Global Energy Advisory 29th June 2018

Crude oil importers are scrambling for a solution to their Iranian problem after earlier this week the U.S. State Department urged all U.S. allies to completely suspend their Iranian imports by November 4—the date when the new sanctions against Iran’s oil industry kick in.

Following the announcement, oil prices jumped, with analysts rushing to revise upwards their estimates of how many Iranian barrels will be lost to the world oil market from November onwards.

However, nothing is certain at this point although the scales are tipped to the U.S.: despite declarations that they will continue importing Iranian oil or actively seek waivers from the sanctions, a number of crude oil buyers from South Korea, India, and Japan have started cutting their shipments from Iran.

Importers are not giving up, though. European countries, India, and even stout U.S. ally Japan are looking for ways to convince Washington they need to continue buying Iranian crude. China, meanwhile, has made it clear it would not heed the U.S. calls for Iranian oil import suspension as has Turkey.

China, however, is better placed to stay true to its word: Asia’s second-biggest economy already found a way to buy Iranian crude when the country was subjected to international sanctions and it will in all likelihood again find a way around the sanctions. China is Iran’s biggest oil client followed by India, South Korea, and Turkey.

Industry observers note that China’s determination to ignore the U.S. sanctions will most likely worsen an already rocky relationship, which will ultimately push oil prices higher, which is the opposite of what Washington wants at the moment.

Deals, Mergers & Acquisitions

• UAE’s Adnoc will join Aramco as shareholder in a US$44-billion refinery and petrochemical complex project in India. The Emirati company this week signed a deal with Aramco to buy a portion of its 50% interest in the Ratnagiri complex, which will have a capacity to process 1.2 million bpd. However, the two have yet to agree how much of the stake Adnoc will buy. The other 50% will be divided between three Indian companies: Indian Oil Corp, Bharat petroleum Corp, and Hindustan Petroleum Corp.

• Petrobras could pocket up to $28 billion from the sale of its stake in an area in the prolific Santos Basin if legislators pass the bill that will untie the company’s hands to transfer its rights to the area. The bill would allow Petrobras to transfer 70% of its right to the area and was passed by the lower house of Brazil’s Congress. The Senate is yet to vote on it and before it gets to Senate, the bill needs several other approvals.

Tenders, Auctions & Contracts

• India may take part in tenders for oil fields in the UAE in partnership with local companies, such as Mubadala, India’s Petroleum Minister said this week. The move would be part of efforts in India to secure oil supply as the country imports as much as 80 percent of the oil it consumes and is therefore extremely vulnerable to unfavorable price movements. The country will probably participate in the next licensing round in the UAE.

• Algeria is eager to close negotiations with Exxon for the development of its vast shale gas reserves successfully, the head of the country’s state oil and gas company Sonatrach told media at this week’s World Gas Conference. Algeria has the world’s third-largest shale gas reserves, estimated at 2,000 trillion cu ft but needs help from international companies to tap these as domestic production surges, denting its export revenues.

• Kuwait Petroleum Corp has launched the first tender in its history for the sale of a new grade of light crude to Asian buyers. The size of the tender was 500,000 barrels that will load a month from now. The grade is superlight crude that is comparable with Saudi Arabia’s Arab Super Light.

Discovery & Development

• Shell has given the green light to the development of the Fram field, I the North Sea, planning to extract some 41 million cu ft of natural gas daily from it plus 5,300 barrels of condensate. This is the second North Sea project the Anglo-Dutch supermajor has approved in the last six months, after the redevelopment of the Penguins field, approved in January. Shell’s head of upstream operations said the Fram project is a cost-effective one that will allow the company to exploit the field at a profit.

• A power outage at Syncrude’s Fort McMurray heavy oil upgrader has cut Canada’s total daily but has alleviated pressure on its pipeline network and could prop up Canadian crude prices for a while. Syncrude said the facility will remain shut down until the end of next month, which would grant some relief to Canadian producers who have had to bear a price discount to WTI of up to $30 a barrel.

• Kazakhstan will not increase oil production at the Kashagan field in the Caspian Sea this year, the country’s energy minister said. Production at Kashagan is planned to be ramped up to 370,000 bpd but this won’t happen in 2018 even if Kazakhstan increases overall output under the OPEC+ deal, of which it is a signatory. Kashagan began producing commercially in late 2016, at a rate of 90,000 bpd. The field holds 10 billion barrels in recoverable oil reserves.

• Italy’s Eni announced a new deepwater discovery of the Angolan coast, which it estimates holds between 230 and 300 million barrels of light crude. The well that produced the promising results is located in the Block 15/06, which Eni develops in partnership with Angolan state oil company Sonangol and SSI Fifteen Limited, an energy independent registered on the British Virgin Islands.

Politics, Geopolitics & Conflict

• A date for the meeting between the presidents of the United States and Russia has reportedly been already set. Analysts, however, have low expectations about anything substantial coming out of such a meeting, seeing it mostly as a PR move.

• Turkey’s president Recep Tayyip Erdogan won another term at the helm of the country, but this time he will have more powers concentrated in his hands after parliament approved the shift to executive presidency.

• The Organization for the Prohibition of Chemical Weapons will from now on have the powers to assign blame for chemical attacks. The move was proposed by the UK and back by 82 votes versus 24 opposed, among them Russia, Iran, and Syria.