efforts of several energy actors to get back on track.

Last week saw the Tuareg population’s National Movement for the Liberation of Azawad (NMLA) continue their campaign towards the creation of an independent nation in the north of Mali with public declaration following a series of military victories against scattered government forces.

“We, the people of the Azawad [desert region] proclaim the irrevocable independence of the state of the Azawad starting from this day, Friday 6 April 2012,” the NMLA said in a statement posted on their Web site.

Led by the Tuareg rebel group, the National Movement for the Liberation of Azawad, the uprising is a part of a long-standing conflict between the local population and the central government. However, the campaign has recently experienced resurgence as heavily armed fighters have returned home after fighting alongside the Gadaffi government. Since the fall of the Gadaffi government, a wave of weapons and explosives has made its way to Mali, Niger and Burkina Faso in the hands of fighters once loyal to the Libyan colonel. Further, the Tuareg group is a part of a larger population that is spread across Southern Algeria, Libya and Northern Niger.

The move comes as the country’s new government continues to try to put a positive spin on a military coup led by mid-level officers in an apparent response to what was seen as insufficient support for troops fighting the NMLA. Instead of consolidating support behind the troops, the coup, led by Captain Amadou Sanogo, resulted in panic and disorganization allowing the NMLA to capture more ground. The move also resulted in strict series of sanctions from neighboring countries worried about the spread of instability in the region and recognition of such military action. The sanctions, which included the closure of border and halting of trade, spurred Sanogo to announce that he would ensure a return to constitutional rule with plans to transfer authority to parliamentary leader Diouncounda Traore who would then be given 40 days to organize public elections.

The NMLA’s declaration of independence has raised concerns in the region for a number of reasons, including worries among energy actors in central and West Africa. Late last year, the region included in the declaration had been the focus of a series of agreements to finally initiate an exploration program aimed at studying the territory’s oil potential. The effort had included Algeria’s state-backed Sonatrach announce that they would begin operations in the country’s Taoudeni Basin.

Further, concerns have arisen about the potential for the movement to spread or inspire similar movements across the territory currently occupied by the Tuareg population. While the central African region does not currently host many oil or gas endeavors, continued instability could place further restrictions on existing projects, including the already delays Trans-Saharan Pipeline linking Nigeria with the North African coastline and eventually, Europe. The pipeline was intended to link Nigerian natural gas reserves to North Africa, but worries about possible attacks on the project and theft have put the project on hold until concerns can be dealt with. Despite the potential to link the Africa’s largest natural gas reserves with Europe, the pipeline project has fallen on tough times as the EU economic slowdown has decreased demand and created an insufficient market environment for the proposed $13 billion transmission project.  First proposed in 2009 with a joint agreement between the governments of Nigeria, Niger and Algeria, the pipeline faced obstacles from the very beginning.

The potential for such an uprising to spread or create an unrecognized and unstable territory in central Africa has inspired efforts on the part of the African Union and cautious statements of opposition from the US and Europe in hopes of calming the situation before further violence can occur. On its way to restoring production and output to pre-war levels, Libya is already facing budget and personnel shortfalls and an autonomy movement of its own, making the prospect of further instability a greater threat to the country’s energy sector recovery.

For its part, Algeria has seen the kidnapping of seven diplomats in the town of Gao, according to an Al Jazeera report. Reflecting the chaotic nature of the current situation, the kidnappings themselves were publicly opposed by the NMLA leadership, at the same time that the group’s independence declaration was condemned by Ansar Dine, an Islamic organization also operating against government forces in the region.

The collapse of order in what was viewed as one of West Africa’s most stable countries has raised concerns about the region’s ability to weather the political and economic transitions that have occurred over the last year and a half.

Disputes should not be resolved by arms. It’s a bad sign for other countries which are in the process of consolidating their democracies,” Nadia Nata, political governance officer at the Open Society Initiative for West Africa (OSIWA) told Reuters.

Image: Reuters Alert-Net

Leaked Italian Energy Plan Adds Stress to Country’s Outlook

A leaked draft of a new energy plan for Italy has left some wondering what direction the country’s new government will take just months after the last energy plan was released. Following up on a fourth Conto Energia, implemented in late spring of last year, the draft has been circulating online over the last month, spurring speculation about the plans of the country’s new government when it comes to energy issues amid a steady decline in domestic demand.

Much of the recent focus on the leaked draft has centered on the government’s likely reduction in solar subsidies, joining Spain and Germany with cuts to feed in tariffs and an overall decrease in the budget set aside for installation projects. However, reports of the new plan and its focus on shifting financial support away from some sectors has spooked investors and developers in the region. Government and industry officials have remained largely silent on the issue, suggesting it could be an incomplete draft produced by an industry group.

However the new plan turns out, the country now faces an increasingly restrictive energy environment thanks to nearly two years of set-backs and obstacles, both at home and abroad. Following a halt in imports from Libya last year, Italy faced the scrapping of plans to reintroduce nuclear energy after two decades, restrictive offshore regulations and new restrictions on crude from Iran as a result of European Union-backed sanctions. Coupled with the spending cut efforts on the part of the new Mario Monti government, including raising gas taxes to the highest in Europe, Italy’s energy landscape has become fraught with uncertainty.

Possibly signaling a component of a revised government approach, the country’s minister of economic development Corrado Passera said earlier this month that Italy should work towards using all its underused oil and gas fields to address the country’s domestic energy costs.

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.

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.