Tag Archives: Natural gas

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

Tagged , , , , , , , ,

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

 

 

 

Tagged , , , , , ,

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

Tagged , , , , ,

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

 

 

 

 

 

 

Tagged , , ,

Cairo’s Sinai Efforts Falling Short

Weeks after the Egyptian government pledged action to halt growing unrest in the Sinai Peninsula, military action appears to have had minimal effect on stopping violence and safeguarding the country’s energy trade route to Jordan.

The promised action followed months of growing instability in the region, beginning shortly after the fall of the government of Hosni Mubarak. In addition to a growing number of kidnappings, the Sinai saw 15 direct attacks on natural gas pipelines bound for Jordan and Israel. In early August, a single attack that led to the deaths of 16 Egyptian soldiers spurred newly elected President Mohammed Morsi to launch a military initiative aimed at bringing the region back under control. However, as recently as this weekend, attacks have continued, including one that resulted in the deaths of three police officers in El-Arish.

This latest event was followed by the dismissal of the North Sinai security chief, General Ahmed Bakr as well as protests among local police groups demanding greater attention from government forces and the passage of emergency laws. In response, Morsi once again pledged direct action, but will likely face resistance from a local Bedouin population with a long history of conflict with Cairo.

In addition to the clear goal of returning order to the country’s eastern region, the government’s efforts are especially important to protecting a natural gas export route to Jordan and beyond. Although exports from Egypt have recently halted as Cairo deals with a surge in local consumption and dwindling supply, the country’s ability to exploit domestic reserves for future growth will rely on a dependable export route to the east. According to a Jordan Times report, talks between the two governments have suggested that exports could resume as soon as next month, with a possible boost in quantity on the table.

While the government is working to address local consumption issues through a reassessment of subsidy programs and energy diversification, they have also begun pushing for greater exploration efforts, including both on and offshore projects. Recently, the Morsi government offered tenders for fifteen on- and offshore blocks for natural gas exploration.

Image: The Guardian

Originally Posted in Newsbase’s MEA Downstream Monitor

Tagged , , , , ,

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

 

 

Tagged , , , ,

Algeria Revises Hydrocarbon Law But Real Sector Changes Remain Unclear

After months of speculation, Algeria’s Council of Ministers finally announced that they had passed a revised hydrocarbon law, erasing the outdated 2005 legislation in hopes of reversing the country’s waning production levels. However, lacking precise details and missing expected reforms for existing projects, the new law ‘s impact on the country’s weakened production efforts may not have the impact they hoped for.

Passed earlier this month, the legislation was accompanied by an announcement from the national government outlining a plan that focuses on creating a more inviting investment environment for potential development partners who can help Algeria make the most of their potential shale reserves. However, the revisions appear to have little effect on existing or more traditional efforts, which have seen a steady decline in recent years.

According to a Bloomberg report, Algeria is sitting on an expected 2 trillion cubic meters of shale gas which they base on tests carried out in three provinces over 180,000 sq. km. However, reaching the country’s reserves remains a challenge for the government and its state-backed firm Sonatrach because of high initial production costs and a lack of domestic experience and equipment.  The shale push figures into the country’s wider $80 billion energy sector investment plan over the next five years, with 60 percent of funds dedicated to excavation and production efforts, including “150 exploratory wells and expand crude-processing capacity at three oil refineries.”

To meet the requirements of launching a local shale effort, Algeria has turned to foreign partners to help guide the process and provide needed technical experience, including Italy’s Eni, Royal Dutch Shell and Exxon Mobil. The new legislation was meant to appeal to these firms, opening up significant new streams of revenue to a country heavily dependent on hydrocarbon exports to meet government spending needs.

An Uncertain Energy Landscape

Almost exclusively dependent on oil and natural gas revenue to fund government spending and operations, Algeria has long realized known that the secret to keeping the country politically and socially calm is a strong energy sector. However, in recent years, sector uncertainty and misuse helped create a working environment seen as hostile to a number of necessary foreign firms, leading to both cancellation of existing projects and dwindling interest in new ones. The most glaring example of the country’s waning attractiveness to outside investors came with a round of ten possible licenses which attracted only two bids, one of which came from the country’s state-backed energy firm, Sonatrach.

The decline began with the adoption of new revenue sharing laws and taxes in 2005, including a new policy in 2006 that would impose heavy costs on revenue when oil climbed over $30 a barrel. Interest continued to waver, spurring a decline in the country’s output, which dropped more 5 percent in 2009 alone. Algeria’s production environment grew more and more unattractive to foreign investors, spurring threats from international firms that they would leave if conditions did not improve.

This process began with a wide-reaching corruption investigation at Sonatrach, resulting in an overhaul of the company’s leadership. Accused of selling exploration rights and claims to family members and friends, the Sonatrach leadership was shown the door in a way Algiers hoped would rebuild some level of confidence among international investors.

The energy sector leadership in Algiers continued this process with new support for novel avenues of local exploration, including new natural gas efforts and adopting unconventional strategies, including seeking out the kind of deep-set shale reserves that have transformed energy markets in North America, China and potentially Argentina. However, Algeria realized that to diversify, they must seek out ways to appeal to wary funding partners abroad.

In order to appeal to necessary foreign production partners, Algerian officials announced a revision earlier this summer, noting that an overhaul was necessary because the 2005 law was passed when pricing and technology required a very different approach to excavation and production strategies.

Now passed and announced by the government, the legislation has fallen short of analyst expectations, including keeping a 51-49 percent ownership requirement for Sonatrach in place. Additionally, the new laws will not apply on existing excavation projects, giving little relief to those companies already operating in country. Instead, government officials announced only that undefined tax incentives would be offered to foreign partners to encourage unconventional efforts, which require significant investments in technology and personnel.

An Wider Expansion Effort

Algeria’s move into unconventional exploration efforts comes as the country tries to broaden their energy base, for the benefit of both growing domestic demand and vital revenue streams. In addition to supporting the development of shale projects, Algeria has also begun appealing to development partners for renewable projects to the tune of $60 billion, according to a Bloomberg report. The push is intended to move the country towards a 40 percent adoption of renewable power by 2030, easing domestic demand and increasing the amount of domestic hydrocarbon reserves available for export.

Image: Sweet Crude Report

Originally Posted: Newsbase’s Afroil Monitor

Tagged , , , ,

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

Tagged , , , , ,

Egyptian Downstream Impact Being Felt

As Egypt’s natural gas potential quickly emerges as one of the country’s strongest forces for recovery, its downstream sector is coming under increasing scrutiny as the reality of questionable capabilities and cancellations start to take effect.

Highly dependent on domestic natural gas reserves for both electricity production and export revenue, Egypt has placed the country’s promising sector at the heart of the post-Mubarak recovery. However, despite a steady increase in interest in exploration and production efforts from outside energy firms, Egypt’s downstream operations remain a sore spot for natural gas sector growth, affecting both needed earnings and domestic energy demand.

The most glowing example of this comes with the country’s pipeline system through the Sinai Peninsula, which has remained a volatile point of militant activity since the fall of the Mubarak government in February 2011. Since then, the pipelines allowing valuable exports to Israel and Jordan have been attacked on 15 occasions. These delays were followed by a cancellation of exports to Israel after the controversial nature of the two countries’ trade agreement became clear. The fragile state of Egypt’s Sinai pipelines claimed its first business victim recently when Israel’s Ampal filed for Chapter 11 due to the loss of revenue as a result of the halt in trade this past April. The company held 12.5 percent of EMG, the institution responsible for delivering Egyptian natural gas to Israel. While the company’s ability to meet debt obligations began as early as December 2011 thanks to the repeated attacks, the April cancellation proved to be the final straw for the firm, according to the Egyptian Ahram Online.

In addition to launching a military offensive in the region to help quell unrest, the Egyptian government is looking to outside funding options to help improve the downstream outlook. Some relief may come from a recently announced $18 billion investment pledge from Qatar, $10 billion of which has been set aside for gas, power, iron and steal plants, according to The Chicago Tribune.

Cairo’s largest energy challenges are rooted in the country’s generous oil and gas subsidy program, which increased 40 percent last year to cost the state $16 billion, or one-fifth of its operating budget, according to Reuters. However, the country’s downstream operations have also become an obstacle to recovery as outside interest has focused on E&P efforts, including a recent $10 billion BP plan over the next five years according to Bloomberg, instead of infrastructure investment.

Originally Posted with Newsbase’s Downstream Monitor

Image: Bloomberg

 

 

Tagged , , ,

Enthusiasm for Eastern Med Gas Still Strong Despite Pitfalls

In the short time since news first broke that the Eastern Mediterranean held enough offshore natural gas to keep the region’s energy need met for decades, the area has become a hot bed of tension thanks to conflicting claims and revenue sharing agreements. Recently, local actors Israel and Cyprus has signaled efforts to move production plans forward, but despite advancements, accessing the region’s potential remains fraught with political and security pitfalls.

Set in waters between Israel, Lebanon, Syria and Cyprus, the Levant Basin holds an estimated 120 trillion cubic feet in accessible natural gas to those who can access it.

However, its deep set placement and differing geological challenges have set limitations on just who can take a realistic chance on reaching the reserves from their respective waters. Combined with unclear maritime borders between some regional neighbors and deep political and diplomatic divisions, the limitations have created an often-tense environment for relevant regional actors. Further, foreign firms hoping to take part in exploration efforts that might demand a local partnership have found themselves at odds with both competing countries and collaborators in other parts of the world.

According to a Bloomberg Businessweek report, Fadel Gheit, an analyst at Oppenheimer & Co. told them that, “the world’s largest energy companies like Royal Dutch Shell Plc (RDSA), Chevron Corp., and Exxon Mobil Corp. will be deterred from investing in Israel because of interests they have in the rest of the Middle East.”

While they hold no official claim to the waters in the Levant Basin, Turkey has recently stepped up exploration efforts of their own, stating that they hold authority over waters to the north of Cyprus. Further, Greece has stepped into the discussion with offers to act as a transport hub for natural gas bound for the European market.

On the national level, uncertainty about how best to move forward could also spell further delays, including how best to split earnings across the many political factions in Lebanon and how to address growing environmental concerns in Israel. The latter concern has strengthened the argument for partnering with Cyrus to host Israel’s LNG facilities.

None of these concerns appear to have immediate solutions, though few seem to be dampening enthusiasm for the Eastern Mediterranean’s true natural gas potential.

Tagged , , ,