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Greece Eyes Energy Options, But Investment Gap Looms

 After six years of recession and economic contraction, Greece have set their sights on a long-awaited start to recovery, including an energy push that promises new exploration efforts and an expansion of existing projects. However, Athens’ push has been weighed down by economic realities, making the country’s energy aspirations an elusive goal.

To start with, Greece’s promotion efforts have recently been undercut by contradictory forecasts by international observers like the OECD. After predicting the first positive growth forecasts in nearly six years, Athens was faced with an OECD report predicting further contraction in the year ahead and possibly even further bailout packages.

“The need for further assistance to achieve fiscal sustainability cannot be excluded,” the report said, according to the BBC.” If negative macroeconomic risks materialise… serious consideration should be given to further assistance to achieve debt sustainability.”

It’s against this backdrop that Greece is attempting to sell itself as a viable option for foreign investors, which is vital to the country’s ability to kickstart a domestic energy sector.

“They need to overcome a trust gap,” said Costas Mitropoulos, executive director at PwC at an event organized by the Hellenic-American Chamber of Commerce exploring the country’s recovery and economic potential in Athens this week.

Government officials responded by saying the pace of regulatory reform is putting them on track for a strong recovery, well in line with the demands of international partners and lenders, including the International Monetary Fund.

If they are able to close that gap in the months ahead, Greece has a number of energy sector projects that would benefit from an increase in FDI, most importantly a push to open up exploration efforts in offshore areas of the country.

Building on enthusiasm surrounding a broader Eastern Mediterranean gas effort and a U.S. Geological Society report that suggested Greek waters could be home to billions of barrels of oil, energy actors are now seizing on a new study from Norway’s Petroleum Geo-Services. The study detailed a seismic survey of an area in the Ionian Sea that shared geological features of earlier hydrocarbon discoveries.

The study was hailed by Environment, Energy and Climate Change Minister Yannis Maniatis at a conference in early November to representatives of international energy firms, including Chevron, Eni, ExxonMobil, Gazprom, OMV, RWE, Shell and Petronas, according to the UPI.

 

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Refinery Progress Highlight’s Egypt’s Domestic Downstream Push

ImageAfter years of delays and challenges from inside the country and out, Egypt’s new refinery project appears poised to finally break ground and it could not come at a better time.

In the two years since the collapse of the government of Hosni Mubarak, Egypt has faced significant challenges to meeting domestic energy needs thanks to increasing demand, an unsustainable state subsidy program and an overall loss of confidence on the part of production partners. In an effort to cut down on costly imports, the country’s new government has pushed for substitution options, the most notable of which is a $3.7 billion refinery projects helmed by Citadel Capital.

First proposed in 2007, the project has encountered a series of obstacles to completion including a wider global economic slowdown that made securing needed financing all but impossible. More importantly, Egypt became the poster case for the Arab Spring, spurring the collapse of the long-standing government of Mubarak. This development pulled the rug out from under the country’s business environment, again, making financing a difficult goal to reach.

Still, while financing the project took far longer than they expected, Citadel was able to close the process last summer, clearing the way for the project finally moving forward. The facility will produce more than 4.2 million tons of refined product a year, halving the country’s imports and saving the government an expected $300 million during that time. Most importantly for a country facing an increasingly frustrated population that has faced blackouts and cuts in services due to fuel shortages, the facility means a long-awaited boost in downstream capacity.

Citadel was able to meet financing needs with the help of a number of outside actors that looked past the country’s current uncertainty. These have included the African Development Bank, the European Investment Bank and Qatar who have pledged billions in investment and support for Egypt over the last several months.

Other efforts to curb dependence on expensive imports at a time of political and economic volatility have included possible new trade deals with Iraq and a soft credit crude agreement with Libya. 

Image: Arabian Business

Originally Posted: Newsbase Downstream Monitor, All Rights Reserved

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Italian Offshore Back on Track but Progress Has Been Limited

ImageAlmost a year after Rome reversed a ban on offshore drilling, Italy’s energy sector is showing signs of life with new efforts and interest on the part of foreign firms.

This month has seen progress reported by   Petroceltic, Northern Petroleum and Mediterranean Oil and Gas regarding offshore efforts in Italian waters. However, despite such advancements, progress has been limited in improving the country’s overall energy standing – a situation made worse by a toxic political and economic environment and local opposition.

The Mario Monti government announced an end to a ban on drilling within five nautical miles of Italian shores that had been put into place following the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

The purpose of the government’s reversal on offshore drilling last year was two-fold. First, an increase in domestic production would help ease the country’s current, heavy dependence on foreign producers. Italy brings in about 90 percent of its oil and gas needs from outside the country and has seen alternative energy options evaporate over the last three years, making those imports all the more important. While renewable development has suffered amid a wave of government cuts and a loss of investor confidence brought on by the country’s economic crisis, Italy’s push to reintroduce nuclear power disappeared almost as soon as news of Japan’s Fukushima disaster reached Rome.

Second, the financial benefits of a boost in domestic production could help jumpstart Italy’s ailing economy, offering little in the way of investment options to outside investors. When the Monti government announced the plan to ditch the offshore ban, the country’s Economic Development Minister Corrado Passera predicted that expected increases in output allowed by the revision could bring in as much as 15 billion euros, while reducing the country’s energy bill by about 6 billion euros, according to Bloomberg.

Nearly a year on from the ban reversal, Italy’s energy options have offered little relief due to a precarious economic and political environment as well as instability in Algeria and Libya, two of the country’s largest providers of oil and gas.

Complicating the offshore situation still further has been the actions of local environmental and political advocacy groups. Even before the 2010 ban had been into place, groups in Sicily and along the Adriatic coast had pushed for drilling bans in the name of environmental and tourism protection. Although the ban has been reversed on a national level, local groups have still challenged exploration efforts in individual cases leading to production delays.

Offshore may have returned to Italy, but it is still far from clear whether it can provide the diversification and revenues

Image: Rigzone.com

Originally Posted: Newsbase Euroil Monitor

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Northern Mali Threat Continues to Cast Shadow Over Algerian Energy

ImageDespite the apparent success of a French-led military force in ridding Northern Mali from an armed separatist movement, recent violence has suggested that significant challenges remain to both that country and the energy sectors of its neighbors.

As recently as this past weekend, a car bomb and violence were reported in Timbuktu, once again highlighting the uncertainty of the region and the challenges of those in the region in need of a more stable business environment.

As much of North Africa has struggled with wide-ranging political opposition movements, resulting in the collapse of long-standing governments, Algeria has remained unchallenged by protest efforts. Rather, threats to the country’s stability have come from outside, with substantial pressure coming from a stretch of Mali along the country’s southern border. The country has struggled with an armed separatist movement for months, which seized authority from national troops late last year.

This pressure boiled over into Algeria in January with a coordinated raid on a BP gas site, spurring a messy government response and ending with the death of 38 foreign workers. The impact was immediate, with foreign firms suggesting delays to protect their personnel and neighboring Libya promising swift action against any similar events.  

More than just an unfortunate turn of events for a country that relies heavily on energy revenues for just about every aspect of government spending, the event presented a real threat to vital foreign investment needed to strengthen and expand the country’s infrastructure.  Algeria currently boasts access to about 12.2 billion barrels in oil reserves and 159 tcf of natural gas, with the U.S. as one of their largest trading partners.

However, a recent decline in local production and a push to tap into the country’s sizable shale potential have highlighted the role of foreign investment in the country’s immediate energy growth plans. To reach new output goals, Algeria will contribute billions from their own coffers towards boosting downstream capacity, but they will also need to partner with foreign partners who can offer the investment support and technical know-how needed to boost production exploit shale reserves in the near future.

Algeria has promoted substantial shale potential, attracting a number of necessary foreign firms to their shores, each providing the equipment and experience needed for the introduction of shale to the region. Keeping them in place may prove a little more difficult unless Algeria can provide a more stable working environment, making the kind of flare-ups seen this week all the more damaging.  

Originally Posted: Newsbase’s MEA Downstream Monitor

Photo: Mem.algeria.com

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Moroccan Downstream Offers Unclear Picture Ahead of Large Cap Entries

Recent entries by large cap actors into Morocco’s oil and gas sector over the last three months have signaled a new confidence regarding the country’s largely dormant hydrocarbon potential. With Chevron and Portugal’s Galp taking on controlling stakes in areas previously claimed by only modest, independent operators, Morocco’s push to expand their traditional energy potential appears to be gaining traction. However, with the North African nation’s domestic demand at the heart of this push, it remains unclear whether its weakened downstream potential will be able to meet expected growth.

Despite a virtually non-existent oil and gas sector, Morocco has recently made a subtle push towards appealing to foreign firms in order to explore the country’s offshore and non-traditional options. So far, efforts to broaden the country’s energy potential have included only renewable campaigns, including a 2009, $9 billion solar scheme, and attracting smaller firms to potential oil and gas fields. However, over the last two months, both Chevron and Galp have bought into controlling stakes of offshore projects. For Galp, an early December purchase from Australia’s Tangiers was driven by a 450 million barrel potential reserve, which was revised to an estimated 750 million barrels following further studies.

Making a more sizable statement as one of the world’s largest actors, Chevron inked an offshore deal with Morocco’s Offices National Des Hydrocarbures Et Des Mines to take on seismic studies of the Cap Rhir Deep, Cap Cantin Deep, and Cap Walidia Deep efforts.

However, as the country explores their domestic potential as a way of easing dependence on expensive and increasingly volatile imports, Morocco’s downstream potential does not appear to be keeping pace. As of 2011, the country boasts only a single refinery at Mohammedia following the conversion of their Sidi Kacem facility to a distribution plant. Despite a long-running modernization push as a part of an agreement between Rabat and state operator, Samir, the plant has seen partial slowdowns in output over the last year. These pauses have been the result of scheduled maintenance and expansion plans that have included upgrades to a new crude distillation unit and a jet fuel facility, which can produce 600,000 metric tons a year. This effort is a part of a broader strategy to add 4m tonnes of refined oil per year, according to Reuters.

While these efforts appear to address current domestic demand, it is far less clear whether a single plant will be able to meet an increase in local production should Galp or Chevron gain traction over the coming year or two.

Origionally Posted: Newsbase’s MEA Downstream Monitor

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Spanish Scandal Could Force Energy Strategy Change

ImageAfter a turbulent first year of cuts aimed reducing a crippling deficit, Spain’s energy sector could see a shift in direction as a corruption scandal threatens the current conservative government.

Since taking office after early elections just before the New Year in 2011, the government led by Prime Minister Mariano Rajoy has led a campaign of cuts and adjustments meant to drive down an energy sector deficit that greeted them around $30 billion.  Attributing the daunting amount to unsustainable government subsidy programs, Rajoy and his Minister of Industry, José Manuel Soria set out a series of cuts that have spurred appeals to the European Commission and lawsuits from investment firms.

However, the fate of Mariano’s party leadership in Madrid has recently been cast into doubt amid allegations that senior officials had received secret cash payments after the practice was made illegal in 2007. Rajoy denied any wrong-doing following an extensive report published in Spain’s national daily, El Pais detailing payments to him as late as 2008. The El Pais report was quickly followed by calls for Rajoy’s resignation and denials from party officials.

While it is not yet clear whether a return to the Socialist leadership that led the country for eight years before Rajoy would signal a change in pace, it is even less clear whether voters would hand the reigns back to the left should the conservatives be forced from office. Recently, both of the country’s largest political parities have seen support erode thanks to their handling of the economic crisis. On the local level, this has allowed support to shift to smaller, less centrist parties.

However, even if Rajoy remains in power – which regional observers expect he will – the government’s approach to the energy sector will likely see a change in the New Year. Despite the government’s cuts and general deficit reduction strategy, the energy sector’s deficit has continued to rise in recent months casting doubt on their approach. While Soria and company predicted a slowdown as a result of the cuts, which have focused on solar and wind subsidies; the deficit has actually grown at double the expected rate. Soria has signaled a different approach in the coming year and insisted once again that further cuts will not include retroactive actions.

This expected reversal reflects a broader trend in Spanish economic improvement, which has largely relied on cuts in spending and services across the country’s seventeen communities. With unemployment continuing to rise and economic growth stagnant, Madrid and Brussels alike have suggested an approach that does not focus so much on austerity and may include additional efforts aimed at growth.

Image: Iberosphere.com

Originally Posted: Newsbase Euroil Monitor

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Understanding Why the EU Matters to You?

In a seemingly endless quest to understand the myriad links between financial and government institutions across the world that have led us so closely to the precipice over the last few years, I have started gathering the best content I could find that explain these connections and just why someone in San Francisco should care about the state of banks in Athens, or someone in Kansas City should care about the well being of the Euro. First up is BBC’s Euro Debt Web, detailing what’s owed and to who when it comes to the European Union and beyond. Second comes The New York Times, Its All Connected – a pleasant enough bubble graph if you don’t pay attention to what its all about, outlining the debt exposure for EU countries and their debtors.

Updates to follow.

 

Italy’s Uncertain Future

A shift in focus could come with the exit of Silvio Berlusconi and the arrival of a new government but right now a great deal of uncertainty surrounds Italy’s energy future

Following weeks of political upheaval and roller-coaster market instability, Italy now finds itself with new national leadership. With it comes the promise of a technical approach to governance and the introduction of new financial measures aimed at calming global worries about the country’s ability to deal with its overwhelming debt. The exit of controversial Prime Minister Silvio Berslusconi and the appointment of Mario Monti to lead the government to implement a host of new regulations promoted by the European Union (EU) and the International Monetary Fund (IMF) were welcomed by political and market leaders across the globe. But it is far from clear how this new technocratic leadership will work in practice, including how it will shape Italy’s precarious energy standing. Although the news of Bersluconi’s exit was enough to drive up oil and gas prices across the globe – further allowing local companies such as Eni the spike in profits necessary to weather current challenges – it is far less clear how his departure will affect the country’s broader energy future.

Challenges

The last 18 months have left Italy with a collection of energy challenges, including issues pertaining to its domestic operations and production as well as overseas exploration and production. The country’s most prominent energy trading partner, Libya, saw its long-standing government collapse as pro-democracy movements led to an armed conflict lasting months, resulting in a complete halt in production.

Despite international pressure, Italy had spent the last decade cultivating trade and diplomatic relations with Libya’s former leader, Muammar Ghadaffi, through heavy investment in aid and development, establishing Libya as one of its three main providers of oil and natural gas alongside Algeria and Russia. The armed conflict saw Italy’s energy imports under threat, as companies such as Eni were forced to remove expatriate staff from the North African country.

Meanwhile at home, Italy has seen two domestic efforts to step up energy independence curtailed by local protest movements. Offshore drilling projects were restricted after the Deepwater Horizon spill in the Gulf of Mexico inspired calls for new project rules in the Mediterranean, leading to a ban on efforts within 5 nautical miles (9.3 km) of the Italian coastline. While the new regulations have mostly hindered smaller operators, such as Mediterranean Oil and Gas, new proposals from the EU on offshore drilling could have a further impact on projects in the region. Finally, the government’s push to revive Italy’s long-dormant nuclear power programme after the events surrounding the tsunami in Japan this year and its impact on nuclear plants sparked a wave of protest from EU and local political leaders. After being set aside until political pressure had subsided, the campaign has now lost its strongest proponent in Berlusconi, causing further uncertainty about a nuclear future in Italy.

Foreign relations

These events have left Italy and the country’s largest energy firms increasingly isolated when it comes to their immediate opportunities not only for growth but also for the country’s immediate oil and gas needs. This situation may be further exacerbated by the absence of Bersluconi, who demonstrated a willingness to seek out energy partnerships beyond and sometimes against wider regional sentiment.

This approach – leading to close working and diplomatic relationships with Ghadaffi and Russia’s Prime Minister Vladimir Putin, will not likely be continued under the stewardship of Monti, a much stronger proponent of EU market integration and member state partnerships. Having announced his campaign to return to Russia’s highest office, Putin echoed this sentiment in a speech last week where he derided EU energy policies while praising the outgoing Berlusconi as a friend and “one of the last of the Mohicans of European politics”, according to the Wall Street Journal.

All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents

Although Putin is favoured to return to office, the change in leadership in Libya may offer Italy some relief, as Eni has returned to production efforts in the country after embracing the Libyan Transitional National Government (TNG) despite earlier reservations. Eni has revived production efforts in Libya, including its work in the Elephant field south of Tripoli, but levels remain modest. Fully supported by the EU, the TNG will provide a greater opportunity for Italy to expand its presence in North Africa in the months ahead, though infrastructure deficiencies and lingering worries concerning regional stability have slowed a return to pre-conflict production levels.

Elsewhere in North Africa, Italy has sought more exposure to the region’s energy potential, recently moving forward on a long-delayed pipeline project linking Algeria, one of its largest energy providers, with the island of Sicily. The move would increase imports into Italy, as well as side-step potentially unstable transport systems in the transitional political environments of Tunisia and Libya. However, faced with likely spending cuts and a significant tightening of the belt, Italy may not be willing or able to pursue such costly infrastructure projects in the coming year.

For now, the country’s energy future remains vague, with little allotted for traditional or novel approaches to meeting domestic energy needs or expanding its hydrocarbon presence abroad. Having announced that it has little to contribute to Europe’s expanding shale extraction marketplace and that it has done little to build a government support system for renewables, the country again is looking to its traditional providers for an energy answer.

 

Originally Published in Newsbase, EuroOil Monitor. November 15, 2011.

All Rights Reserved.

How Easy Will Change Come?

With new governments in place in Italy and Greece and new leadership in Spain by Sunday night, its now important to look at just what these folks are up against. Whatever they propose, the streets of Rome and Athens today do not suggest it will be easy. The Economist’s take on one part of their monumental task. 

Election Week: Spanish Edition I

In what is sure to be many posts over the next few days on Sunday’s Spanish elections,here’s a bit of what the conservatives have to offer when it comes to the country’s financial current financial predicament. In short, more cuts, more consolidation of banks with far too many toxic assets to sustain:

I don’t want to kid people…there is no miracle recipe or magic potion (…) I hope that in our first year we can do things and that over the course of our legislation we can create jobs in a sustained and stable way. I’m not in favour of creating a bad bank in any case, what I do want to do is that the banks continue to regroup as they have been doing…I think yes [we need a second round of mergers]. – Mariano Rajoy, almost certain next Spanish PM in the Guardian.

I suppose there is something to be said for trying to serve up the cold-hard truth about what Spain is going to have to do to get things under control and back in the good graces of investors, but I wonder how much of Rajoy’s caution has to do with the reality of his future position becoming clear. That said, any efforts to clarify his plans beyond More Cuts, More Jobs are undercut by his performance up to now. The running joke around here seems to be that his plan is to strengthen the economy by erasing unemployment and erasing unemployment by improving the economy.