In just a few short days, Saudi Energy Minister Khalid Al Falih had two major powers stripped away. Saudi Arabia split off the Ministry of Industry and Minerals from the Energy Ministry, diminishing Al Falih’s responsibilities.
A few days later, Al Falih was involved in another power shift when he announced he would be stepping down as chairman of Saudi Aramco, ahead of the IPO, no less. The official reason? To avoid potential conflict of interest as Aramco seeks to list publicly.
Notably, he is being replaced at Aramco by the current head of Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF).
Al Falih and MBS did not see eye to eye on the listing venue for Aramco. MBS wanted New York. But there is a wider divergence that has played out, as well. Al Falih has been one of the key figures working very subtly to subvert some of MBS’ most dangerous decisions. He is a common sense figure, and one of very few who is not a ‘yes-man’. When this all started, Al Falih was ordered to take Aramco public. Publicly, he did this very enthusiastically. Behind the scenes, he was sending reports to the Royal Court advising against the move because of low valuations. He also stood against the scheme to sell PIF shares in SABIC to Aramco - a purchase that did not make sense for Aramco, but that helped PIF gain a bit of liquidity. Again, Falih publicly agreed with the deal but attempted to subvert it behind the scenes; of course, hoping to convince MBS to change course. He failed.
What does it mean for investors? At Aramco, Al-Falih is being replaced by PIF head Yasir Al-Rumayyan. Al-Rumayyan also has a history of trying to (again, subtly) convince MBS to drop certain deals. Like Al-Falih, he has failed, but we can count him among the few who do not agree with MBS’ plans. Al-Rumayyan is an accomplished, sound businessman. He took issue with the first deal that MBS agreed to in a matter of hours on behalf of PIF. That deal represented a paper loss for PIF, which was already illiquid. So the question is: Will PIF be used to prop up Aramco under Al-Rumayyan, or will Aramco be used to prop up PIF. Either way, yes-man or not, MBS will get his way. This means, of course, that it matters less who sits at the helm of Aramco or PIF because both will be forced to do deals they disagree with.
In the meantime, Aramco is due to select IPO underwriters as early as this week ...
Somali, Kenyan Offshore Oil Fate To Be Decided Soon
Kenya has banned direct flights from Kenya to Kismayu in Somalia in another phase of an intensifying diplomatic war between the two countries. On the surface, Kenya’s banning of flights from Kenya to Kismayu seems banal, but it’s not. They aren’t banning flights between the two countries outright; rather, they are forcing flights originating in Kenya to land in the Somali capital of Mogadishu and to bypass Kismayu. The significance is that Kismayu is where the traders need to go, so this is a move designed to hit out at business because Kismayu is Somalia’s economic hub. This is the fallout from a cheeky Somali move to launch offshore oil and gas exploration in maritime territory disputed with Kenya and also the focus of a case now being decided before the International Court of Justice (ICJ).
The diplomatic dispute hit fever pitch in Q1 when it leaked documents showed that Somalia was putting exploration blocks up for auction for disputed territory and is planning to close out an auction in December, even though the ICJ has not issued a ruling on the maritime dispute. Kenya is taking issue with the Somali hubris in this case. Somalia has been showcasing oil blocks in three basins - the Obbia Basin, the Coriole Basin and the Juba-Lamu Basin. To that end, it’s also acquired and processed over 20,000 kilometers of 2D seismic data. All of this went down at a London conference in February, and to this day no one knows who paid for that secret conference.
The timing is significant because the ICJ is due to rule on this case in the first half of this month. Public hearings will be held between 9 and 13 September. Kenya could lose more than one-quarter of its Exclusive Economic Zone (EEZ) if the ICJ rules in Somalia’s favor. It would also lose 85% of its continental shelf as well as access to international waters.
This Is How Qatar Thrives Under Economic Blockade
It’s hard to keep a global LNG power down, try as the Saudis might, at a time when natural gas is viewed as the key fuel of the future. And Qatar is king in this respect. That means that Qatar Petroleum gets what it wants, and when it wants it. That’s exactly what happened last year when Shell wanted to buy an exploration asset from French Total SA in South Africa. Qatar Petroleum wanted it, too, so Total blocked Shell and sold it to Qatar because Total knows where this LNG wind is blowing, and that it’s originating from the LNG king. Now, all the supermajors are scrambling to offer up juicy assets to Qatar because they want an even juicier stake in Qatar’s LNG expansion plans. Those plans include adding some 110 million tons per year of LNG production (from the current 77 million tons per year) to Qatar Petroleum’s operations.
Last week, Total signed deals to transfer assets in Kenya, Guyana and Namibia to QP. That includes a 30% interest in Block 291B and a 28.33% interest in Block 2912 in Namibia. It also includes an interest in Total’s stake in Guyana’s Orinduik and Kanuku blocks. And with Italian Eni, Total is selling QP a 25% interest in blocks in Kenya.
What to keep an eye on? Partnership deals for these expansion plans over the next six or so months. And right now, Total has been making the biggest overtures.
Global Oil & Gas Playbook
- Seeking solace in Russian LNG, India is looking to sign several deals with Russia that will help India reduce its nearly complete dependence on Gulf-supplied oil and gas. The agreement will lay out a five-year roadmap. There is one specific element of the deal, though: an LNG purchase agreement. India has intimated that the agreement will be followed with “actual action”. Also as part of the strengthening of energy ties between the two nations is likely to be ONGC Videsh Ltd’s acquisition of a 49% stake in Russia’s Vankor oilfields. The LNG deal is expected to be announced shortly after the meeting that will be held later this week. Most importantly on this front, India will seek to find alternatives to taking oil through the Strait of Hormuz from Russia--the current route of choice.
- Iran’s oil product exports are holding fast. The US may have been successful in seriously diminishing Iran’s crude oil exports by 80% with sanctions, but its oil product exports (LPG, fuel oil) are still going strong. LPG exports, for example, totaled about 200,000 bpd in July, almost all of which went to China. Fuel oil exports were up 10,000 bpd in July to 230,000 bpd. The value of these LPG and fuel oil exports were $480 million.
- Iran says France’s Macron is planning to offer Tehran a $15-billion lifeline for oil pre-purchases, provided Iran will agree to return to full compliance with the nuclear deal. It’s possible that other European countries will back France’s play designed to keep Iran’s nuclear progress in check, in stark contrast to America’s play of muscling compliance through sanctions - although any support of France’s plan will likely anger the US.
- We continue to watch developments in Yemen amid clashes between UAE-backed forces and Saudi-backed forces. We also note that this does not yet indicate a definitive rift in the UAE-Saudi alliance. We are not to that point. It is not the first time the UAE and Saudi Arabia have clashed in Yemen, though it is the most intensive clash to date. Previous clashes have not seen the two allies diverge outside of this conflict venue. However, we have also noted recently some lower-level divergence over Iran.
- The Syrian Ministry of Petroleum and Mineral Resources has signed contracts with two Russian companies for oil and gas E&P offshore. Company names were not disclosed, but we will get deeper into this next week. Offshore contracts will be in the prolific Levant Basin, where Israel make its giant gas field finds, and where Lebanon is gearing up very slowly to do its own exploration.
- Danish MP Pension fund, which manages some $20 billion, is divesting its stakes in the 10 biggest oil companies because their operations are incompatible with Paris climate goals. That means the fund is divesting some $95 million in shares in ExxonMobil, BP, Chevron, PetroChina, Rosneft, Royal Dutch Shell, Sinopec, Total, Petrobras and Equinor. This institutional investor climate change bandwagon is gaining momentum quickly.
- As of Sunday, China’s 5% tariff in US crude oil is in place, marking the first time China has targeted US crude in the tariff war. At the same time, the US has slapped 15% tariffs on more than $125 billion in Chinese goods, including shoes, clothing and household appliances. China is also placing tariffs on an additional $75 billion worth of US imports. In 2018, Chinese refiners did suspend the imports of US crude as they worried about possible tariffs amid mounting trade tensions. They resumed purchases in Q1 amid trade talk optimism, but imports still dropped significantly from 2018.
- Tanker Adrian Darya 1, formerly known as the Grace 1, which is at the center of a diplomatic row between Iran and Britain turned off its tracking beacon Monday night off the coast of Syria. The tanker arrived off the coast of Lebanon on Sunday and then turned towards Syria Monday. This is the same vessel that was detained off Gibraltar earlier. The oil has apparently been sold to an undisclosed buyer. Gibraltar had released the Adrian Darya on August 15 after receiving formal written assurances from Tehran that the ship would not discharge its 2.1 million barrels of oil in Syria. The US Treasury Department blacklisted the tanker on Friday, citing intelligence it was planning to deliver its crude to Syria. Reports came in on Tuesday that the captain of the Adrian Darya was refusing to be part of the oil offloading, and asked to be reassigned.
- The Liza Destiny floating production, storage and offloading unit (FPSO) has arrived offshore Guyana, where Exxon and Hess will start phase one development of Liza, which will include four undersea drill centers with 17 wells.
- In Libya, operations at the eastern-based Al-Bayda oilfield have been temporarily suspended due to pipeline maintenance work, taking 7,000 bpd offline. This is run by state oil firm AGOCO and drops its production to 270,000 bpd. AGOCO is a subsidiary of the Tripoli-based National Oil Company (NOC) and remains loyal to the NOC overall, though there are some figures within AGOCO who will be Haftar supporters.