Tag Archives: Libya

North African Energy Targeted by Labor Concerns

746884-aus-bus-pix-libya-refineryAfter nearly two years of widespread political and social transitions across North Africa, protest and labor movements have continued to expand in hopes of making the most of the new political environment. While motivations may vary, these groups are increasingly targeting the region’s energy sector in Libya, Tunisia and Algeria, commonly aiming their ire at foreign firms and their local subsidiaries.

Against a backdrop of regional unrest, these energy-aimed efforts are to continuing to increase and beginning to threaten what many feel is North Africa’s quickest and surest route to recovery and post-Arab Spring stability.

In many cases, protests and labor strikes have taken issue with what is felt to be a lack of common benefit from the region’s rich oil and gas production. From Tunis to Benghazi, this has centered on the complaint that far too little of the region’s oil and gas wealth and revenue is reaching local communities.

A Post Arab Spring Analysis

In Tunisia, critics have taken issue with what they feel is a lack of work opportunities for local workers offered by the country’s most prominent energy outfit, BG and their local subsidiary BG Tunisia. Facing a 17.6 percent post-revolution unemployment rate, Tunisia has been unable to keep up with and absorb the growth in increasingly skilled young workers, according to a World Bank report.

Facing a similar demand for more work opportunities, but without the spike in skilled labor, Libya has seen protest movements target oil and gas facilities across the country, including a December strike at one of the country’s busiest oil and gas ports, Ras Lanuf. Protestors began the New Year with a strike at the Zueitina oil terminal, situated just east of Tripoli. According to the country’s Oil and Gas Minister, Abdul Bari Laroussi, the shutdown has come with a demand to employ 1,500 local residents and cost the country an estimated $1 million a day in lost revenue.

Additionally, Libya has seen protest groups use energy facilities to voice concerns about a variety of issues, most notably political representation. Shortly before the country’s first post-revolution election, armed militias occupied refineries in El-Sider, Ras Lanuf and Brega, shutting down half of the country’s export capacity. Their actions were aimed at increasing the number of seats reserved for the country’s oil-rich eastern provinces and shifting more authority over energy issues to the city of Benghazi.

Despite having largely escaped the kind of public protests that led to political transitions across the region, Algeria has faced its own share of protests aimed at the incredibly valuable oil and gas sector. Even before the Arab Spring protests began, Algeria faced a pushback from the country’s large number of unemployed for what they felt to be a lack of opportunities for local workers. Undoubtedly the country’s largest economic force, Algeria’s oil and gas production accounts for 98 percent of their export revenue and a large percentage of government funding. State efforts to curb these protests through increasing government incentives spending and a tighter security environment have worked in the short term. However, protests have continued to flare up as resentment builds around a lack of benefits seen across the country as well as wider uncertainty about what will follow the expected retirement of President Abdelaziz Bouteflika before scheduled elections in 2014.

According to a Bloomberg report, dwindling oil reserves and uncertainty have made the country’s relative calm difficult to sustain.

“Pacification through finance can’t go on forever,” Azzedine Layachi, a professor of international and Middle East affairs at St. John’s University in New York and Rome, told Bloomberg. “Everything is in shutdown mode until 2014 and that’s when we’ll see what direction Algeria takes.”

An Uncertain Landscape for Foreign Investors

In all three national cases, further labor unrest and protests aimed at energy sector actors could have a significant effect on the ability to attract much-needed investment and interest from foreign firms. In Libya, this means the ability to promote the full return of companies that halted operations in the midst of the civil violence that brought down the government of Muammar Gadaffi and move beyond pre-conflict levels to ensure future growth. While Tunisia is putting less emphasis on energy reserves as a means of economic recovery, continuing unrest does threaten to put off further investment from companies like BG, which provides over half of the country’s natural gas demand.

Last year, sit-ins at processing plants spurred talks between the company and local leaders, concluding in pledges for greater attention to local hires, including training options. Recently the company has said that while they would not consider leaving the county as a result of the sit-ins, they did not see themselves in a wider labor role.

“We continue to work in Tunisia and to explore new opportunities. Although the phenomenon of sit-ins and strikes is annoying, the group will not leave the country for all that,” Sami Iskander, Executive Vice-President and Managing Director of BG, Africa, Middle East and Asia told the Tunisian News Agency, but added, “the main purpose of the group is the production and supply of gas in the country and not creating jobs.”

Currently BG provides about 60 percent of Tunisia’s natural gas demand and employs about 1,000 employees.

Finally, further unrest in Algeria could prove troubling to the government’s recent push towards introducing unconventional shale exploration efforts to the country. Boasting significant domestic potential, Algeria will have to first deal with significant foundational investments associated with the shale excavation process in terms of both machinery and technical expertise. To help cope with these early expenses, the national government and the state-backed Sonatrach have unveiled new revenue sharing agreements and taxing schemes aimed at appealing to foreign investors with shale experience. Already known as a risky investment in the region, Algeria could prove even more uninviting if protests and strikes continue to expand.

So far, these protests have elicited little more from state officials than targeted actions according to each, specific case. However, according to the Agence France-Presse, Libya’s Prime Minister Ali Zeidan has threatened to impose “order by force” in to address those actions that threaten the country’s energy sector.

“Oil is our only source of revenue,” he said, according to the AFP report. “We will not allow any (armed) force to confront the people and threaten national security. I warn families, tribes and regions that we will take decisive measures.”

While Tripoli’s hard line may prove effective in garnering local support, it is far less clear whether it will provide the sense of stability needed for foreign firms to return to the region.

Image: The Australian

Originally Posted in Newsbase’s AfrOil Monitor

 

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Libya’s Lofty Goals Remain But So Do Challenges

After rebounding faster than many thought possible, Libya’s oil and gas sector has set its sights on further expansion with new production goals for this coming March and significant expansion over the next five years. With a plan that includes gradually broadening their exploration efforts, increasing refining capacity and even venturing into unconventional options, including shale, Libya appear poised to finally live up to their energy potential in the region.

Despite such confidence and political will, the North African nation now faces more than its share of challenges standing in the way of those lofty production goals. More than just an additional revenue stream for the country, Libya’s energy output represents the country’s clearest and surest path towards sustainable growth and stability over the coming decade. Currently, Tripoli looks to hydrocarbon revenue for 80 percent of GDP and 97 percent of export earnings, making the sector’s stability and growth all the more vital to Libya’s post-war future.

However, questions about security, shared domestic benefits and confidence among needed foreign partners have cast some doubt about whether the country’s new political leadership have a plan in place to make this happen.

A Quick but Unsure Recovery

With more than 46.4 billion barrels of available crude, Libya is home to Africa’s largest proven oil reserves. Despite the country’s potential, Libya has seen a steady decline in production levels from a 3 million bpd peak in the 1960s. This slowdown was the result of an insufficient infrastructure and political isolation under the leadership of Muammar Gadaffi. Production efforts began to rebound after international sanctions were lifted in 2004, though the government’s handling of the energy sector and underperforming efforts created a cautious atmosphere among foreign firms. The collapse of the Gadaffi government amid widespread violence last year dealt another blow to production efforts last year, but quick action on the part of the transitional government helped output rebound ahead of analysts’ predictions, reaching 1.6 million bpd this month. While still far short of 1960s’ highs, the recovery has offered some confidence, setting up a production goal of 1.72 million bpd by late March and 2.2 million by 2017.

Libya has also been able to increase natural gas output, producing 2.5 billion cubic meters (bcm) a day as of this month, with plans to increase to 3 bcm by the end of the year.

Members of the country’s National Oil Corporation (NOC) have suggested that the country’s’ short-term goals can be met with only existing projects, moving beyond that amount will require expanding both up and downstream efforts in the coming months.  This will include new production licenses within the next year, according to Reuters, as well as following up on projects that were delayed as a result of the conflict. After signing a $900 million exploration agreement in 2009, BP announced their intent to return to Libya with both on and offshore projects planned.

Further, expansion efforts will include improvements to the country’s refining capacity, which now stands at 378,000 bpd, across five facilities, according to a recent European Commission report. The growth of the country’s refining capacity will be especially important moving forward to address export demands, as well as domestic needs. Libya currently relies on imports for three-quarters of its gasoline needs.

However, the NOC and the country’s new political leadership must first deal with a series of domestic challenges standing in their way, most stemming from the violent conflict that led to the collapse of the Gadaffi government.

In addition to dealing with damage to the country’s energy infrastructure during the civil war, Libya has also been plagued by uncertainty about the country’s security situation. While some companies, including Italy’s Eni and Spain’s Repsol, made quick returns after the war ended, others have remained cautious, with many of the militias that rose up during the conflict still active and armed.

This situation has become more pressing as some of these groups have begun using up and downstream faculties as tools of protests. Recently, a group demanding medical care and compensation for their role in the war halted production at the Zawiya Refinery for three days in protest, costing the country an estimated $30 million in lost revenue, according to Reuters. In addition to lost earnings, the protest spurred action among local workers who threatened protests of their own to demand better security at the facility. So far, Tripoli have been able to avoid such protests with a pledge to hear out workers’ concerns, though no long term solutions have been put on the table. This lack of clarity has been made worse by an ongoing struggle for political influence between the traditional central government in Tripoli and the unofficial capital of the oil-rich east, Benghazi.

A Stable Setting for Foreign Investment

Whatever solution is finally applied to the country’s security situation, it will need to come quick to ensure needed international investors. This is especially true with the country’s current and anticipated energy infrastructure. In addition to boosting transport lines, Libya will need significant investment in unconventional technology if it hopes to reach the estimated 290 trillion cubic meters of shale gas the U.S. Energy Information Administration believes the country holds.

While Libya has not traditionally relied on gas production, the country’s shale potential has forced a reevaluation of its role in the energy sector and the country’s ability to move beyond pre-conflict production levels, NOC Chairman Nuri Berruien told Bloomberg. Reaching those reserves will require costly early investment and appeals to foreign firms with more direct experience with hydraulic fracturing, or ‘fracking’ – the process necessary to extract deep-set shale deposits.

Image: The Wall Street Journal

Originally Posted in Newsbase, Afroil Monitor

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Ras Lanuf Re-Opens But Libyan Recovery Doubts Remain

As Libya became the center of global attention for all the wrong reasons last week, the country’s energy sector took a significant step towards recovery as deliveries from the Ras Lanuf refinery resumed after a year of closure. Responsible for more than half of the country’s oil and gas refined output, the return of production was a welcome step towards reaching and surpassing pre-conflict production levels.

However, lingering concerns about security throughout the country and a slowing production recovery have cast doubt on whether the country can continue to increase its output levels for both domestic energy and government spending needs.

According to the Libya Herald, Tripoli has outlined an annual operating budget of $55.3 billion and estimates they can earn $54.9 billion in oil and gas revenues over the next year. With little else in the way of exports or local development, Libya’s hydrocarbon output is the country’s surest way towards keeping the state moving towards stability and recovery. The reopening of the Ras Lanuf refinery after it was closed during last year’s civil war is a significant step in that direction.

Before closing its doors last year, Ras Lanuf was a leading producer of naptha and jet fuel and was capable of producing four cargoes of low-sulfur fuel oil a month, according to a Reuters report. After a series of delays, the plant came back online late last month, producing about half of its 220,000bpd capacity. The plant is overseen by the Libyan Emirati Refining Company, a joint-venture between Libya’s state oil company National Oil Corporation and UAE-based Al Ghurair group.

Despite the good news for the country’s recovering energy sector, the reopening comes as Libya’s return to pre-conflict levels has begun to slow. Earlier predictions that output would recover by this October as output began to stall around 1.38 million bpd in August, according to the Financial Times. Further recovery has also been shadowed by growing concerns that Libya’s security situation is not yet stable enough for a full return for much-needed international investors – a feeling that became very real last week as attacks on Western interests spurred strict travel warnings from the US and United Kingdom.

Originally Posted with Newsbase’s Downtream Monitor

Image: Maghreb Panorama

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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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Mali’s Uncertainty Spurs Concerns Across Central Africa

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

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

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

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

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

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

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

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

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

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

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

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

Image: Reuters Alert-Net

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Libya’s Production Back on Track but Foreign Partners Could Still Be Frozen Out

As oil and gas production levels continue to rise in post-Gadaffi Libya, government officials have grown more confident that the country’s best chance for economic growth is back on track to meeting and exceeding pre-conflict levels. However, mixed messages to foreign partners and a lack of progress dealing with vital structural and stability issues threaten to derail the energy sector’s return before it can take hold.

By the end of February, members of the country’s appointed transitional government reported that oil production had reached 1.4 million bpd and would likely reach pre-war levels of 1.6 million by mid-summer. The country’s natural gas output also increased to 2.3 billion cubic feet during the same period from 2.2 billion at the end of January. Adding to the good news, Libyan officials have reported that new exploration efforts have finally become possible again.

However, reports detailing a national energy infrastructure unprepared to cope with a return to service and certainly unable to host the sort of production expansion the country has set as an overall goal have cast doubt on Libya’s production future. Even before being damaged in the violence that halted most energy activity last year, Libya’s energy infrastructure was viewed as out of date and insufficient for modern operations, causing an unrepresentative contribution to global markets despite hosting the continent’s largest proven reserves. Attributed to the country’s economic isolation under the leadership of Muammar Gadaffi, the infrastructure deficit had seen some signs of improvement since sanctions were lifted in 2004, but not nearly enough.

Attracting foreign investors and project partners has emerged as pivotal to Libya’s ability to return to adequately exploit their energy potential, but a series of mixed-messages about requirements has continued to hurt that process. While the country’s transitional government stated energy efforts would favor those firms from countries that had supported their anti-Gadaffi campaign, the actual approach has been more scattered. While both China and Germany did not initially vote in support of international military action in the country, Chinese firms have recently received a series of new contracts while many arriving from Berlin and Frankfurt have found themselves frozen out, according to a recent report in Der Spiegel.

Still, the progress thus far has been heralded by government representatives, like Deputy Minister Omar Shakmak, as proof of the country’s progress, adding in local press reports, that the production return had come with the help of local staff.

“All oil and gas facilities are now being managed by Libyan engineers and workers, a remarkable achievement by Libyan work force which has proved to be well trained and without technical assistance from outside the country,” Shakmak told the Tripoli Post. Shakmak has also told a number of media outlets that he too expects the country to reach 2010 levels by mid to late summer, though with elections planned for June, it’s unclear just how many current leaders will be around to answer for such an estimate.

The minister’s assertion comes as several international firms continue to weigh the risks of the country’s political and security uncertainties and returning their staff and overall presence to pre-conflict levels – a development seen as necessary to helping Libya get production levels back to form.

In addition to questions of overall security and repairs to the country’s energy infrastructure, which experienced damage during Libya’s civil war last year, foreign firms have expressed caution about the country’s political future.

“It is a question of what framework we are going to have. We are waiting for a long-term sustainable situation in the country. How long it would take, I don’t know,” Wintershall Chief Executive Rainer Seele told Reuters. The German firm represents the country’s largest foreign partner until violence forced the company to halt operations at the end of last year. Since returning, Wintershall has tripled production levels since last fall but has said that it could easily reach 90,000 bpd if not for the country’s out of date infrastructure.

Meanwhile, Libya’s largest foreign partner, Italy’s Eni, has steadily worked to return to their pre-conflict production levels after a slight, early misstep when it appeared uncertain whether anti-government forces would succeed in ousting Gadaffi.

When asked about progress last week, Eni press officer Fabio Cesaro stated that since the conclusion of the internal conflict, and the gradual return to political and social normality in the country, “we have stepped up our efforts to fully resume production at our Libyan sites and facilities and gas exports through the Greenstream pipeline on the back of our stable contacts with the Interim Transitional National Council and continued collaboration with the NOC.”

Citing major milestones achieved in the final part of the year, including the restarting of oil production at the Wafa and Bu Attifel fields in September, the reopening of the Greenstream and gas production at the Wafa field in October, and the return to production of the Sabratha gas platform at the Bahr Essalam field in November, Cesaro said the company was aiming to reach pre-conflict goals by the second half of this year.

Still, the country’s overall economic and political uncertainty has kept other foreign firms at bay. Previously, BP press representatives expressed caution to suggesting that they would return when security for all company staff, both foreign and local, could be assured. So far, this level of confidence has not been reached.

Image: Telegraph UK

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Hoping to Leave Challenges Behind, BP Eyes Libya Return

Following a year and a half of political and military delays, BP is poised to pick up where they left off in Libya, joining the roster of international firms hoping to make the most of Africa’s largest proven oil reserves. Despite the presence of many of the same obstacles that put a halt to their efforts in the North African country in the summer of 2010, BP officials remain confident that they will soon be able to achieve the production goals they set out almost five years ago.

The result of a $900 million deal made in 2007, the BP’s Libyan projects were expected to receive more than a billion dollars worth of company investments over the next seven years. The original agreement outlined an exploration project that would cover 54,000 square kilometers of the onshore Ghadames and offshore frontier Sirt basins, allowing for 20 appraisal wells if initial efforts were deemed successful, according to company literature. The company’s Libyan presence would include both on and offshore efforts, allowing for the company’s first projects in the country since 1971 when the new government nationalized all of BP’s assets.

However, those efforts soon came under fire, initially due to allegations that the company had pushed UK political figures to support the release of the convicted Lockerbie bomber, Abdelbaset Al Megrahi in exchange for the new contracts. Facing calls for project delays from both the US and UK, the company worked to calm political waters, but soon found themselves at the center of the year’s largest environmental disaster.  Confidence in the company’s safety record took a hit during the summer of 2010 after the company’s connection to the Deepwater Horizon spill in the Gulf of Mexico spurred a sharp backlash among EU environmental and political groups. The backlash forced a delay in activity, just as BP was concluding a sprawling seismic survey of their offshore licenses. EU political figures began demanding for greater oversight of BP activities in the Mediterranean as well as proof of the company’s capabilities to financially address a possible spill.

However, Lockerbie and environmental concerns took a backseat during the summer of 2011 when Libya’s political environment became too unstable for BP to keep their expatriate staff in place. As anti-Gadaffi forces moved west from Benghazi, followed by the arrival of supporting NATO forces, violence forced a complete halt in production and export efforts, resulting in an evacuation of all international staff by foreign firms.

Now nearly four months after Gadaffi’s death and the recognition of the country’s transitional government as the Libya’s legitimate political leaders by even ardent critics of the anti-government movement, BP is focusing on building their earlier efforts. However, obstacles to a full return remain.

“We are making preparations (we still have just under 100 local staff) to resume our activities but the security situation is still too uncertain,” remarked BP media representative Robert Wine last week. Although members of the transitional government have worked to calm worries about lingering violence, some foreign firms have not reached a level of confidence in the country’s ability to ensure the safety of their workers. Other international firms have been quicker to return to their Libyan efforts, including Spain’s Repsol, France’s Total and notably Italy’s Eni who have come close to reaching pre-conflict production levels.

“We do intend to pick up where we left off, but the circumstances on the ground have to be safe first,” Wine wrote, adding, “Security means safety for anyone working there. Until then, we won’t ask people – not just international staff – to work where it’s dangerous.”

Responding to whether BP foresaw any obstacles to working alongside the country’s transitional government, who have previously offered strong warnings against countries and companies that had previously worked with the Gadaffi government, Wine wrote that he was confident they would be able to work for and with them to fulfill their contracts.

A quick and stable return to Libya may help BP restore some of the investor confidence lost in light of their involvement in the Deepwater Horizon spill and its subsequent lawsuits. Currently facing 600 civil lawsuits from plaintiffs across United States Gulf Region, BP has announced its intention to vigorously fight the cases, though they have allowed that the ongoing legal issues have curtailed interest from investors.

“We have many people who do say, we are interested in investing in BP but not until all this is behind you,” CEO Bob Dudley told a press conference last week, according to the Financial Times.

For now, BP will be able to build upon a return to higher profits with the announcement of $23.9 billion last week, as lower production levels and delayed projects were offset by higher oil prices throughout last year. According to the AFP, the earnings report was accompanied by a higher company dividend, suggesting confidence among company management that any challenges BP faced in the new year were manageable. However, facing a lengthy challenge in US courts, the UK company could likely use all the support it can get.

Image: Arab Money Matters

 

 

 

 

 

 

 

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Shale, Energy and North Africa’s Future

As countries across North Africa work towards rebuilding both customer confidence and hydrocarbon operations following the political and financial instability of 2011, some are looking past traditional options to test the limits of the region’s shale potential.

First initiated in Tunisia in the Spring of 2010, North Africa’s shale efforts have slowly spread across the region, adopted by both established oil and gas producers and those who see little potential for traditional measures. The push towards exploring the area’s deep-set shale reserves came as the success of such efforts in the United States and studies showing widespread potential across the globe began to spur investor excitement. As time allowed closer inspection of the geological variances of the Maghreb states and their true shale potential, a clearer picture of what shale deposits could mean for the region has emerged.

These efforts come just as similar efforts in more mature shale markets are running into often debilitating challenges. Building on environmental worries related to the practice of fracking, public and political movements have successfully stalled efforts in the United Kingdom, France and parts of Germany as the uncertainty about the effects of the practice have added to concerns about project costs. This environment led European Union Energy Chief Gunther Ottenger to suggest the possibility of a community–wide regulatory system on shale efforts, inviting a pledge to veto any such legislation from Poland’s government, who has led the way towards introducing shale projects to the European marketplace. Meanwhile, in the birthplace of the fracking process, US President Barack Obama accompanied his support for further shale projects with an appeal for energy companies to disclose the ingredients of fracturing fluids, which have been protected information until now. However, these worries and protest movements have done little to damper enthusiasm among North African actors, as they continue to move shale projects forward.

Building on the region’s first shale effort in March 2010, Tunisia are continuing to work with early partners France’s Perenco and Canada’s Cygam in their exploration efforts, though last year’s political transition slowed the effort’s momentum. While both firms have worked to assure their Tunisian partners of their intent to stay put, lingering questions of instability, including the recent kidnapping of a mayor near the vital Ghadames Basin do little to help calm project partners.

Hailed as the country with the most shale potential thanks to the accessibility and quantity of reserves in the Ghadames Basin it shares with Tunisia and the Illizi Basin, Algeria has moved to attract foreign partners for shale efforts. According to Reuters, estimates suggest up to 1,000 trillion cubic feet of natural gas, trapped in shale rock about 1000 meters beneath the ground.  Facing a steady decline in the production levels of more mature oil and gas options, Algeria’s actions suggest a long-term approach to energy alternatives that included a heavy dependence on non-traditional resources such as shale.

Algeria and their state-backed firm Sonatrach have worked to secure working partnerships to help move their shale efforts forward, beginning with the signing of a MOU with Italy’s Eni last year. The Spanish giant has also looked to expand their resource base after Libya’s production all but halted amid political violence last year. Eni’s MOU with Sonatrach is meant to both lend the company’s shale extraction expertise to Algeria and help the company ensure a more dependable natural gas source for export-heavy Italy. After investing billions in hopes of solidifying Libya as a consistent source of oil and gas for the domestically barren Italy, the country lost nearly a third of their energy imports as political protests turned into violent conflict earlier this year. While Eni stands as Algeria’s largest shale partner, Sonatrach have announced that they will continue seeking shale partnerships with other international firms.

Even in Morocco, where domestic energy resources have remained elusive to the leadership of King Mohammad VI, one company has bet that the company’s true potential lies far deeper. Following four years of testing and coming in the latter half of a 3 year Memorandum of Understanding with the government of Morocco, London-based San Leon announced this month that they were ready to begin production at a site in the southern part of the country. Hoping to replicate their efforts in Poland, San Leon entered the northwest African nation five years ago to begin initial testing in the Tarfaya Oil Shale Field Pilot Project. San Leon recently announced that they had achieved “connectivity” between two wells in their Tarfaya oil shale project, suggesting progress in the country, though the Irish firm’s pace has worried some as their share price shrunk 59 percent over the last year. Despite overlapping basins deemed positive, Libya is the only country in the region to receive little attention by shale actors, as alternative efforts have been overshadowed by the substantial promise of traditional energy projects.

The Obstacles that Remain

For all the interest in the region’s predicted shale potential, a number of obstacles towards profitable operations remain, which have undoubtedly increased with the political instability of the last year. In addition to countries now faced with re-building confidence among foreign investors following the ousting of long-standing governments in 2011, many face significant funding deficits needed to support the high infrastructure costs associated with shale efforts. Largely lacking the access to the equipment, technology and personnel needed to reach and exploit shale projects, North African states will need the support of international partners to move these projects forward. In addition to signing cooperation agreements with firms from across Europe, some states are looking to the US State Department’s Global Shale Gas Initiative for guidance and aid, though political divisions and uncertainty about regional stability have kept that support

Image: Arabian Oil and Gas

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Libya and An Energy Return to Normalcy

Far exceeding the expectations of international observers, Libya’s energy production levels have moved closer to an expected return to pre-conflict levels by as early as Spring 2012. However, issues of security and new governance have threatened to slow the process when the country needs new revenue most.

After grinding to an almost complete halt amid violence between loyalists troops and anti-Muammar Gadaffi forces earlier this year, Libya’s hydrocarbon efforts have shown significant signs of life following the death of the country’s long-standing leader. Although estimates vary, a return to the country’s pre-conflict level of 1.6 million bpd from a current output of 840,000 bpd seems much more likely goal by the end of 2012, though some have suggested it could come even earlier. Nasser el-Ghali Sharif, chairman of the Zawiya oil refinery west of Tripoli, told the BBC that full production could come as early as March.

The amended production estimates come as members of the Libya’s National Oil Company have discovered that the country’s vital energy infrastructure has been left far less damaged than once feared. With some exceptions, the North African nation’s upstream operations emerged largely unscathed from the eight-month civil war as both sides realized their importance and made efforts to protect them. Some downstream sites, including the Es Sider crude export terminal at As Sidrah did not fare as well with authorities estimating a year’s worth of work before it can get back to acceptable levels, according to the Eurasia Review.

However, any significant return to the country’s pre-civil war output levels will face obstacles over the coming months in the form of security challenges and the government’s efforts to balance progress with a new level of transparency and accountability expected from a post-Gadaffi era.

While undoubtedly calmer than when air-strikes and direct military attacks halted production all together and forced mass evacuations of expatriate staff members, Libya’s security situation remains an obstacle for many international companies hoping to return. Although some companies have restarted existing projects, led by France’s Total and Italy’s Eni in September, others have hesitated at the prospect of still armed rebel groups and sporadic threats from former government loyalists. The assurance of general security has emerged as a vital step that needs to be achieved for both the country’s Transitional National Council (TNC) and foreign firms before new efforts can be pursued.

The ability to ensure a healthy environment for such international partnerships has emerged as an especially important goal as infrastructure deficits become clear, requiring substantial investment contributions in order to get production efforts back on line. In addition to establishing dialogues with international firms, the TNC have set out to build stronger ties with regional neighbors, including those they have recently found themselves at odds with. After questions of support arose during Libya’s armed conflict earlier this year, with the NTC accusing the Algerian government of siding with the Gadaffi government, representatives from Algiers and Tripoli met at the Gas Exporting Countries Forum (GECF) late last month for the first time, signaling greater cooperation between the two countries. This week saw NTC Chairman and head of Libya’s care-taker government Mustafa Abdel Jalil announce that he would travel to Algeria over the next month to help build on regional cooperation efforts.

The Cost of Good Governance

Once those partnerships are pursued and repaired, they will still face the newly evident obstacle of addressing the NTC’s pledges of transparency and accountability when it comes to agreeing on new and existing exploration and production contracts. Intent on distancing themselves from the corruption and cronyism that came to define the energy sector under Gadaffi, the NTC have worked to create a system that balances clarity, progress and general support for firms from countries that supported their anti-Gadaffi campaign, often with frustrating results.

While insisting that all existing contracts will be reviewed and considered, the NTC has again stated that they would be unlikely to support contracts with companies from countries that did not support them, including Russia, China and Germany. According to Reuters, the country’s National Oil Company has continued to revise deadlines and requirements for traders and international firms intent on accessing Africa’s largest proven reserves, leading some to accuse them of “back-trading” and taking advantage of the enormous interest in entering Libyan fields.

“They are surfing the wave. Everyone is knocking on their doors,” a senior oil-trading source told Reuters.

Further complicating the issue is criticism coming from within Libya that argues that the NTC and current energy ministers lack the authority to sign off on or close any contracts as they are an unelected, temporary government body.

“They are a caretaker government… They don’t have the mandate, the right, the ability to engage in any major signing of contracts for oil fields,” Sami Zaptia, the managing director of Know Libya, a consultancy in Tripoli told the BBC.

With months left before national elections have been planned or even hoped for, the NTC and current energy leadership are faced with the predicament of moving Libya’s energy industry forward in a way that ensures much needed national revenue but without over-extending their authority or giving reform-minded critics any cause for concern.

Image: Reuters

 

 

 

 

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