Tag Archives: Energy

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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Italy’s Elections Offering Few Energy Specifics Beyond More Local Control

Europe-scrambles-to-save-euro-markets-surge-N1L45LK-x-largeAs Italy prepares to go to the polls after months of frustration about tighter government spending policies and slow recovery, the country’s energy sector faces a wave of uncertainty as candidates hint at solutions, but offer few specifics.

The late February elections present a stand off between supporters of an increasingly unpopular technocratic government led by Mario Monti and critics of his tighter belt approach, led by a newly resurgent Silvio Berlusconi, or as the Christian Science Monitor described it, “the populism of short-term fixes and the long-term reforms necessary to make Italy’s economy solvent, competitive, and sustainable over the long run.

So far, leaders of all sides have hinted at what the country could see as far as expanding an energy sector that is largely dependence on foreign resources for oil and natural gas. After a reversal of an offshore drilling ban late last year, Monti unveiled plans to more than double domestic crude production, suggesting increased development of local resources in favor of expensive and uncertain imports. Similarly, the head of the center-left alliance, Pier Luigi Bersani said he would emphasize domestic reserves with a concentration on natural gas and a further reduction of state support for renewable options, according to Dow Jones. For his part, Berlusconi has offered few specifics, but does bring with him deep ties to Russian producers and affection for a nuclear return in the country.

More than a specific threat to Italy’s energy sector, the country’s national elections are proving to be a source of concern to the economy and investors in general. Despite recent declines in borrowing costs, after a series of painfully high auctions, Italy has seen investors grow skittish about the future or at least about the instability that could accompany a political transition. At the heart of this are critics of the current administration’s strict spending cuts and tax reforms, introduced in an attempt to reduce stress on the economy, with many taking aim at the appointed leadership of Mario Monti. While a full return to power by Berlusconi is not expected, the former prime minister’s ability to block a full parliamentary majority could shatter confidence about Rome’s ability to stay the course and scare off nervous investors. However, even if a Democratic majority is achieved, some have suggested that their policies may prove to be just as destabilizing.

“I’m investing in the euro zone but not in Italy, because although they have a primary surplus, there’s huge uncertainty politically,” Torgeir Hoien, head of fixed income at $19 billion Norwegian investment firm Skagen told Reuters.” What kind of policies will the Democratic Party pursue if they win?”

Originally Posted in Newsbase’s Euroil Monitor

 

 

 

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Algeria Explores Downstream Investment Plans

Saddled by increasing energy demand and public spending, as well as steadily declining production levels, Algeria and its state-backed firm Sonatrach have outlined an increased budget for the next five years, with much dedicated to improving downstream efforts.

Algeria recently announced a $12 billion increase in their budget dedicated to the energy sector over the next five years, adding to the $68 billion already set aside for infrastructure and downstream efforts. Much of the additional funds have been set aside for increasing Algeria’s refining capabilities and investing in non-traditional efforts, both of which will require high initial investments but are intended to decrease the country’s dependence on imports.

The importance of improving the country’s most important revenue stream has become increasingly important in recent months as the new Algerian leaders seeks out ways to avoid the kind of public protests that led to the collapse of governments in Tunisia and Libya. Like Morocco, Algeria stepped up public spending to quell growing opposition but now face pressure in sustaining such spending. Algeria currently looks to oil and gas revenue for the majority of their export revenue and much of their government spending.

Algeria’s need for greater refining capabilities has become especially clear in recent weeks as purchases of gasoline and other refined goods spiked amid increased demand and in anticipation of a six-month closure of one of the country’s largest plants. Currently responsible for nearly 335,000 bpd, the Skikda refinery will be closed over the next six months for planned repairs. Overall, planned refurbishments to Algerian downstream efforts are predicted to increase output from 1.2 million bpd to 1.5 million bpd within five years.

To help fund the effort, Sonatrach have announced their plans to return to exploration and production efforts in neighboring Libya and increase foreign investment through a revision of the country’s energy policies. The country has recently seen a decline in international interest in energy efforts due to what has been called a hostile investment environment. According to Reuters, the amendments to Algeria’s energy law will introduce “tax incentives that aim to boost offshore exploration and attract foreign companies that can bring technology know-how for the development of unconventional reserves.”

Cross Posted with Newsbase’s MENA Downstream Observer

Image: Energy D-V

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Libyan Downstream Looks for Support

As Shell joins the ranks of foreign firms reassessing their presence in Libya amid political and security instability, the country’s downstream ability to attract needed investment and modernization financing has become increasingly questionable. Although general production levels are on schedule to meet pre-conflict levels this summer, Libya’s ability to move beyond that amount and make better use of the continent’s largest proven reserve of crude is far less certain in the eyes of potential production partners.

While both sides of last year’s conflict expressed their intent in protecting the country’s valuable production and refining infrastructure, many facilities were damaged during the violence that led to the collapse of the Gadaffi government. Far more remains outdated and unable to meet growing needs.

At the center of the debate is the country’s continued delay in re-opening the 220,000bpd Ras Lanuf refinery. While operations at the country’s second largest Zawiya Oil Refinery have reportedly returned to 100 percent, concern about stability and disputes with local authorities have kept the needed Ras Lanuf from operating at full capacity.

These concerns stem from growing public protest against new and existing contracts and uncertainty about the country’s political well-being. The latter of these issues has been further complicated by the recent news that national elections would be postponed from this month to next. Meanwhile, according to a Dow Jones report, the country’s energy sector has been slowed and in some cases stopped completely, by an ongoing review process and increasingly anxious opposition to agreements with US and European firms.

The resulting landscape has left many foreign partners, who would provide needed funding for infrastructure development and downstream expansion, wary about returning or entering the Libyan marketplace. In March, State Oil Co. of Azerbaijan, or Socar, denied reports that they would enter into agreements with Libya to expand their refinery and petrol station presence in the country, citing ongoing instability as the reason.

Image: Bloomberg

Originally Posted in Newsbase’s Downstream Monitor, All Rights Reserved

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Spanish Economy and Transport Limitations Keep Medgaz Low

After a year of delivering Algerian natural gas to Spain, the Medgaz pipeline continues to face significant challenges to full capacity, with traffic running lower than expected due to a number of factors in Spain and beyond.

The pipeline connecting Algeria with Almeria has the capacity to transport “8 billion cubic meters annually, or 22 percent of Spain’s gas needs,” according to a Reuters report. Sonatrach currently owns 36 percent of Medgaz, with Iberdrola, Abu Dhabi’s Cepsa, Enel’s Endesa and Gaz de France on as project partners.

Algeria’s role as one of the largest natural gas importers in the world has been hurt recently thanks to the country’s sustained economic downturn, which shows little sign of improving in the near future. Even after announcing an EU-level bailout for Spain’s ailing banking system this past weekend, Prime Minister Mariano Rajoy warned that the country’s economy faced a difficult year ahead, suggesting further economic contraction and a longer path to recovery.

Such sentiment gives little confidence to the country’s natural gas actors who are dealing with a decrease in demand so significant that Spain’s newest LNG plant will be hibernated as soon as it is completed in December. Complicating the matter further, Spain’s limited connection to other European natural gas customers has hindered the country’s ability to off-load excess supply. Spain’s minimal pipeline network to France is likely to remain limited due to long-standing political opposition to new transport lines from France.

Still, Medgaz appears confident that Spain’s increased dependence on natural gas will continue beyond the country’s current economic woes, with company reports pointing to steady growth despite recent financial troubles.

For their part, Algeria and their state-backed firm Sonatrach have been working to increase their natural gas efforts, announcing an $80 billion euro plan to expand their resource base over the next five years.

Image: Arabian Oil and Gas

Originally Published in Newsbase’s Afr Downstream Monitor – All Rights Reserved

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Morocco Offers Up Incentives for First Wave E&P

Dismissed by oil and gas majors for the last decade, Morocco is working to renew interest in their hydrocarbon potential through incentive and tax programs aimed at smaller operators in hopes of laying a foundation for future energy development.

The country’s efforts are driven by Morocco’s traditionally heavy dependence on outside energy resources, making the development of local production energy efforts all the more important for the country’s economic stability. Morocco is currently dependent on imports for 97 percent of its energy needs and has long aimed to reduce its dependence on foreign sources through the development of domestic projects, including exploring newly-found traditional reserves, shale projects and more recently, alternative energy plans.

Last week, Zac Philips, an oil and gas analyst at Fox Davies noted that while the country had largely been ignored by large capital operators in the past, Morocco’s incentives had provided significant opportunities for smaller firms like Circle, Longreach Oil and Gas, San Leon and Pura Vida to stake out claims in the Northwest African nation.

According to reports from companies active in the country, the Moroccan energy efforts have helped create one of the most hospitable in the region for outside firms, includes rules dictating that the state receive just 25 percent of any project, with a 5 percent royalty for a gas discovery and 10 percent for an oil find. Furthermore, the government offers a 10-year corporate tax holiday following a discovery. Compared to countries like Algeria, which can claim up to 92 percent of energy production efforts, the Moroccan experience has proven favorable to small capital firms in search of new frontiers.

While these incentives mean little without actual reserves, these openings have allowed the more modest operations to introduce both traditional and novel E&P strategies to blocks located on and off shore in what Philips believes to be an opportunity to clear the way for larger capital interest down the road.

Much of the renewed interest in Morocco’s oil and gas potential stems from shale potential and reports suggesting offshore similarities between the east and west Atlantic. Based on the fact that the continents were connected millions of years ago, the assumption is that they share similar natural resource reserves.

That potential has allowed a certain degree of confidence among firms active in the country, including Pura Vida who revised their resource estimates at the offshore Mazagan permit at the end of April, increasing from 2.6 to 3.2 billion barrels of oil following further analysis of the site.

Meanwhile, onshore, San Leon has worked to expand on its shale efforts in Poland with efforts in Morocco’s Zag and Tarfaya Basin licenses, reporting substantial potential reserves and an eagerness to seek out production partners for expansion, according to a January company release. Longreach Oil and Gas also reported strong progress this spring, with efforts at their Sidi Mokhtar licenses at the fore of their expanding presence in the country.

Despite the progress allowed by the country’s incentive and tax programs, it is unclear how long the country’s incentive and tax schemes will allow smaller capital firms to hold leadership positions in Morocco. Eventually, strong production levels will invite increased interest from majors like BP and Shell, casting companies like Longreach and Pura Vida as a first wave of progress rather than long-term partners.

A Broader Approach

The efforts also reflect a broader, more far-reaching approach to domestic energy production in Morocco that also entails substantial support for both traditional hydrocarbons and renewable energy, placing them at the forefront of such alternative sources in the region. As southern Europe’s green energy sector continues to slip under the pressure of the economic crisis and spending cuts, Morocco has worked to etch out a leadership position amid growing interest in solar and wind development, including a flagship 500MW solar plant, scheduled to begin construction this year.

In addition to encouraging energy production efforts, the Moroccan government has worked to increase their transport role in North Africa in hopes of establishing a stronger leadership role in the region. In February of this year, Morocco opened the country’s second oil terminal in the northern coastal town of Tangiers, increasing domestic storage and allowing greater access to busy shipping lines at the mouth of the Mediterranean.

The effort was the product of a group put together by Emirati Horizon Terminals Ltd., Moroccan company Afriquia SMDC and Kuwaiti firm Independent Petroleum Group, the $180 million terminal will hold 3.2 million barrels, with 53 percent dedicated to gas and diesel and 43 percent set aside for fuel oil and fuel additives, according to a Reuters report.

The country plans to further expand its importing reach with the development of a LNG terminal near Jorf Lasfar. The project has been under discussion since 2007, but was recently mentioned in remarks by the newly appointed Minister of Energy, Mines, Water and the Environment, Fouad Douiri.

One region, this energy focus is unlikely to reach is the contested Western Sahara, home to large potential oil and gas reserves, as well as a 36-year old dispute over authority. Despite reported progress earlier this years related to talks between Morocco and the Algeria-backed Polisario Front, this week saw Rabat dismiss United Nations efforts after losing confidence in envoy Christopher Ross, according to a Reuters report.

Image: Proactive Investors

Originally Published in Newsbase Afroil. All Rights Reserved

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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.”

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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.

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