Global Energy Advisory 23rd December 2016

Politics, Geopolitics & Conflict

• The murder of Russia's Ambassador to Turkey Andrey Karlov has sparked worry that relations between the two countries will hit a downward spiral once again. Karlov was killed by an off-duty policeman who was later shot down by police. Despite the fresh concerns for bilateral relations, both Turkey's President Erdogan and his Russian counterpart Putin have declared that the assassination was an attempt to drive a wedge between the two. The assassin shouted "Don't forget Aleppo! Don't forget Syria!" according to media, which suggested the provocation, as Erdogan and Putin called it, had something to do with the two countries' different stances on the conflict in Syria, where Russia is helping the Assad army while Turkey is backing some of the rebel groups, and prior to this latest staged détente, had been accused by Russia of supporting ISIS.

• The Democratic Republic of Congo is on the brink of civil chaos as President Joseph Kabila has refused to step down despite the expiration of his mandate this Monday. Protests ensued, with protesters burning down the HQ of the ruling party in the capital Kinshasa. As many as 26 people were killed by police, according to Human Rights Watch. The DRC produced 20,000 barrels of crude daily back in 2014 but has potentially significant untapped reserves in its portion of Lake Albert.

• India's Prime Minister, Narendra Modi, has started losing friends as opposition mounts against his proposed demonetization of 86 percent of the country's cash. Modi announced the scrapping of old 500 and 1,000-rupee banknotes in early November, warning that the transition would be difficult, especially since the deadline for returning the banknotes was the end of 2016. This opposition to India's top politician could compromise his party's performance in the 2017 state elections, which are considered a bellwether for national ones.

• Saudi Arabia has admitted it has used cluster bombs bought from Britain in its war against the Houthis in neighboring Yemen. The British government confirmed the information, adding that the bombs were sold to Saudi Arabia in the 1980s, while the convention making their use illegal was only signed in 2008. Saudi Arabia, for its part, said it was not a signatory on this convention. The Yemen war has caused Saudi Arabia's two biggest allies, the U.S. and the UK, to take a step back from their Middle Eastern ally. The U.S. earlier this month stopped an arms shipment to the desert kingdom, basing the decision on information about too many civilian victims, a result from Saudi problems with targeting. The Saudis have declared they will stop using British cluster bombs. The Yemen crisis is widely seen as a proxy war between Saudi Arabia and Iran for dominance over the Middle East.

Deals, Mergers & Acquisitions

• ConocoPhillips has sold assets worth $1.3 billion this year, which enabled it to pay down debt, buy back some stock, and finance operations. Conoco also said that for the final quarter of the year, asset sales would generate $800 million. As a result of the divestments, daily production will fall by 27,000 barrels of crude, which, however, will not affect the overall figure for 2016.

• BP is splashing out on new oil projects. The company announced a $2.2-billion deal for the purchase of 10 percent in one of the largest onshore fields in Abu Dhabi. The stake, in the field operator, Abu Dhabi Company for Onshore Petroleum Operations, will be financed with shares, giving the seller, Abu Dhabi National Oil Company, a 2 percent interest in the British giant. At the same time, BP also announced another major investment, of $1 billion, in the Tortue offshore gas field that lies off the coasts of Senegal and Mauritania. The deal, with Kosmos Energy, will see BP get 62 percent in the company's Mauritanian business and 32.5 percent in its Senegal operations.

• Shell has sold a 31.2 percent stake in its Japanese refining business Showa Shell. The deal was worth $1.4 billion and the buyer is local refiner Idemitsu. The sale is part of Shell's efforts to generate some $30 billion from asset sales in a bid to prop up its cash position after the over $50-billion acquisition of BG Group.

• Total is building its LNG presence: the French company has just announced the acquisition of a 23 percent interest in Texan LNG project developer Tellurian. The acquisition was worth $207 million. The deal will expose Total to the development of an integrated gas project, spanning gas production, liquefaction, and delivery to international markets.

• Santos Energy is selling its 50 percent stake in an oil and gas field in Australia's Northern Territory to Macquarie. The deal represents Santos' focus on core operations and efforts to cut debt, lower costs and improve its overall performance.

Tenders, Auctions & Contracts

• GE has delivered the first wind turbine in Saudi Arabia, to power the Bulk Plant of local energy giant Aramco. The two companies partnered on the project in a bid to demonstrate the viability of renewable energy in the oil-dependent Saudi economy.

• Siemens is providing a credit facility of $2.5 billion for the construction of the Turkmenistan-Afghanistan-Pakistan-India gas pipeline. The project's cost is estimated at $10 billion, of which Turkmenistan will shoulder 85 percent, of which 51 percent will come from its own funds and the rest from external funding sources such as Siemens.

Discovery & Development

• LNG independent Venture Global will build an $8.5-billion LNG plant in Louisiana, to produce 20,000 tons of liquefied natural gas annually, starting in 2022. Construction of the facility is slated to begin in 2018. The project has attracted local opposition, not least because all its output will be exported. According to one opponent, Louisiana already has trouble protecting its coastline and this project would only aggravate the situation and it won't even produce gas for local consumers. Venture Capital will, however, create about 1,000 new jobs.

• Lukoil has not yet received from the Iraqi government a directive to reduce production in the country, the Russian company said, fueling worries that OPEC's number-two may not stick to its new, reduced production quota. Lukoil develops the West Qurna-2 field, where output should reach 400,000 bpd.

• Kinder Morgan's Louisiana pipeline will start supplying gas to the Sabine Pass liquefaction plant from 2019, after its fifth liquefaction train comes online. The $151-million expansion of the pipeline will result in the delivery of 580 million cubic feet of gas daily to Sabine Pass.

Regulatory Updates

• President Obama has effected a permanent ban on oil and gas drilling in most of the U.S. Arctic and Atlantic continental shelf, invoking a rarely used provision from the 1953 Outer Continental Shelf Lands Act. The provision allows the President to ban oil and gas exploration in certain parts of the shelf without consulting Congress or the Senate. What's more, the ban cannot be rescinded by the next President, at least not quickly: Donald Trump will have to take the matter to court if he wants to remove the ban.

• The UK High Court has rejected an objection by environmentalists against an earlier decision to allow fracking for natural gas in Yorkshire. The ruling will benefit Third Energy, a company owned by Barclays and the second exploration firm to get the green light for fracking in the country. The first was Cuadrilla, which was given the go-ahead by the central government, which overturned a Lancashire council ban on fracking.