Tag Archives: oil

Italian Offshore Back on Track but Progress Has Been Limited

ImageAlmost a year after Rome reversed a ban on offshore drilling, Italy’s energy sector is showing signs of life with new efforts and interest on the part of foreign firms.

This month has seen progress reported by   Petroceltic, Northern Petroleum and Mediterranean Oil and Gas regarding offshore efforts in Italian waters. However, despite such advancements, progress has been limited in improving the country’s overall energy standing – a situation made worse by a toxic political and economic environment and local opposition.

The Mario Monti government announced an end to a ban on drilling within five nautical miles of Italian shores that had been put into place following the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

The purpose of the government’s reversal on offshore drilling last year was two-fold. First, an increase in domestic production would help ease the country’s current, heavy dependence on foreign producers. Italy brings in about 90 percent of its oil and gas needs from outside the country and has seen alternative energy options evaporate over the last three years, making those imports all the more important. While renewable development has suffered amid a wave of government cuts and a loss of investor confidence brought on by the country’s economic crisis, Italy’s push to reintroduce nuclear power disappeared almost as soon as news of Japan’s Fukushima disaster reached Rome.

Second, the financial benefits of a boost in domestic production could help jumpstart Italy’s ailing economy, offering little in the way of investment options to outside investors. When the Monti government announced the plan to ditch the offshore ban, the country’s Economic Development Minister Corrado Passera predicted that expected increases in output allowed by the revision could bring in as much as 15 billion euros, while reducing the country’s energy bill by about 6 billion euros, according to Bloomberg.

Nearly a year on from the ban reversal, Italy’s energy options have offered little relief due to a precarious economic and political environment as well as instability in Algeria and Libya, two of the country’s largest providers of oil and gas.

Complicating the offshore situation still further has been the actions of local environmental and political advocacy groups. Even before the 2010 ban had been into place, groups in Sicily and along the Adriatic coast had pushed for drilling bans in the name of environmental and tourism protection. Although the ban has been reversed on a national level, local groups have still challenged exploration efforts in individual cases leading to production delays.

Offshore may have returned to Italy, but it is still far from clear whether it can provide the diversification and revenues

Image: Rigzone.com

Originally Posted: Newsbase Euroil Monitor

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Northern Mali Threat Continues to Cast Shadow Over Algerian Energy

ImageDespite the apparent success of a French-led military force in ridding Northern Mali from an armed separatist movement, recent violence has suggested that significant challenges remain to both that country and the energy sectors of its neighbors.

As recently as this past weekend, a car bomb and violence were reported in Timbuktu, once again highlighting the uncertainty of the region and the challenges of those in the region in need of a more stable business environment.

As much of North Africa has struggled with wide-ranging political opposition movements, resulting in the collapse of long-standing governments, Algeria has remained unchallenged by protest efforts. Rather, threats to the country’s stability have come from outside, with substantial pressure coming from a stretch of Mali along the country’s southern border. The country has struggled with an armed separatist movement for months, which seized authority from national troops late last year.

This pressure boiled over into Algeria in January with a coordinated raid on a BP gas site, spurring a messy government response and ending with the death of 38 foreign workers. The impact was immediate, with foreign firms suggesting delays to protect their personnel and neighboring Libya promising swift action against any similar events.  

More than just an unfortunate turn of events for a country that relies heavily on energy revenues for just about every aspect of government spending, the event presented a real threat to vital foreign investment needed to strengthen and expand the country’s infrastructure.  Algeria currently boasts access to about 12.2 billion barrels in oil reserves and 159 tcf of natural gas, with the U.S. as one of their largest trading partners.

However, a recent decline in local production and a push to tap into the country’s sizable shale potential have highlighted the role of foreign investment in the country’s immediate energy growth plans. To reach new output goals, Algeria will contribute billions from their own coffers towards boosting downstream capacity, but they will also need to partner with foreign partners who can offer the investment support and technical know-how needed to boost production exploit shale reserves in the near future.

Algeria has promoted substantial shale potential, attracting a number of necessary foreign firms to their shores, each providing the equipment and experience needed for the introduction of shale to the region. Keeping them in place may prove a little more difficult unless Algeria can provide a more stable working environment, making the kind of flare-ups seen this week all the more damaging.  

Originally Posted: Newsbase’s MEA Downstream Monitor

Photo: Mem.algeria.com

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Moroccan Downstream Offers Unclear Picture Ahead of Large Cap Entries

Recent entries by large cap actors into Morocco’s oil and gas sector over the last three months have signaled a new confidence regarding the country’s largely dormant hydrocarbon potential. With Chevron and Portugal’s Galp taking on controlling stakes in areas previously claimed by only modest, independent operators, Morocco’s push to expand their traditional energy potential appears to be gaining traction. However, with the North African nation’s domestic demand at the heart of this push, it remains unclear whether its weakened downstream potential will be able to meet expected growth.

Despite a virtually non-existent oil and gas sector, Morocco has recently made a subtle push towards appealing to foreign firms in order to explore the country’s offshore and non-traditional options. So far, efforts to broaden the country’s energy potential have included only renewable campaigns, including a 2009, $9 billion solar scheme, and attracting smaller firms to potential oil and gas fields. However, over the last two months, both Chevron and Galp have bought into controlling stakes of offshore projects. For Galp, an early December purchase from Australia’s Tangiers was driven by a 450 million barrel potential reserve, which was revised to an estimated 750 million barrels following further studies.

Making a more sizable statement as one of the world’s largest actors, Chevron inked an offshore deal with Morocco’s Offices National Des Hydrocarbures Et Des Mines to take on seismic studies of the Cap Rhir Deep, Cap Cantin Deep, and Cap Walidia Deep efforts.

However, as the country explores their domestic potential as a way of easing dependence on expensive and increasingly volatile imports, Morocco’s downstream potential does not appear to be keeping pace. As of 2011, the country boasts only a single refinery at Mohammedia following the conversion of their Sidi Kacem facility to a distribution plant. Despite a long-running modernization push as a part of an agreement between Rabat and state operator, Samir, the plant has seen partial slowdowns in output over the last year. These pauses have been the result of scheduled maintenance and expansion plans that have included upgrades to a new crude distillation unit and a jet fuel facility, which can produce 600,000 metric tons a year. This effort is a part of a broader strategy to add 4m tonnes of refined oil per year, according to Reuters.

While these efforts appear to address current domestic demand, it is far less clear whether a single plant will be able to meet an increase in local production should Galp or Chevron gain traction over the coming year or two.

Origionally Posted: Newsbase’s MEA Downstream Monitor

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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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Tunisia and an Undefined Shale Future

As the rush to exploit shale reserves continues across the globe, Tunisia’s potential has come into the spotlight due to a number of conflicting reports from interested foreign firms and the country’s new government.

Facing expected increases in local demand and a weakened post-Arab Spring economy, which contracted 1.8 percent last year, a Tunisian shale boom would be a helpful step forward in terms of energy security and growth. While modest in comparison to larger shale markets, most notably the United States and China and to a lesser degree, Poland, Tunisia’s shale estimates suggest enough potential to change the energy landscape of this country of 10.5 million. According to a U.S. Energy Intelligence Agency report, as of 2009, Tunisia offered approximately 18 trillion cubic feet of technically recoverable shale gas.

However, despite clearly stated interest on the part of several foreign firms and a lack of viable hydrocarbon alternatives, Tunisia’s current transitional government has avoided a clear embrace of the often-controversial extraction process.

A Growing Caution

As countries across the globe rush to replicate the progress seen in the United States over the last decade, many have rushed to partner with foreign partners with more direct experience with the costly and very technical shale extraction process, known as hydraulic fracturing, or “fracking”. The extraction, according to the UPI, “involves drilling into the rocks horizontally and then cracking them with a high-pressure missile of water mixed with sand and chemicals, to unlock the gas from the impermeable shale rock.”

The complexities of this process and the environmental risks involved have made introducing shale projects difficult into new markets increasingly difficult. Bolstered by reporting and advocacy groups in the United States, opposition has grown due to concern about possible harmful waste, water supplies and the potential impact irresponsible development could have on the local environment and aquifers.  This has resulted in partial or outright bans on shale efforts across Europe and delays in government approval in several more countries.

Early reports suggest that these concerns may have had a hand in the delay or outright denial of licensing rights for shale projects in Tunisia. In late September, Tunisia’s Industry Ministry were pushed to respond to reports that they were preparing to grant an unconventional license to Shell in the Kairouan region of the country. Denying the completed agreement, the Ministry announced that while they had received a related application, they had responded with an appeal for an environmental and water impact analysis, according to an Al Bawaba report.

The water usage issue related to “fracking”, which can require millions of gallons for each well, is especially important for the arid North African region. The Ministry release did allow that government was considering shale options, stating, “Tunisia is mulling over producing shale gas to meet its growing domestic demand and the expected drop in traditional oil stock”.

However, just a few days later, the African Manager website reported that a source close to the case stated that shale efforts would likely be abandoned completely by the current government thanks to concerns about the potential environmental impact. While unconfirmed outside of that source, the report does reflect the lack of a clear narrative about the country’s current position on introducing shale efforts.

Ready and Waiting

However the country decides, they will have a number of potential partners to held lay a shale foundation. Earlier this year, Shell announced plans to pursue unconventional efforts in both Tunisia and neighboring Algeria, which has been much more assertive in their support for shale development. So far, Algiers has signed production agreements with Italy’s Eni and Shell, among others. Going so far as to introduce new hydrocarbon legislation to entice foreign investment in unconventional energy projects, Algeria has set a course for energy diversification, addressing a steady increase in domestic demand and allowing an increase in export revenue.

For Tunisia, the addition of shale to the country’s energy options would address more modest goals of just easing dependence on costly refined oil imports and the burden of steadily declining local oil reserves.

In addition to Shell, Winstar Resources have also expressed a strong interest in pursing what they feel is Tunisia’s vas energy potential. Despite reports of a possible sale of their Tunisian interests earlier this year, the Canadian company included a positive outlook of their access to the country’s shale potential in their August, second quarter corporate report. Earlier this year, representatives from Italy’s Eni suggested they might extend their shale reach beyond Algeria and were “thinking of entering the Tunisian shale gas market,” according to a Dow Jones report.

In late September, the country’s shale reserves also took center stage at the second annual Tunisia Oil and Gas Summit, where the keynote session explored Tunisia’s unconventional, including input from a number of foreign E&P firms and sponsor Halliburton. The US company has been at the forefront of shale excavation technology for decades.

It should be noted that even if the country’s transitional government side against introducing shale to the Tunisian landscape, presidential and parliamentary elections have now been scheduled for June of next year. With new leadership in sight, any opposition could face a limited lifespan. For their part, Shell has not included any information about unconventional projects in their online literature related to Tunisia, but did recently announce a $150 million oil exploration deal in the country.

Image: Agency Tunis African Press

Originally Posted: Newsbase’s AfrOil Monitor

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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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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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Morocco Offers Up Incentives for First Wave E&P

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

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

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

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

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

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

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

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

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

A Broader Approach

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

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

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

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

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

Image: Proactive Investors

Originally Published in Newsbase Afroil. All Rights Reserved

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Egyptian Energy Presses Ahead Despite Criticism

Despite extensive efforts, Egypt has struggled to get their economy back on track in the year since widespread public protests led to the ousting of long-standing president Hosni Mubarak. Political instability and uncertain investors have kept needed international funding at bay, as Cairo works to establish a solid foundation for the country’s first new government after decades of Mubarak leadership. The country’s coveted tourism sector remains weak and despite enormous reported potential, Egypt’s renewable industry has been slow to start as investors and international financing agencies adopt a ‘Wait-and-See’ attitude.

Still, despite the stagnate pace of growth and economic recovery, one sector of the country’s economy has continued to shows signs of life – Egypt’s oil and natural gas producers. According to United States National Public Radio report this week, the country’s General Petroleum Company, the government office charged with making final decisions on exploration and production agreements, has continued to add to the country’s 148 standing partnerships.

The continued rounds of licensing for both on and offshore efforts comes despite strong criticism aimed at how such efforts were carried out under the Mubarak government, with critics leveling complaints at a perceived lack of transparency about pricing and the amount of domestic reserves set aside for exporting.

The continued lack of transparency surrounding the natural gas deals has critics worried that even with Mubarak gone, the Egyptian government may still be allowing the kind of controversial agreements that led to a wave of protest earlier this year. The backlash came soon after an investigation uncovered payment agreements with Israel and Jordan for Egyptian natural gas that assured under-market prices in exchange for benefits for local government officials. While Jordan was quick to work out a renegotiated deal, contested trade agreements with Israel added to existing strain between new political leaders in Cairo and its eastern neighbor.  The situation was further complicated by a series of now 14 attacks on natural gas pipelines in the Sinai region of Egypt, halting exports again and again. Energy relations between the two countries showed little sign of improving after Cairo cancelled a 2005 export agreement with Israel, who currently depend on Egypt for 40 percent of their energy needs.

More than just lost revenues, the decision to cancel Egypt’s 20-year deal to supply natural gas to Israel is now resulting in a lawsuit filed by investors in the East Mediterranean Gas for violations of bi-lateral investment treaties, according to a Bloomberg report.

Despite such criticism, the government may have little choice than to support new production deals under the pressure of mounting debt and wavering interest from existing project partners. According to Australia’s The National, the Egyptian government has accrued about $4 billion in debt to international energy firms due in part to large-scale purchases to allow for heavily subsidized domestic sales. This comes despite the country’s own 78 trillion cubic feet of proven natural gas reserves. This debt has recently increased, according to the report, due to late payments as a result of the country’s recent political instability.

Further complicating the situation for the government and local partners, the country’s recent uncertainty and apparent high cost of operating in Egyptian territory has pushed some international firms to reassess their presence there. In November of last year, Royal Dutch Shell handed back an offshore block, stating that the high costs of operating there overshadowed the possible rate of return.

Still, many firms are looking past the country’s current predicament and ahead to a potentially calmer new year, including Houston’s Apache and the UK’s BP, who are hoping to capitalize on a 2010 offshore effort. In fact, it is the government’s willingness to pursue new deals despite the country’s current challenges that has Apache feeling confident about the months ahead.

“Our operation has continued [uninterrupted] and supported by government partners as evidenced by the issuance of new…leases,” Apache President and Chief Operating Officer Rodney Eichler said, according to a Dow Jones report. “We are optimistic for Apache’s future in Egypt.”

Given the financial limitations of the country’s current government, anything more than new licenses may be too much to hope for. Burdened by significant budget shortfalls, the Egyptian government will be unlikely to consider any price renegotiations with existing production partners, regardless of the additional risks now associated with operating in the country.

However, regardless of either company’s intentions or interests, existing deals could soon come under scrutiny should critics chose to build on the investigation that put a spotlight on the Israeli and Jordanian deals.

“Some terms that are now in question are part of the 2010 deal with BP for the extraction of deepwater Mediterranean gas,” reported NPR. “While many details of the deal have not been made public, it has many critics.”

A similar threat of agreement reviews has foreign partners on edge in Libya, where the country’s transitional government has pledged to take a closer look at those oil and gas agreements completed under Gadaffi.

Originally Published at Newsbase’s Afroil Report. All Rights Reserved.

Image: Modern Egypt.info

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