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Global Energy Advisory – 17 February 2017

Libya Refinery

Politics, Geopolitics & Conflict

• European Commission President Jean-Claude Juncker will step down in two years instead of running for a second term in office, arguing that the EU needs a more unifying figure in light of Brexit and the rising tide of right-wing parties across the union. Juncker has been hostile to the UK from the start, adopting a stance that can be summed up as “We’ll make it as hard for you as we can.” The latest from him was a warning for the UK against trying to lure individual EU members into its orbit in an attempt to strike bilateral trade deals after its exit from the EU becomes a fact. Juncker is far from alone in this attitude, but it seems that it is not helping matters: worries that more countries will follow the UK’s example persist. France is holding presidential elections later this year and, according to Germany’s Foreign Minister Sigmar Gabriel, there is a good chance that the leader of the far-right National Front Marine Le Penne could win, endangering the unity of the EU. Many share the belief that if France leaves the EU – perhaps a far-fetched possibility but still a possibility – the EU will be as good as dead, which means that the elections there will be watched very carefully. It’s fairly certain that Brussels will do everything in its powers to prevent a breakup of the union, whatever the costs.

• The U.S. may deploy troops in Syria, according to information from the Pentagon. One anonymous source said that there are already a small number of special operations forces in the war-torn country. The news surfaced while the Pentagon is working on proposals about how the fight against Islamic State can be speeded up. President Trump has given them until the end of the month to come up with suggestions. Syria is Russia and Iran’s playground right now, and the new regime in the White House is too unstable to change that. Turkey, however, was hoping that the Trump administration would come out on its side against the Syrian Kurds. So far, it’s not panning out as Ankara would like. While Erdogan has stated that the Trump administration would not support the pro-Kurdish People's Protection Units (YPG) in efforts to capture Raqqa in northern Syria from ISIS, the State Department has refuted that. The Turks will do whatever it takes to make sure the Kurds aren’t the ones to take Raqqa, possibly even if it means letting ISIS keep it.

• Global, and more specifically, U.S. security remains in question more than at any time in decades. There are unprecedented implications arising from the Trump presidency, and the resignation of National Security Advisor General Michael Flynn for secret talks with Russian diplomats just prior to Trump’s inauguration is only the beginning. This is not a closed issue by any means, and members of the U.S. intelligence community appear prepared to take this much further. One indication of how weak the new administration will be is how many more candidates for national security adviser refuse the post. Vice-Admiral Harward refused on Thursday.

• We will be closely following Libya over the coming weeks, as alliances shift at a rapid pace, while various groupings vie for top position. Most recently, the UN-backed Government of National Accord (GNA)—a highly unstable grouping—has tried to shore up its position by aligning with its key rival, General Haftar of the Libyan National Army (LNA). This is the same general responsible for re-opening Libya’s production and ports for export. This is a shaky alliance, but the deal will give Haftar more leverage. The alliance of rivals has come about due to the emergence of yet another ‘guard’ force from Misrata, which is threatening the GNA at a weak moment.

Deals, Mergers & Acquisitions

• The board of directors of Gazprom has given the go-ahead to the purchase of an additional package of shares in the Nord Stream-2 pipeline project. The package is worth $1.5 billion and was prompted by an increase in the registered capital of the company set up especially for the project, Nord Stream 2 AG, headquartered in Switzerland.

• Malaysia-based Tamarind will buy a 27.5% interest in the Tui group of oilfields off the New Zealand coast from New Zealand Oil & Gas. The deal is worth $750,000 and comes after Tamarind bought a majority interest in the area from its operator AWE last year. New Zealand Oil & Gas’ reserves in Tui were valued at $4.7 million.

• Cairn Energy has emerged as the preferred bidder for the North Sea assets of Dong Energy, the Danish firm that plans to exit fossil fuels to focus on renewables. Initially, A fellow Danish major, Maersk, was tipped to be the frontrunner for the assets, valued at $2 billion in oil and gas production infrastructure but no deal was announced.

• Noble Energy is looking for a buyer for its 7.5% stake in the Tamar gas field off the Israeli coast. The company is asking $1-1.1 billion for the interest and has hired Barclays to find suitors.

• Venezuela’s parliament, dominated by the opposition, suspended a sale of shares in local oil company Petromonagas to Russia’s Rosneft. The sale was agreed between Rosneft and PDVSA. The Russian company and PDVSA are partners in the JV Petromonagas.

Tenders, Auctions & Contracts

• India’s Reliance Industries has awarded a deepwater front-end engineering contract to Genesis, a unit of TechnipFMC. The contract is for Reliance’s MJ-1 gas discovery, part of the KG-D6 block in the Bay of Bengal, where the industrial conglomerate holds a 60% stake. Its partners in the project are BP, with 30%, and Canadian Niko Resources, with 10%.

• India has awarded exploration licenses for 31 small oil and gas fields after a May 2016 tender, which offered 46 fields in total. Bids were received for 34 of them. India is currently trying to expand the exploitation of its domestic oil and gas reserves in a bid to reduce its dependence on imports.

Company News

• Australian Origin Energy expects to take a $1.46-billion impairment charge from a revision of the value of the Australia Pacific LNG joint venture and other assets. The charge will be booked in the company’s H1 2017 financial report, Origin said.

• Newly installed solar power in the U.S. reached 14.625 GW last year, achieving a 95% annual growth and hitting a new record. Last year also marked the first time that solar power topped the list of new power generation capacity additions.

Discovery & Development

• MOL Pakistan said it has struck crude oil and gas in a well in the Tal block, located in the northwest province of Khyber Pakhtunkhwa. The current yield of the well is 195 barrels of condensate and 5.6 million cu ft of gas. MOL is the operator of the field, in partnership with Pakistan Oilfields Ltd.

• Sri Lanka has announced a tender for the development of a gas deposit in the Mannan offshore basin. Cairn Energy was exploring for oil and gas in the area but it packed and left two years ago, amid the oil price crash. The tender covers potential deposits in an area spanning 2,924 sq km off Sri Lanka’s northwest coast, part of a wider 30,000-sq-km offshore area that, according to the government, could hold as much as 1 billion barrels of crude oil, based on seismic studies.

• The giant Zohr gas field off Egypt’s coast will start producing before this year’s end, said the chief executive of the field’s operator, Italian Eni. Zohr is estimated to hold 850 billion cubic meters of natural gas, which makes it the biggest gas field in the Mediterranean. Egypt has plans to increase its gas production by 50% until the end of 2018, largely with the help of foreign oil majors, including, besides Eni, BP and Shell.

• Azerbaijan supplies 5% of the gas the European Union consumes, according to the Vice president of the European Commission for Energy Union. Maros Sefcovic noted the importance of the Southern Gas Corridor, which carries gas from the Caspian to Europe, for the EU’s energy security.

• Norway’s section of the Arctic will see record drilling activity this year, according to estimates from industry observers. Lundin Petroleum, for one, plans to add two more exploration wells to its drilling program for the year. Statoil is also planning to expand its operations in the Barents Sea, in the Korpfjell field, where it will this year drill the first exploratory well. Korpfjell is estimated to hold around 10 billion barrels of oil and gas.

Regulatory Updates

• Eni and Shell have asked a Nigerian court, which last month ordered a temporary forfeiture on several co-owned assets to the government, to lift it for one field, the OPL 245. The OPL 245 has become the center of a flurry of investigations, focusing on the process of its acquisition from a Nigerian company close to then-Oil Minister Dan Etete back in 2011. Investigators in not just Nigeria but also Italy and the Netherlands have suggested that the purchase, valued at $1.3 billion, was mired in bribery, government corruption, and money laundering. Shell and Eni are contesting the charges, claiming the forfeiture order was the result of a “gross abuse of process and an abuse of power” on the part of the Nigerian Economic and Financial Crimes Commission.

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