Tag Archives: Pipeline

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

 

 

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Spanish Economy and Transport Limitations Keep Medgaz Low

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

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

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

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

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

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

Image: Arabian Oil and Gas

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

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Egyptian Energy Sees Some Return to Stability but Challenges Remain

In the months since the collapse of the long-standing government of Hosni Mubarak, Egypt has struggled to stabilize their energy sector amid widespread shortages and a seemingly endless series of attacks on vital transport lines. Despite the uncertainty these setbacks have provided, Egypt’s oil and gas industries have seen some progress, making a needed return to stability an achievable, if still difficult goal.

Egypt’s energy sector began experiencing delays almost as soon as public protests forced military attention away from the Sinai Peninsula and towards volatile city centers. The military exit allowed rebel groups in the region to mount a series of attacks on natural gas pipelines serving customers in Israel and Jordan, halting exports and much needed revenue for the Egyptian government. The natural gas sector received another setback as allegations emerged detailing below-market deals for Israeli and Jordanian customers in exchange for payments to Mubarak officials. Both counties have begun exploring import alternatives as rising tension and repeated shutdowns have made Egyptian natural gas unsustainable.

Making matters more difficult, Egypt has experienced two massive fuel shortages brought on by panicked purchasing amid reports that the government will soon slash fuel subsidies to help deal with a mounting budget deficit.  Currently, about two-thirds of Egypt’s total subsidies go towards fuel costs – an amount that is expected to increase 40 percent this year to reach $16 billion, according to the Council on Foreign Relations.

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However, despite the steady stream of bad news, many oil and gas actors in the country are making strides towards sustaining and even expanding operations in Egypt’s new political and economic environment.

According to Market Watch, Houston-based Apache announced a 3 percent increase in production in Egypt’s Western Desert, reaching 203,000 barrels of oil and 880 million cubic feet of gas per day thanks to the development of seven new leases in the Faghur Basin.

Last week, Ukrainian Minister of Energy and Coal Industry Yuriy Boiko announced the country’s intention to boost production efforts in Egypt with the signing of two concession agreements for the development and operation of oil and gas fields in the Wadi El Mahareeth and South Wadi El Mahareeth oil blocks in the Eastern Desert in Egypt, according to a government release.

Meanwhile, the PetroSinai joint venture, which operates on behalf of the Egyptian Petroleum Company and MENA, announced the successful re-entry in the Lagia 6 oil field. The move is a part of a proposed development plan that will include up to 55 wells aimed at developing the Lagia Development Lease. Australia’s Beach also recently announced their intention to expand their Egyptian footprint with the development of oil finds in the country.

Challenges Remain

However, further progress in Egypt, especially among larger energy investors, could be hampered by an ongoing struggle over hydrocarbon E&P authority, which is currently under the control of the country’s military. According to Lebanon’s Daily Star, a holdover system from the Mubarak government places the final authority over exploration and production efforts in hands of generals and “military permits” that dictate when, where and how projects move forward.

The existing system was at the center of a meeting held late last month between the country’s oil ministry and representatives of companies active or interested in Egyptian projects, including BP and Enap Sipetrol.

“Egypt is investor friendly, but army restrictions make the lives of people harder,” said Marwan al-Ashaal of Enap Sipetrol, according to The Daily Star.

The meeting saw company representatives call for an overhaul of what they saw as dated production sharing agreements in order to spur needed investment and foreign partnerships.

Revising such dated systems related to the country’s energy sector could be vital to ensuring public support, but will also require a demonstration of shared benefits to the general public, not just select government officials, remarked a UN official close to energy development in Egypt last week.

In an effort to cope with the loss of revenue from severed ties with Jordan and Israel, the Egyptian government has pushed for greater trade cooperation with Sudan. Originally built on an export agreement signed in October of last year, this effort now requires Egyptian officials to take on a diplomatic role in hopes of calming tensions between Sudan and South Sudan over the disputed Heglig oilfield.

As for the capital’s struggle to deal with the now 14 attacks on natural gas pipelines in the Sinai, the government has announced a series of military efforts, stepping up their presence in the region to combat rebel groups and even collaborating with Israeli troops to address rocket attacks across the two countries’ border. The dual effort is especially difficult, as public sentiment has turned against stronger ties with Israel due to the natural gas controversy and the rise of political leaders strongly opposed to diplomatic ties of any kind between the two countries.

Despite these efforts, this week saw another attack on an oil facility in the town of El-Arish, resulting in the death of two policemen and injuring a third, according to the Associated Press.

Image: CNN Money

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Egypt Seeks Pipeline Solutions but Little Official Support

As Egyptian security and political forces have sought ways to combat attacks in the Sinai Peninsula that have led to 13 pipeline delays since the fall of Hosni Mubarak last year, it has become clear that ensuring the transport line or finding ways to ensure existing deliveries may not be as important as once thought – at least in terms of trade with Israel.

This month saw the country’s People’s Assembly vote to cut off natural gas exports to Egypt’s neighbor in response to allegations that the outgoing Mubarak government had sold to Tel Aviv at under-market prices, angering a government body that has already expressed their intention to review and revise all existing relations with their neighbor.

The move comes following a months-long deterioration of the security situation in the Sinai region of the country attributed to Bedouin groups, which has included both attacks on the pipeline and a third case of kidnapping last week. While unlikely to signal a wider halt to energy exports, some analysts have pointed to the shutdowns and lack of political will as a signal of greater internal use of Egypt’s energy resources.

So far, according to an off the record comment from a state official, the attacks have caused upwards of $160 million in losses for the Egyptian government, according to the country’s Al-Ahram newspaper.

Opened in 2008, the pipeline in question was meant to provide for 20 to 25 percent of Israel’s energy needs, but the country has so far expressed little concern for the long-term consequences of a prolonged or complete halt in deliveries, pointing to the potential of offshore reserves to make up the difference. However, according to a USA Today report, the pipeline shutdown could do much to damage relations between the two countries.

Emerging as the unintended victim of both the attacks and the lack of Assembly support for the situation, Jordan has been left to find viable alternatives to the loss of imports. Recent shutdowns due to the now 13 attacks have resulted in widespread energy shortages. Even efforts to curb their dependence on the pipeline have resulted in spikes in costs as the country’s shifts away from natural gas towards electricity plants that use diesel or crude.

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Sinai Pipeline Safety Suffers As Egypt’s Nat Gas Sector Falls

A twelfth attack on natural gas pipelines linking Egypt with vital trade partners in Israel and Egypt has case a spotlight on growing instability in the eastern Sinai Peninsula and the ability for the new government to keep things under control.

Attributed to a new group called Ansar al-Jihad by Israeli media outlets, the most recent attack saw deliveries of natural gas to two of Egypt’s most important trade partners, threatening an economy already reeling from a collapse of the tourism sector. Governments in both Jordan and Israel have expressed their intention to seek out alternative fuel resources as the attacks highlight the limitations of the new government to address the impact of armed opposition groups in the region.

After earlier attacks on pipeline projects earlier last year, Cairo sent several thousand troops to the Sinai to combat these groups, but have been hindered by diplomatic restrictions and a lack of support from local residents.  Until recently, the Sinai Peninsula remained largely peaceful, but also mostly ignored by much of the Egyptian establishment in Cairo. Although the region represented the border between Egypt and Israel, Cairo’s military presence in the area was restricted according to the 1979 peace treaty between the two countries. Before sending in troops to help protect the pipelines, leaders in Cairo had to seek permission under the 1979 agreement. Further complicating their mission, the Sinai’s mostly Bedouin population has long expressed their discontent with the country’s leadership, offering a vacuum of influence in the region. While legislative solutions have been proposed to address the lack of support for the Sinai population in terms of economic and development guidance, short term solutions to ensuring regional and pipeline stability have only come in the form of additional troops.

The attacks reflect a broader growth of instability in the region, including an increase in kidnapping and incidents between local groups and the Egyptian military. This growing tension also serves to add pressure to diplomatic and trade relations between Israel and Egypt, which has seen public attacks on the Israeli embassy in Cairo as well as the country’s border area.

Image: MSNBC

 

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New Med Landscape Spurs Pipeline Reevaluation

A new political and economic landscape across the Mediterranean region has led to a revaluation of existing and upcoming pipeline projects with some receiving a fresh look from political leaders and investors.

Economic shifts across Southern Europe and long-awaited political transitions across North Africa over the last year have forced many in the Mediterranean region to rethink their dependence on transport lines and where oil and gas deliveries will come from in the coming years. Political strife turned violent in Libya, Tunisia and Egypt resulted in complete pipeline shutdowns at several points during 2011 leaving customers to the north uncertain about the future of their energy needs. Heavily dependent on Libyan products and exports from Algeria, shipped through a Tunisian hosted pipeline, Italy in particular faced potential reserve deficits over the last year. Further east, attacks on pipelines in the Sinai Peninsula left heavily dependent Israel and Jordon to explore alternative options for their natural gas needs. This new environment has allowed for consideration of other projects in the region as energy customers seek stability for the years ahead.

“Widespread instability across the Middle East and Africa region has raised important questions about the long-term impact on upstream investments, oil and gas production and hydrocarbon exports in the region,” wrote Abdalla Salem El-Badri, Secretary General of the Organization of Petroleum Exporting Countries (OPEC) in an October opinion piece for The New York Times. A recent report in The Wall Street Journal suggested that the instability in the region, as well as the uncertainty about the viability of Iranian oil, had sent large consumers like China in search of new sources of oil and natural gas.

“China is making good progress toward diversifying its oil supply,” Gordon Kwan, a Hong Kong-based energy analyst at Mirae Asset Securities told the WSJ. “If they were to concentrate on just one or two countries that just accidentally went out of production, [global] oil prices could easily double.”

A Fresh Look

A long delayed direct connection between Algeria and Italy has received new attention since political instability in Tunisia and Libya led Italian leaders to rethink the reliability of their existing transport lines. The result of an MOU signed in 2007, bringing to together the interests of Algeria’s state-backed Sonatrach, Euro energy firms Edison, Enel and Hera, the 900km Galsi pipeline would mark the second such project linking the North African nation with Italy, via a landing in Sardinia. However, unlike the Trans Mediterranean pipeline, the Galsi would carry an estimated 8 billion cubic meters of gas northwards upon completion directly from country to country, skipping a passage through Tunisia. Held up due to issues of funding and government support, the Galsi has earned the support of Italian industry and political leaders eager to reduce their dependence on transport lines through the potentially volatile Tunisian territory.

The new pipeline would become the country’s fourth connection to the European marketplace, joining the Transmed, Maghreb-Europe Gas and MedGaz pipelines, the last of which came on line in mid-2011 though Spanish dips in demand have kept it from running at full capacity. Following delays and outright production stoppages resulting from political strife in Libya, the end of 2011 saw a return to service for the country’s Greenstream pipeline. According to the UPI, Italy imported 1.5 billion cubic feet of natural gas in November despite a reduction in the country’s demand.

Both the Galsi and MedGaz pipelines will play a large part in Algeria’s efforts to greatly increase production and exports over the coming year. Having spent the last year addressing corruption at the country’s state-backed energy firm Sonatrach, a shift in sector leadership and finding ways to quell the sort of public protests that led to political changes in neighboring Libya and Tunisia, Algeria are now focused on expanding their energy industry through infrastructure investment and greater use of new transport lines.

Eastern Promise

Driven by the potential of new natural gas efforts in the eastern Mediterranean, Greek natural-gas supplier Depa have conducted a preliminary study into the feasibility of a pipeline linking Cyprus and Greece. While the report found that the pipeline was possible, it may run into opposition from regional leaders as claims to Eastern Mediterranean natural gas reserves have become the focal point of political infighting between Cyprus, Turkey, Israel and Lebanon. Depa have also begun exploring the possibility of a liquefied natural-gas terminal as an alternative, according to a report in Business Week.

The focus on the Eastern Mediterranean centers on the Leviathan Basin, inviting both conflicting claims to the area’s natural gas potential and a host of new transport and production project proposals from all sides. With the potential to allow for greater energy independence for countries like Israel, the Basin could serve to further reduce demand for products transported through volatile North African pipelines, including the Egyptian lines that have suffered from continued attacks since the ousting of President Hosni Mubarak.

Image: Iraq Business News

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Greece’s Natural Gas Gambit

Despite facing significant cuts to government spending amid a debilitating economic crisis in Greece, government officials in Athens are pushing forward with plans to establish the country as an energy hub and transport center in the coming years. With plans to host three pipeline projects meant to transport natural gas to the European marketplace, Greece has been working to strengthen working ties with regional partners, promising support and completion despite worries regarding where project funding will come from.

Last week, Environment, Energy and Climate Change Minister Giorgos Papakonstantinou travelled to Jerusalem to discuss the role Greece could play in transporting natural gas from wells in the Eastern Mediterranean to European customers, pledging support for the Israeli offshore efforts in conjunction with Cyprus. The first member of the new Greek government to visit Israel, Papakonstantinou’s comments were welcomed in the capital but could put him at odds with another pipeline partner, Turkey. Officials in Ankara have insisted that the Israeli-Cyprus drilling efforts are illegal and should be halted and reviewed. However, this has not stopped Athens from suggesting there was no problem with supporting both the Israeli effort and the ongoing ITGI pipeline, which partners Greece and Turkey, or any other joint projects to transport natural gas from the Aegean Sea.

Other efforts to establish Greece as a transport and pricing hub include the completion of the long-delayed Burgas–Alexandroupoli pipeline in conjunction with Bulgaria and the construction of an LNG regassification plant in the north of the country. Doubts about the country’s ability to pay for any of these efforts due to widespread cuts to government spending have been addressed with pledges of foreign partnerships and earnings from a privatization campaign, which is to begin before the end of the year. If available, Greece could also benefit from support from European Union member states as the country’s role as a transport hub could aid in the planned reduction in dependence on Russian natural gas.

Domestically, Greece’s energy potential remains limited though exploratory efforts have been launched to test the country’s potential reserves. In addition to seismic studies off the western coast and around Crete, the Greek government also ordered the local Institute of Geology and Mineral Exploitation to begin studies into the country’s shale potential. However, even if shale deposits are found in Greek territories, the high initial costs associated with shale extraction could restrict any efforts to access the reserves without substantial contributions from foreign project partners.

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