The Energy Triangle No One’s Paying Enough Attention To
This is the energy triangle that has the biggest chance of disrupting geopolitics in Europe, and while it’s been on the cards since 2012, it is now – quietly - becoming a reality. The end game here is a geopolitical grenade, which seeks to circumvent Russia and isolate Turkey. Welcome to the ‘Energy Triangle’ of Eastern Mediterranean countries - Greece, Cyprus and Israel. The goal here is to transport natural gas through underwater pipelines from the Eastern Mediterranean to Europe in what is being billed as the EastMed project. But while it was a pipe dream for many years, since the beginning of this year it has taken on a life of its own due to support from Brussels and Washington, at the behest, largely, of Israel.
For investors, this will change the parameters of the energy game significantly because we are talking about transporting 350 billion cubic feet of natural gas through a 2,000-kilometer pipeline overland and underwater, from Israel’s portion of the Levant Basin, eventually from Cyprus, and onto Greece, connecting the rest of Europe via terminals in Italy.
In Brussels, the European Commission has already signed off on the technical and commercial feasibility of the project. It’s also now lending definitive political support to EastMed.
For Turkey, it’s the death knell. Erdogan has long been striving to put himself on the map as the leader who turned Turkey into a major energy hub between east and west. But his geopolitical manipulations have backfired. EastMed will bypass Turkey entirely, not only because of its ongoing dispute with Cyprus and his threats to drill in Cypriot waters that it claims as its own, but because of the alliance Turkey has forged with Russia. The lines have been drawn here, and Turkey is not on the right side in this multi-billion-dollar game.
So, why is this suddenly picking up serious momentum but not getting much play in the media despite the level of disruption? Because, as one senior EU official in Brussels inside the Directorate-General for Energy tell us, the EU doesn’t want to openly alienate either Russia or Turkey, so the game is being played quietly and cautiously. In other words: They’re afraid of Russia, most specifically, and the backlash.
Greek officials are slightly more forthcoming, telling us that the extent of the dialogue that has been taking place over the past 5 months with the European Commission and Israel is “unprecedented”. In other words, it’s been fast-tracked - exponentially. And for the first time in a decade, there is a real alternative to Russian natural gas in the EU.
A senior Cypriot official says pretty much the same thing, noting that the EU is suddenly very eager to ensure the completion of this project as quickly as possible. A senior official within the Cypriot government commented: ‘There is no doubt that the proposed project will put us [Cyprus] on the map as an energy actor and provide an alternative to the Turkish and Russian energy providers.’
It is important to also take into consideration the geopolitical tensions between Turkey on the one hand and Cyprus and Greece on the other over the Cyprus dispute. The EastMed project has purposely excluded Turkey in order to highlight Europe’s intent to identify an alternative partner to its needs for natural gas and indirectly show its support for Greek Cyprus. As a result, Turkish vessels continue to interfere with maritime drilling activities along the coast of Cyprus on a regular basis to indicate Turkey’s dissatisfaction over the EastMed project.
For investors, this is the real first opening in this game: Our inside sources say that the EU, via some of Europe’s energy companies, has already begun talks with Iraqi Kurdistan to ensure that oil - along with the proposed gas - will also be a part of the EastMed project.
An investigative journalist in Greece indicated the increased dialogue between some French and Italian energy companies with the Iraqi Kurdish government using Greece as a ‘meeting point’, while at the same time Greece and Israel’s connections have also intensified as there has been a surge of commercial activity from numerous Israeli companies in Greece.
This is a win-win for everyone but Russia and Turkey. It will transform the economies of Cyprus, Israel and Greece, and Greece itself will benefit from the transport fees it will charge.
Yemen: A Proxy War the Saudis Shouldn’t Get Sympathy For
As media analyzes reports that Yemen’s Houthis have targeted a Saudi airport in their deadliest attack yet, killing some 20 people, it’s important to remember that this is a war, and not simply Iran-backed militants targeting the Saudis at the request of Tehran. The Yemen war has a life of its own, and the Saudis have been carrying out airstrikes against the Houthis at the request of Yemeni president Hadi since 2015. It’s an expensive war for the Saudis on a number of levels, and now it is beginning to extend more threateningly across the border into Saudi territory. But it also seems that the Houthi are stepping up their game because the Saudis themselves are more inclined to play up the attacks in the media. It used to be that the Saudis were reticent to appear weak or to be seen losing control in Yemen and would downplay cross-border attacks. Now, Riyadh is more keen to gain sympathy from these attacks because Iran is in the spotlight more than ever, and because the Saudi Crown Prince is in desperate need of an image fix - and playing the victim now suits. Particularly given his inability so far to get Trump to silence US Senators who are demanding some real response to his assassination of Khashoggi.
Key Oil & Mining Venues To Monitor
- Radical Islamic violence in Burkina Faso, a key gold-mining venue
Hundreds of people have been killed in a wave of Islamist violence across the country in the course of just a few months. Most recently, on Monday, 19 people were killed and another 13 wounded. Since the killing of a Canadian mining exec here in January, the situation has continued to spiral out of control. Burkina Faso may be a relatively new target for radical Islamists, but it is now definitively part of a regional equation that has seen the ISGC (the Movement for Unity and Jihad in West Africa, which originally centered on northern Mali) make a concerted effort to spread across the region.
- Senegal Oil Contracts One Step Closer to Being Investigated
After opposition politicians last week called for an investigation into energy contracts, and particularly into offshore gas blocks being developed by BP and allegedly involving kickbacks to the president’s brother, Senegal’s Justice Ministry has further this call this week, calling on prosecutors to launch an inquiry.
- Oil-Rich Kazakhstan Faces Unprecedented Political Unrest
Earlier this month, Kazakhstan hit a production record at its giant Kashagan field, but all is not well on the home front, with political instability threatening to derail oil ambitions in a venue that has rarely experienced any real uncertainty. The country’s long-time dictator, Nursultan Nazarbayev, has stepped down, and his chosen successor was Kassym-Jomart Tokayev, former PM and foreign minister. The transition has gone as planned. The elections were largely rigged and strong-armed, and the public (for once) isn’t having it, since results came in on Sunday. Nazarbayev is still nominally in control here, maintaining his position as head of the ruling party and of state security. This was meant to be a test-run for when he gives up the ghost - and it hasn’t been a success. He’s ordered security services to violently put down protests. At stake are some 30 billion barrels of oil reserves.
- Pending Natural Resources Reforms in Papua New Guinea
Investors should be closely monitoring PNG - particularly concerned Exxon and French Total SA - in light of major reforms planned to target foreign investors in oil and gas and gold-mining. Those plans would include higher taxes, for starters. There is no timeframe for this yet, and PNG PM James Marape is now suggesting that they might not take effect for years but is leaving investors on edge over the uncertainty.
- Apache Oil exploration in Suriname
We’ve talked a lot about Guyana lately, and the pending potential for political uncertainty at a time when Exxon has made a string of fantastic discoveries offshore, but the same basin extends into Suriname, and what everyone should be asking right now is: Will this be the same series of significant discoveries? In the weeks and months to follow, we’ll be looking at commercial viability here, along with the political landscape that could present more than a few pitfalls.
Global Oil & Gas Playbook
- As China increases its footprint in the Gulf countries, UAE-based Emirates National Oil Company (Enoc) has secured a five-year term loan worth $690 million from a Chinese consortium of banks.
- Russia’s Lukoil has signed a preliminary agreement with Kazakhstan's state energy company to develop the I-P-2 license block in the Caspian Sea (400-meter-deep and 130 km offshore).
- Brazilian state bank Caixa Economica Federal will sell a $1.86-billion stake in Petrobras. Caixa owns 3.2% of Petrobras’ common shares, 0.8% of its preferred shares and 2.2% of its capital stock. The sale will take place via a public offer on the local stock exchange later this month.
- Libya has lost 30,000 bpd of oil output due to a generator fire at its Sarir oilfield. We have no intelligence to suggest that this was the result of the ongoing conflict.
- The interim Algerian military-clan-led government is under pressure with or without new elections, which have been canceled by the constitutional council, resulting in yet more protests from a public that neither wants elections in July that will be purely cosmetic, nor is it willing to allow the interim leaders to get by without serious punishment for the ruling elite. The appeasement this week came in the form of the launch of an investigation into an auto tycoon and 45 of his associates for graft. On the oil front, Sontrach remains untouched for now and has just signed a 10-year extension deal with Portuguese company Galp for the supply of natural gas.
- Shell Oil has agreed to sell its 160,000bpd-capacity Martinez refinery to New Jersey-based independent refining firm, PBF Energy, for up to $1 billion. Shell PLC has been trying to sell the refinery for at least four years. PBF operates several oil refineries throughout the US.
- Exxon is moving forward with a 55,000-boepd development project in Argentina, despite growing uncertainty over the investment climate here ahead of this summer’s general elections. The project is a pilot in the Bajo del Choique-La Invernada block, which underwent initial exploration in 2016, with successful results. This project has been hindered so far by government meddling in natural gas prices as well as exploration challenges due to the remote location. Exxon has a 90% WI in the block. What happens next on the political scene will likely make or break the second phase of this project, which could potentially produce 75,000 boepd.