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Global Energy Advisory – 14th September 2018


U.S. Energy Secretary Rick Perry this week held two high-profile meetings, one with his counterpart from Saudi Arabia and the other with his Russian counterpart. These meeting were an attempt ensure ample supply of crude oil after sanctions against Iran come into effect in November.

Perry praised OPEC as a whole and Russia as its partner for responding to higher prices by increasing production, even using the word “admiration” as something the cartel and Russia deserved for their efforts to keep oil prices under control.

The talks are the latest stage in Washington’s preparation for the sanctions whose purpose is to cripple the Iranian economy to an extent that would lead to a regime change - although observers familiar with Iranian politics have warned this is an unlikely outcome.

Yet it has become clear that there is as much to be lost from these sanctions as—hypothetically—to be gained. Prices at the pump in the U.S. are climbing higher ahead of the November 4 deadline before the sanctions kick in and this is not something the Trump Administration wants ahead of the November midterm elections.

That’s why the administration has been—on the one hand--very actively trying to convince Iran’s biggest trading partners to drop its crude, and, on the other, seeking to ensure there will be enough oil even when Iran’s exports slump.

The situation is particularly interesting with regard to Russia. U.S.-Russian relations are at a historic low but Russia is one of the world’s top oil producers, which makes it instrumental for any control of global oil supply. Judging by reports of the meeting between Perry and Novak, at least in this respect, bilateral relations are warm. For now.

Deals, Mergers & Acquisitions:

• Austrian OMV will buy a 50% interest in the oil production business of Malaysian Sapura Energy for $1.6 billion. For the Malaysian company, the tie-up is a strategic partnership that will help it grow. For OMV, the acquisition is part of a strategy to expand its presence on low-cost markets with a special focus on Southeast Asia, besides other markets such as New Zealand and the UAE.

• Australia’s Competition and Consumer Commission has approved the proposed US$9.23-billion takeover of gas pipeline operator APA Group by Hong Kong-based CK Infrastructure, surprising some observers who believed the watchdog would ask the buyer to divest more Australian assets to ensure fair competition. APA Group owns two-thirds of gas distribution pipelines in the country and SK Infrastructure has other assets in the industry, too, part of which it said it will sell.

Tenders, Auctions & Contracts:

• Qatargas has inked a 22-year sale and purchase agreement for LNG supplies with a unit of PetroChina. Under the deal, the Qatari company will ship to China 3.4 million tons of LNG every year. The gas will come from Qatargas-2, a project that the Qatari company operates along with Exxon and Total. The first cargo will reach China later this month.

• South Sudan has extended its contracts with CNPC, ONGC, Petronas, and local state oil firm Nilepet for the development of three oil and gas blocks. The petroleum ministry of the oil-rich but conflict-ridden country said the extended contracts will allow CNPC, ONGC, and Petronas to pump oil from the Unity fields for another six years. The companies have been present in South Sudan since its secession from Sudan in 2011. At the time, the new country produced 350,000 bpd and now hopes to reach this level again by mid-2019.

• Gazprom and Mitsui have struck a preliminary agreement for the construction of an LNG plant in the Russian port of Ust-Luga, on the Baltic Sea. The facility will have an annual capacity of 10 million tons and is planned to be launched in 2022 or 2023. Baltic LNG will supply fuel to Europe and South America.

Discovery & Development:

• Eni said it had ramped up production at the giant Zohr gas field in Egypt ahead of schedule and the field now pumped more than 2 billion cubic feet of gas daily. This is equal to 365,000 barrels of oil equivalent. The Zohr field is the largest gas discovery in Egypt to date, with resources of as much as 30 trillion cubic feet of natural gas in place.

• Energy independent Eco Atlantic Oil & Gas announced its Orinduik license block offshore Guyana may contain up to 2.5 billion barrels of recoverable oil reserves along with 2.45 trillion cubic feet of natural gas. Eco Atlantic holds a 40% stake in the block, which is adjacent to one of Exxon’s large discoveries in Guyana, and has partnered with Tullow Oil for its exploration. French Total is also a participant in the project, with an option to acquire 25% of Orinduik from Eco for $12.5 million.

• Mexico’s crude oil production should rise by 800,000 bpd by the end of the current presidential term, President-elect Andres Manuel Lopez Obrador said. This means that from the current 1.8 million bpd, Mexico’s oil output would jump to 2.6 million bpd if the government’s steps in this direction are successful. The first of these will be a tender for shallow-water blocks to be announced in December, when Obrador takes office.

Company News:

• Cairn Energy booked a loss for the first half of the year, at $500.5 million, versus a profit of $70.9 million for the first half of 2017. Revenues, however, jumped to $182.4 million in the period, from $10.8 million for the first half of 2017.

Regulatory Updates:

• In the latest handout for the oil and gas industry, the Environmental Protection Agency has announced it will start rolling back methane emission curbing rules implemented during the Obama administration. According to the EPA, this will cut “duplicative” rules by states and federal agencies, and generate regulatory cost savings of $75 million annually between 2019 and 2025.

Politics, Geopolitics & Conflict:

• Seven armed men stormed the headquarters of Libya’s National Oil Corporation earlier this week, killing two company employees. Islamic State has claimed responsibility for the attack.

• Indians are protesting high prices at the pump with some protests turning into acts of vandalism against fuel stations in the country. Higher oil prices on international markets have swollen India’s oil bill considerably, triggering the protests.

• South Sudan is ready to pay its debt of $1.2 billion to Sudan after the restart of more oil fields. The sum is the amount outstanding on a $3-billion compensation for Sudan’s loss of oil fields after South Sudan’s secession in 2011.

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