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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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Egypt Sees Some Hope in Nat Gas Tenders, But Will it Be Enough?

Following earlier reports pointing to an expansion of Egypt’s energy exploration and production, Cairo announced last week that they would offer a tender for a collection of on and offshore blocks for natural gas efforts taken on by international partners. The tender was announced after winning approval from the country’s Defense Ministry, clearing the way for the Egyptian Natural Gas Holding Company (GASCO) to begin offering the tender this week and for the next several months.

The exploration effort follows in the footsteps of a number of regional neighbors who have launched similar offshore natural gas efforts, including Cyprus, Lebanon and Israel. Those blocks included in the tender will be located very near or on the country’s maritime border with Israel, offering access to an estimated 223 trillion cubic feet of reserves, according to a United States Geological Survey analysis of the area. Of the 15 total areas included in the tender, 13 are offshore and six are located in waters bordering Cyprus and Israel.

The announcement comes as the country tries to stabilize both their energy and political situation, the latter of which has received a blow in the last week after former president Hosni Mubarak was sentenced to life in prison. Further, the political void he left behind is expected to be filled by either a former Mubarak military official or conservative Islamic candidate  – neither of which appeals to the country’s center or the revolutionary groups the led last year’s protests.

Meanwhile, the country’s energy sector is still reeling from cuts in exports and production brought on by a series of attacks on pipelines in the Sinai and an investigation into corrupt sales practices under the Mubarak government. While Cairo has been able to get deliveries of customers in Jordan back on line, the situation led to an eventual suspension of natural gas deliveries to Israel.

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.

Concerns about that debt and the ability of Cairo to ensure the money to pay for it have been credited for three major fuel shortfalls so far this year, the latest of which saw petrol stations and other sources closed or facing substantial delays last week. According to the Ahram Online news site, the country relies on imports for only 10 percent of its energy needs but has consistently faces funding obstacles, made worse by the unstable environment that has followed the government hand-over.

According to a recent Bloomberg report, the situation has required the country’s finance minister to announce a planned $100 million injection to help the local market meet domestic needs.

The actual shortage has been linked to a number of explanations, from the high consumption of the agricultural sector to a more conspiratorial angle that points to former Mubarak officials planting seeds of instability before the country’s run-off election in mid-June, but the end result and solutions are the same. Egypt needs to increase domestic production and address their liquidity challenges and they need to do it fast. Until they do, suppliers will continue to be wary about signing on to provide for the Egyptian markets or take part in an upcoming $1 billion tender.

The country’s fuel situation reflects a much larger challenge on the part of the new government and whoever wins this month’s runoff to offer some assurance to international lending institutions.

“After the outcome of the first round (of the election), we are much more bearish,” an economist at a major foreign bank, who did not wish to be identified told Reuters. “We see a lot more instability, but the major risk is the long-term outlook. This result does not unlock the situation.”

The report went on to say that Egypt would need a minimum of $11 billion over the next year “to stave off a balance of payments crisis and a potential devaluation of its currency”, making any appeal to foreign investors all the more important to weathering the fiscal storm ahead.

While the active development of the country’s natural gas reserves would undoubtedly help alleviate some of that debt and ease the country’s domestic energy demand, it is far from clear whether foreign companies view Egypt as a safe bet. Lingering uncertainty about the county’s stability and ability to ensure a stop in attacks in the Sinai have continued to hinder interest as Cairo struggles to sell themselves as a reliable energy bet.

Image: Jafria News

Originally Posted at Newsbase’s Afroil Monitor. All rights reserved.

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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

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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

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