Tag Archives: Euro Crisis

Spanish Oil and Gas Adjusting to New Reality

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

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

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

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

Image: Eurogascorp.com

Originally Posted in Newsbase’s Euroil Monitor

 

 

 

 

 

 

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A Spotlight on Greece’s Energy Potential But Roadblocks Remain

As Athens struggles to find a viable path out of Greece’s current economic morass, the country’s oil and gas potential have come under scrutiny as possible keys to future growth. However, despite early reports detailing potential across the Eastern Mediterranean and Aegean seas, accessing those reserves may prove more difficult than government officials are letting on.

According to NBC News, Prime Minister Antonis Samaras released a study earlier this summer suggesting as much as $600 billion worth of offshore natural gas in waters accessible by Greece. The report pointed to 3.5 Tcm and the equivalent of 1.5 billion barrels of oil off the southern coast of Crete that might equal or surpass reserves found in the Eastern Mediterranean Levantine Basin. The Levantine Basin is currently the focus of a surge in activity and investment from Cyprus and Israel.

In hopes of replicating the Eastern Mediterranean natural gas rush, Athens has begun offering licensing rounds and seismic studies of the region to move forward with a sector that they feel could be a path towards erasing their debt and addressing the heavy costs of current energy imports. Greece currently spends about 5 percent of GDP on foreign oil and gas each year.

Despite such potential, reaching Greece’s reserves could be particularly challenging and unrealistic for short-term economic recovery efforts. Facing significant pressure from Brussels to reign in spending and address massive debt obligations, Athens has pursued a program of austerity that has done little to ensure political stability or investment confidence.

With little funding to spare and possible benefits years off, the idea of dedicating money to early hydrocarbon development appears increasingly impractical in the eyes of the country’s economically stressed population. The country’s licensing rounds offer one path forward, but it is still too early to tell whether foreign investors are willing to enter the still volatile Greek economy. Further, the country’s privatization push includes the sale of domestic natural gas provider DEPA and its transmission system operator, making the bridge between significant future hydrocarbon revenues and the state all the more unclear.

Still, Athens appears willing to move forward with the energy exploration effort and has also begun exploring the possibility of establishing themselves as a transmission hub for gas from the Levantine Basin when Cypriot and Israeli efforts begin to mature.

Image: Hellenext

Originally Posted: Newsbase EurOil Monitor

 

 

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Italy Tables All Options for Energy Needs

Over that past 24 months, a series of unfortunate events have chipped away at Italy’s already narrow energy options. Compounded by the country’s current economic morass, Italy’s energy sector has been left struggling to find an effective path forward. Now considering and promoting production relationships and strategies long thought to be off the table, the Southern European nation faces an uphill battle towards energy security. With new local efforts and legislation in the pipeline, Rome is hoping for some good news soon. However, with only modest domestic potential and an uncertain political landscape beyond its own border, the question remains, will it be enough?

Long dependent on foreign resources for most of its energy needs, Italy witnessed its limited options for meeting domestic demand fade over the last two years due mostly in part to events far from home. After the Deepwater Horizon disaster in the Gulf of Mexico spurred a ban on offshore drilling in waters within five miles of the Italian coastline, the country suffered another hit to available energy options as the political situation in North Africa flared up. While Algeria, which provides substantial contributions to Italy’s natural gas needs, largely escaped widespread political protests, neighboring Libya did not. After spending a decade and billions of dollars cultivating an energy trade relationship with the government of Muamar Gadaffi, Italy was knocked back to square one as the government fell to opposition movements based in the oil-capital of Benghazi. Left to build a new relationship with a Libyan leadership wary of anyone who had worked closely with the ousted government, Italy then faced pressure from the United States to cut ties with Iran who provided significant amounts of crude to the Italian market. Finally, the country’s unconventional options were dinged by a cash-strapped renewable subsidy program and a nuclear resurgence that fizzled as Japan’s Fukishima disaster reminded Italians why they’d banned it in the first place.

Two years on, Italy is now putting all options on the table to help achieve some sort of progress towards energy security, starting with the ban that started it all. This month saw the Italian government look past public and political protests that came to define the Deepwater Horizon summer and announce that they would re-open coastal waters to exploration efforts. This move has cleared the way for those smaller operations, most notably Mediterranean Oil and Gas, to return to local waters.

This month also saw Rome granted a 180 day reprieve from the US and EU-led sanctions against Iranian crude, allowing some breathing room to help cultivate or expand new trade agreements to replace expected losses. Of all those EU member states expected to be affected by a cut off in Iranian crude, Italy and Spain emerged as those nations with the most to lose. To do this, Italy has looked to expand their presence in Algeria, where the state-associated Italian firm Eni has signed on to help support the expansion of shale gas projects in North Africa. They are also now waiting on final approval for the construction of the planned Galsi Pipeline, which would increase the natural gas flow from Algeria to the Italian market by way of Sardinia.

After quickly reversing their support for the Gadaffi government after violence split Libya in half last year, Italy and Eni have worked to build a strong energy relationship with Tripoli and Benghazi, including a pledge to dedicate several billions towards production and infrastructure development over the next decade.

However, the country’s continuing challenges with security and political stability have caused some concern whether foreign firms will be able to stage full returns to production. This has become especially worrisome in recent weeks as violence spurred direct diplomatic warnings to outsiders operating in the country’s eastern half, also home to the majority of Libya’s oil and natural gas operations, as well as the recently re-opened Ras Lanuf refinery. Even before this month’s direct attack on a US consulate in Benghazi, energy firms had stepped up protection and prevention efforts following a series of actions taken against Western operations in the country.

Locally, Italy has also moved to encourage the country’s natural gas competition with the planned purchase of a 30 percent stake in Snam – the natural gas distribution unit. The deal comes thanks to the government’s sale of 1.7 percent of their stake in Eni, earning them $1.4 billion towards the Snam effort. According to an Associated Press report, Snam has pledged to spend $8.8 billion towards infrastructure development across Italy.

While the country’s economic challenges of the last three years have hardly helped Italy’s energy options, they may have helped only in easing domestic demand, noted in a Reuters report from this week. According to the report, Italy has seen a steady decline in demand for energy products, including 10.1 percent decrease in petrol during the month of August and 8.6 percent for oil products during the same period. Overall, during the first eight months of 2011, “demand for oil products fell 8.6 percent year-on year 43.32 million tonnes, with petrol demand falling 9.7 percent and diesel demand down 9.1 percent.”

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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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Greece Eyes Options As Iranian Deadline Looms

Presenting a significant threat to Greece’s energy needs and overall economic well being, the looming EU-backed sanctions on Iranian crude has Athens struggling to find viable alternatives. Earlier this year, Greece joined countries like Spain and Italy in expressing their concern about the sanctions’ impact on their energy needs and were successful in winning a delay until this summer to find other producers. However, even with extra time, credit and production has presented a challenge to finding such options.

The country’s dependence on Iranian crude was highlighted in late February when state media outlets began reporting that a local refinery had been denied the delivery of 500,000 barrels. Ultimately, the reports were cast into doubt by government representatives, including Greece, Greek Environment, Energy and Climate Change Minister George Papaconstantinou who told Reuters that “we have contracts with Iran that are being executed normally.” However, with the July 1st sanctions deadline fast approaching, the reality of going without Iranian crude is becoming all the more pressing.

To make up for the coming crude deficit, leaders in Athens have begun openly exploring increasing deliveries from countries like Libya, though the exact of impact of such a shift has some worried. In the case of Libya, questions have emerged about Libya’s ability to overcome infrastructure deficits to reach pre-conflict goals for existing consumers, not to mention new ones.

For their part, Greek refiners have pointed to options in Russia, Iraq and Saudi Arabia as perfectly viable alternatives to Iranian oil, though funding might still be a stumbling block. Making up roughly a third of Greece’s energy needs, Iranian crude is currently sold under favorable credit circumstances; a situation Athens fears may change under new agreements, adding stress the country’s current economic standings. According to a Reuters report, concerns about access to credit have led some potential providers to avoid new agreements with Greek importers due to worries about national firms and their access to credit.

Reports from Eurostat have suggested a possible increase of Iranian imports ahead of the July 1st deadline, making the stockpiling of reserves ahead of such a significant drop off a possibility.

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Getting to the Bottom of Spain’s Daunting Unemployment Numbers

Of the many bits of bad economic news Spain has received this past year, including finding deficits were higher than expected and growth rates much lower, perhaps no other figure has proven as weighty and daunting as the country’s unemployment rate. Reports released at the end of January saw that number rise to 22.9 percent adding another dismal headline to the Rajoy government’s first official month. Nearly 5.3 million out of work with declines in available positions across the board, from services to the country’s still collapsing construction sector.

Capturing the dour outlook of the country’s current situation, The Atlantic’s Derek Thompson sadly summarized the statistics facing the new prime minister, noting “The overall unemployment rate is in the mid-20s, industrial production and services activity have both cratered, construction indicators like cement consumption have been devastated after doubling between 1998 and 2007, retail is in a free fall, and export growth (most of which go to Europe) is falling is slowing.”

Amid all the other sour news facing the new government and their recovery efforts, 22.9 percent stood out, dwarfing the rates of fellow EU member states, even those thought to be perilously close to very dark territory. Among those countries most troubling in the eyes of Brussels, Berlin and the global markets, Italy registered 8.9 percent, Portugal 13.6 percent and even Greece – so worrying to so many, managed to come in under Spain with 19 percent.

Still, while weakened by slow to stagnant growth, Spain has remained an economic force in Southern Europe, especially when compared to damaged economies in Greece and Portugal. So, the exploding rate of job-searchers does not make as much sense when viewed in the larger context of the Euro crisis. Sure things are bad from Barcelona to Cadiz, but does 22.9 percent really reflect the state of the Spanish job market? To be clear, the unemployment number broadcast to the world is undeniably important to how the country’s current economic challenges are perceived by outside forces. Indeed, the consequences are far-reaching, chipping away at the country’s fragile confidence and spreading the blame across the economy, including applying higher and higher borrowing rates to banks, no matter how sound an institution might actually be. However, upon closer inspection the number that looms so heavily over the country’s ability to rebound does not really tell the whole story.

First, Spain’s traditional approach to reporting work on a local and national level go a long way to explaining why the country’s numbers remain so high in relation to the rest of Europe, even in the best of times. After rebounding from a 1993 jobless high of 24.5 percent, Spain was driven by a booming construction sector and cheap borrowing opportunities brought about by further integration into the Euro economy. Building on that fresh access to capital and real estate development that dwarfed efforts in Italy and Portugal, Spain emerged as force of growth in Europe, though even then, as the economy exploded, unemployment remained high, bottoming out at a 2006 low of 8.1 percent.

The reason for this inconsistency of economic performance and fiscal statistics comes down to two factors as far as economists are concerned. First, Spain has historically had a sizable under-the-table market of unreported or part time workers that are not counted as a part of the country’s workforce. In an OECD study conducted in 2006 Francesca Froy and Sylvain Giguere found that Spain’s unregistered job market accounted for almost 22 percent of the country’s GDP in 2002. While recent policies aimed at bringing more of these positions into the light have been introduced, it’s difficult to imagine that they have been successful enough to erase any impact on the country’s jobless numbers.

More recently, others have pointed to the country’s conservative tradition of over reporting unemployment numbers as a way to explain its high numbers in comparison to Greece or Portugal. Vanessa Rossi, an economist at London’s Chatham House think tank, told the Voice of America, “The Spanish unemployment rate might actually be slightly lower than these figures,” adding “That’s quite in contrast to many other countries that have the opposite problem – they under-report unemployment.”

Second, and perhaps more importantly, the 22.9 figure does little to truly show who is most affected by Spanish unemployment. For that, the more important number is 48.6, representing the number of jobless between the ages of 16 and 24. To be sure, this is the number that plays most heavily into the country’s ability to not only avoid a second recession, but also ensure long-term productivity and competitiveness.

Despite being the country’s most educated workforce in the nation’s history, Spain’s young workers have found themselves locked out of a labor market that strongly favors older workers thanks to the high cost of firing employees. Overly equipped for the few jobs available or under-employed in positions with little pay, many are shifting their attention towards Northern Europe and the United States. While Spain may have experienced this sort of emigration during past economic slow-downs, they have never risked the type of brain-drain of their best and brightest as they do now.

Again, this is not an attempt to downplay the importance of this number. No matter how its broken down or explained, the effect is the same, leaving investors and regional regulators with waning confidence in the ability of Spain to grow out of the hole it is currently in. Instead, this closer look at Spain’s job numbers is meant to provide more focus on how solutions can and should be applied by the new government, implementing targeted approaches rather than policies aimed at the population as a whole.

Image: Reuters

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The Euro Crisis and Why It Should Matter to You, Part III – Contagion

As finance ministers and heads of state from across Europe continue to meet in tense rooms across the continent, all hoping to find some way to bring back Greece from the brink and save the Euro and possibly the community as it exits today, the drama of it all remains quite distant to too many. So what if Greece crumbles and reverts back to the drachma? What does it really matter if the Greek government place more importance on their own electoral future than actually instituting the reforms necessary to guarantee the funds needed to keep the country afloat? Why should I care if the EU sees fit to let one of their own drift away? In a word, contagion.

With an economy that is dwarfed in size with its EU neighbors and a level of individual debt that is unlikely to cause too much worry among its many creditors, Greece could probably collapse without much effect were it to exist in a vacuum. But it doesn’t. For Americans, this would individually mean a likely loss of the $6.2 billion US banks currently have on the books from Greece. Hardly an amount to dismiss but compared with the rest of Europe, its likely manageable. However, should the country be allowed to fail, a few things would likely happen, not least a significant loss of confidence in the stability of the Euro and really the European Union project. If they would allow Greece to fail in the face of the first real stress test of the new economy, who would be next? Would all eyes turn to the next in line? Would that loss of confidence spur sell-offs and quick exits from economies already struggling to put their affairs back in order? Spain is already reeling from daunting unemployment rates (nearly 23 percent) and the dismal news that their economy shrank 0.3 percent in the last quarter of 2011, so what would happen if the country’s remaining strength was sapped as investors far and wide ran for the exits? And Ireland? Or Portugal?

For now, many are looking to Italy for the effects of contagion, not least because Italy’s standing as the world’s 7th largest economy and one of the EU’s most important makes it all the more frightening to imagine it moving into a position where borrowing becomes a crippling handicap. Its already moved into that territory more times than anyone is comfortable, giving the world a glimpse of what a regional slowdown or collapse would look like.

So, what would it mean for those outside of the community? For Americans at least, it would mean the kind of stress on US lending institutions that the country’s slow recovery would not prefer to see. If Greece defaults, it may only mean $6.2 billion but looking down the road, there is Italy with its $34.8 billion, Spain with $49.6 billion, Ireland with $39.8 billion and just for the cherry on top, Portugal with its $3.9 billion. Sure, this is a doomsday scenario but taken together, the effect could be lightening fast and disastrous. Short of creating the kind of fire walls German seems to be having so much difficulty in putting into action, the contagion could be quick and deadly, putting the brakes on any US recovery.

The symptoms are widespread and difficult to address, especially with government officials from Athens to Berlin unwilling to budge in either direction, but ultimately the consequences will be for us all. I’d like to think I can hit on all the relevant points about why this all matters beyond Europe but I would like to point to a far more useful and informative resource; the recent edition of This American Life which sidestepped the pleasant story telling last week and turned the whole hour over the Planet Money team to provide a superb rundown of how it all began and how it could end.

Image: Globedia

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The Euro Crisis and Why it Should Matter to You, Pt. 2.

Despite the best efforts of central banks from New York to Tokyo to flood the European Union with funds enough to stave off a full on credit crunch, there is still a fear that the European powers that be have little more than a few days to produce a substantial plan to move things in the right direction before things start collapsing. Seven days by some accounts, nine by others. The wave approaches and it appears that not enough has been done to batten down the hatches. Will the banks have enough money to avoid a crunch? Will some level of confidence in Italy be restored in time to avoid further damage? Will EuroBonds take hold? Is there anything the ECB can do? Will this result in a more integrated Europe or will it leave the dream of a community in shambles? Why does this matter to anyone who lives beyond the European Community?

As usual, the New York Times does a pretty bang up job of explaining the complexities of the Euro crisis and wider risk of collapse, breaking it down for American audiences not clued into what’s going on over here but probably should be as:

The bottom line is simple: Europe’s problems are a lot like ours, only worse. Like Wall Street, Germany is where the money is. Italy, like California, has let bad governance squander great natural resources. Greece is like a much older version of Mississippi — forever poor and living a bit too much off its richer neighbors. Slovenia, Slovakia and Estonia are like the heartland states that learned the hard way how entwined so-called Main Street is with Wall Street. Now remember that these countries share neither a government nor a language. Nor a realistic bailout plan, either.

The summary goes on to explore just what could and might happen should one, two or all countries collapse out from the Euro, detailing the impact it would have on US markets and beyond. Its not pretty but its worth knowing what may be coming as opposed to being surprised as the wave knocks you down from behind.

Image: ECB President, Mario Drahgi, From El Pais

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