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Global Energy Advisory - 16th March 2018

Pipeline

Alberta has stepped up its fight with British Columbia over the extension of the Trans Mountain oil pipeline that B.C.’s government is staunchly opposing. The Albertan parliament this week unanimously voted in favor of a motion supporting the Kinder Morgan project.

The motion follows statements from Prime Minister Rachel Notley and Alberta’s Lieutenant Governor Lois Mitchell, the latter of whom warned Alberta might reduce oil and gas flows to British Columbia in retaliation for the opposition.

The Albertan parliament also insists that the federal government pressures British Columbia into backing down from its efforts to stop Trans Mountain’s expansion. According to the conservative party, Ottawa has not done enough to push forward the project that it approved last year.

Meanwhile, oil producers from Alberta have found another way to get their crude to the western North American coast and from there to Asian markets. Earlier this month, the first cargo of Albertan heavy crude left on a tanker to China from Portland, Oregon.

Access to Asian markets is precisely the point of expanding Trans Mountain, to boost its capacity threefold. Yet the expansion would substantially increase tanker traffic at B.C.’s ports and its new government along with a strong environmentalist lobby is against this.

The government in Victoria argues that the more tankers call at its ports, the higher the risk of a spill. While statistically correct, in terms of probability the argument is not so strong. There are several thousand tankers in the world ocean at any given point but spills are rare.

Deals, Mergers & Acquisitions

• Shell will exit the Draugen field in Norway completely and put up for sale smaller stakes in a number of other fields, the company said. The Draugen produces about 225,000 bpd and Shell has a 44.56% stake in it. The asset disposal is part of a $30-billion divestment drive following Shell’s acquisition of BG Group in 2016, which significantly increased its debt burden. To date, Shell has made divestments worth $25 billion.

• Separately, the Anglo-Dutch supermajor has teamed with Blackstone Group on a $10-billion offer for the U.S. shale oil and gas portfolio of BHP Billiton. The book value of the assets of $14 billion. The miner was forced to put it up for sale by activist investors Elliot Management, which holds 5% in BHP.

• Eni will offload a 10% stake in the Shorouk offshore gas concession to Emirati Mubadala for $934 million. The concession contains the huge Zorh gas field. Eni currently holds 60% in Shorouk, partnering with Rosneft, with 30%, and BP, with 10%. Zohr produces some 400 million cubic feet of natural gas daily.

Tenders, Auctions & Contracts

• Shell is close to signing the first long-term LNG supply contract with Hong Kong, after beating competitors including Petronas. The ten-year deal, beginning in 2020, will supply Hong Kong utility CLP Power with 1.2 million tons of LNG annually. The deal will only be finalized after Shell makes a final investment decision on an LNG import terminal.

• Baghdad has invited investors to bid for the construction of a 70,000-bpd refinery in western Iraq. Interested companies have until June 14 to submit their offers, free to choose between two options: Build-Own-Operate or Build-Own-Transfer. Last year, the Iraqi government announced plans to build four new refineries to make up for capacity destruction during the war with Islamic State.

• The UAE’s Adnoc has awarded Italy’s Eni two offshore concessions, including a 5% interest in the Lower Zakum field and a 10% stake in two other fields that make up the second concession area, Umm Shaif and Nasr. Targeted production from Lower Zakum is 450,000 bpd and the target for Umm Shaif and Nasr is 460,000 bpd. Adnoc is the operator of both concessions with 60% stakes.

• Summit Power and Mitsubishi will together work on a $3-billion LNG-to-power project in Bangladesh. The project will involve the construction of a receiving LNG terminal with a capacity of 1.5 billion cubic feet of natural gas daily and two 1.2 GW gas turbine combined power generators and the relevant transmission lines.

• Qatar Petroleum and Adnoc have renewed a concession for the development of the Bunduq field that the UAE and Qatar share in the Persian Gulf. The concession is held by a Japanese consortium. The renewal comes despite tensions between the two neighbors amid the Saudi-led blockade of Qatar.

• Iran has signed a $742-million contract with Russian Zarubezhneft for the development of the Aban and Paydar fields, which currently produce 36,000 bpd. The target production for the fields is 48,000 bpd. The Russian company will cough up 80% of the funds needed for the fields’ development and its local partner, private company Dana Energy will supply the rest.

• Japan’s Tokyo Gas has agreed on a 13-year flexible liquefied natural gas purchase deal with Malaysia’s Petronas in the latest move among large buyers of the super-cooled fuel to shift away from fixed destination contracts. LNG agreements have traditionally stipulated fixed destination for cargoes, where buyers were not allowed to sell on the fuel. According to the heads of agreement signed, Tokyo Gas will buy Malaysian LNG for up to 13 years from April this year, purchasing up to 500,000 tons a year for the first six years and up to 900,000 tons in the next 7 years.

Discovery & Development

• BP has surprised itself and the world by reporting higher production from mature fields for last year. This goes counter to what has so far been considered the natural order of things in the oil industry, and highlights the growing importance of modern technology for improving oil extraction rates.

• Shell has secured sole access to 16,000 bpd of oil pumped from two fields in the Niger Delta, after securing a $270-million loan for the operator of the fields, Amni International. The Anglo-Dutch major partnered with GT Bank on the loan. Production from the offshore Ima and Okoro/Setu is not as easy as production from onshore fields but, according to Amni, the loan will help it boost production there.

• Alberta’s energy ministry is offering $770 million in incentives for the oil and gas industry in the province aimed at stimulating diversification. The incentives will take the form of grants and royalty credits, and come on the heels of another $770-million package provided by the government for the construction of up to five partial oil upgraders for the oil sands industry.

• Statoil and its partners in the development of the Askeladd field will invest $642 million in the field, which is expected to produce 21 billion cubic meters of natural gas and 2 million cubic meters of condensate starting in 2020. The gas and condensate will be supplied to an LNG plant onshore.

• Eni has started drilling the Rabat Deep 1 well offshore Morocco. The drilling work should take about 50 days. The Italian major has partnered on the Rabat Deep Permits with the local state hydrocarbons agency ONHYM, which holds 25% in the project, Woodside Energy, with 25%, and Chariot Oil and Gas Investment, with 10%.

• As oil prices rise again and the country’s oil production rapidly expands, Ghana is on track to make a remarkable claim for a country mired in poverty not long ago: It is likely to have one of the world’s fastest-growing economies this year, according to international financials organizations.

Company News

• Statoil has rebranded, changing its name to Equinor and sporting a new red logo in reflection of its shift away from fossil fuels and into renewables. The company has no plans to reduce its oil and gas production but it wants to be seen as a broader energy company rather than only an oil and gas producer.

Politics, Geopolitics & Conflict

• British PM Theresa May has ordered the expulsion of 23 Russian diplomats in reaction to Russia’s alleged involvement in a nerve gas attack against a former double agent living in the UK. Russia is preparing to retaliate while May faces a stumbling block on her quest for a united front against Moscow in the face of France.

• President Trump has ousted Secretary of State Rex Tillerson, replacing him with the former chief of the CIA Mike Pompeo.

• Venezuela has asked the UN to send a mission that will observe and monitor the elections due to take place in the troubled South American nation in May.

• Thanks to cost cuts and large oil discoveries made before the oil price crash, Norway will be able to sustain its oil and gas production over the next five years. But reduced exploration drilling and lack of big discoveries in the past two years spell trouble for Western Europe’s biggest oil and gas producer after 2023, authorities fear.





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