Libya is getting closer to realizing its goal of boosting crude oil production to 1 million barrels per day after it struck an agreement with German Wintershall that led to the restart of fields with a combined output of 160,000 bpd. The National Oil Corporation (NOC) and the German company were locked in a dispute concerning payments NOC said Wintershall owed. Now the dispute seems to have been resolved and NOC is on track to raise production from about 830,000 bpd right now, to 1 million bpd by the end of next month.
It’s not what OPEC wants to hear in the middle of an increasingly desperate attempt to prop up prices. Oil production across OPEC rose by about 336,100 barrels per day to 32.1 million bpd in May, due to production increases from Nigeria, Iraq and Libya. Nigeria and Libya are not subject to the group’s restraint deal agreed last year. Output from Libya surged by more than 178,000 bpd to 730,000 bpd as the country's rival factions moved toward reconciliation, and supplies disrupted throughout years of conflict remained on line. There’s always, however, a big ‘if’ with Libya.
Nothing is certain with Libya’s fractured political system and there is a constant possibility of militant groups trying to take control over oil export terminals, fields, or pipelines.
Lately, tension between political groups, each with their own militia affiliates, has spiked in the form of fallout from the Qatar crisis. The eastern government…
Libya is getting closer to realizing its goal of boosting crude oil production to 1 million barrels per day after it struck an agreement with German Wintershall that led to the restart of fields with a combined output of 160,000 bpd. The National Oil Corporation (NOC) and the German company were locked in a dispute concerning payments NOC said Wintershall owed. Now the dispute seems to have been resolved and NOC is on track to raise production from about 830,000 bpd right now, to 1 million bpd by the end of next month.
It’s not what OPEC wants to hear in the middle of an increasingly desperate attempt to prop up prices. Oil production across OPEC rose by about 336,100 barrels per day to 32.1 million bpd in May, due to production increases from Nigeria, Iraq and Libya. Nigeria and Libya are not subject to the group’s restraint deal agreed last year. Output from Libya surged by more than 178,000 bpd to 730,000 bpd as the country's rival factions moved toward reconciliation, and supplies disrupted throughout years of conflict remained on line. There’s always, however, a big ‘if’ with Libya.
Nothing is certain with Libya’s fractured political system and there is a constant possibility of militant groups trying to take control over oil export terminals, fields, or pipelines.
Lately, tension between political groups, each with their own militia affiliates, has spiked in the form of fallout from the Qatar crisis. The eastern government of Libya was quick to join its main foreign financial backers--Egypt and the UAE--in denouncing Qatar. They even went as far as to call on oil companies operating in the country to stop doing business with Glencore because Qatar Holding has a stake in the Swiss commodity trading giant. Glencore, however, has an oil export contract with NOC, which is officially the only entity that can legally export crude oil from Libya. This is where politics and business really don’t mix.
Following the eastern government’s declaration, the NOC’s chairman struck back with a statement praising the contribution of the Libyan National Army (LNA) in restoring the NOC’s control over the four key oil export terminals in the Oil Crescent and advising the eastern government to follow the LNA’s wise example. You see, the LNA is affiliated with the government in Benghazi, so it’s voice has a chance of being heard should it decide to speak. But ‘affiliations’ aren’t that cut and dry in Libya, so there is no certainty.
More specifically, though, this Gulf spat breaks down in Libya like this: Qatar is supporting Islamic militias in Misrata and others that are loyal to Sadiq al-Ghariani, the Mufti of Qatar. The UAE and Egypt support General Khalifa Haftar (the leader of the LNA). Haftar has been fighting the Islamic militias with pretty much everything he’s got, so these two support channels don’t mix.
This context suggests the political situation in Libya is still very volatile, and production and export disruptions are a distinct possibility. However, since the LNA took control over the terminals last year and handed them over to NOC, disruptions have become much shorter – The NOC’s target of 1 million bpd by the end of July seems achievable—maybe not without another fight, but still achievable.
Deals, Mergers & Acquisitions
• Statoil has taken over BP’s permits for two offshore blocks in the Great Australian Bight. BP gave up its exploratory activities in the bight last year citing changes in the profitability prospects of the operation. Environmentalist groups argue that their opposition to the exploration of the Bight, which is home to a marine reservation, was the bigger reason for BP’s pulling out. The project is certainly a challenge: the Bight has extreme weather that makes deepwater drilling particularly difficult and, as a consequence, risky. Opposition from environmentalist groups will also continue, but Statoil appears unfazed by it.
• UK-based utility Centrica has sold all its Canadian oil and gas assets to a Hong Kong-listed company, MIE Holdings Corp. The $545-million deal involves mostly gas assets in Western Canada, with a daily production rate of 56,000 barrels of oil equivalent, as well as stakes in 11 processing plants and 2 million net acres of land.
• Japan’s Inpex has sold a 40% stake in an offshore oil field in Papua New Guinea to the country’s state-owned oil and gas company Kumul Petroleum Holdings. The Japanese energy major held the stake through a 10% affiliate, Southern Highlands Petroleum.
• GE and Baker Hughes have received clearance for their merger from the Department of Justice. The condition that the DoJ set is for GE to divest from its GE Water & process Technologies business. The divestment deal was agreed earlier with French utility Suez. Two weeks earlier, the companies also got the green light from the European Commission. After the merger, GEBH will become the second-largest oilfield services company globally.
• Titan Energy has sold its 25% interest in the Rangely Field in Colorado for $105 million, after last month it offloaded its conventional oil and gas operations in Appalachia and the Marcellus shale for a combined $84.2 million. Titan’s new focus is exclusively on Eagle Ford and it will use the proceeds from the two sales to slim down its debt and fund its Texas shale operations.
Tenders, Auctions & Contracts
• Wood Group has inked a $6-million contract with Australia’s Woodside Petroleum for the execution of the second phase of Woodside’s Greater Western Flank offshore gas project. The execution will involve securing engineering support for the subsea pipeline system while it is being constructed. This is the third service contract for the GWF for Wood Group.
• Petrofac has closed a deal with Kuwait Oil Company, to provide it with technical training and competency development services. The five-year deal is worth $35 million and will enter into effect immediately, KOC said. That’s the second large deal for the Jersey-based oilfield service provider this month and comes on the heels of a 10-year contract signed with Petroleum Development Oman for engineering, procurement, and construction services.
• Qatar Petroleum and Shell have closed a deal for the joint development of LNG marine bunkering infrastructure at several locations around the world. LNG bunkering is becoming increasingly popular as ship owners turn more and more to LNG as a cheaper and more environmentally friendly fuel. According to Qatar Petroleum’s chief executive, LNG bunkering demand could hit 50 million tons annually by 2030.
Discovery & Development
• Gazprom Neft has received an exploration license for the Parabelsky block in central Siberia. The block is estimated to contain some 1.2 million tons of crude, or 8.8 million barrels. The company already operates 12 fields in the Omsk region, where Parabelsky is located. Gazprom’s oil division is among the top four producers in Russia, with last year’s output standing at 86.20 million tons, or 631.85 million barrels, of oil equivalent.
• The National Iranian Oil Company is expecting to seal deals worth $15 billion with foreign oil and gas companies for the development of local fields. Early this year, Tehran shortlisted 29 companies to bid in oil and gas field auctions. NIOC has already signed two deals with big international energy players—Total and Shell—but the companies are waiting for clear signs that the U.S. will not impose new, stricter sanctions on Tehran.
• Israel’s gas transmission system has been expanded by 30% in anticipation of the start of commercial production at the giant Leviathan offshore gas field. This week saw the launch of the largest gas transmission pipeline in Israel, the Eastern Line, which will be instrumental in distributing gas from Leviathan to Israeli consumers.
• Canadian oil companies will likely continue cutting their spending this year as well, with the total seen at $11.32 billion, down from $12.82 billion in 2016, and $25.65 billion in 2014. This year will then be the third one in a row of spending declines. At the same time, oil sands production is set for continued growth, to 2.69 million bpd this year and 2.98 million bpd in 2018.
Regulatory Updates
• Federal judge James Boasberg has ordered the U.S. Army Corps of Engineers to review its assessment of the Dakota Access pipeline and rework it so that it addresses environmental concerns more effectively. The judge also said that the current assessment does not address issues related to the hunting and fishing rights of the Standing Rock Sioux tribe that wants the shutdown of the pipeline. The Standing Rock said the ruling was a victory even though the judge did not order the shuttering of the DAPL while the Army Corps reviews its assessment.
Politics, Geopolitics & Conflict
• South Sudan and Zimbabwe are negotiating an oil and gas deal, according to a senior government official from South Sudan. For South Sudan, the closing of the agreement is urgent as the new country relies on oil for all its income and has been particularly hard hit by the oil price slump in combination with a civil war for control of the country’s resources.
• Brazil’s President Michel Temer has survived a probe into his 2014 campaign that could have cost him his position. The Supreme Electoral Tribunal cleared both him and rival Dilma Rousseff of charges that their campaigns featured illegal funding.
• Several thousand people protested in Russian cities on Monday against government corruption. Some of the protests went not sanctioned and resulted in many arrests, including that of opposition leader Alexei Navalny.
• Next week, Nigeria’s president will sign a record-high budget of $24.4 billion, after the country’s parliament passed the draft budget. The 2017 budget should provide some much-needed fiscal stimulus measures for the Nigerian economy, which is still in the throes of a recession.
