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Global Energy Advisory – 3rd of August 2018

Tanker

President Donald Trump said earlier this week that he expected the European Union to build between 9 and 11 LNG terminals to take in the “vast amounts” of U.S. gas he agreed upon with the EC’s president, Jean-Claude Juncker, last week. Despite the upbeat tone of the news, the reality may be quite different.

It’s not a secret that Trump agreed to drop tariffs on European products in exchange for more LNG import capacity to undermine Russia’s dominance in the European gas market. Indeed, Juncker said that talks with Trump had helped the EU make a final decision on funding to the tune of $325 million for new LNG import terminals. Yet it is very possible that the EC’s president has swindled Trump here.

These 9 to 11 new LNG terminals Trump mentioned during his meeting with Italy’s PM Giuseppe Conti this week are actually not new. They were planned before Trump became president, so they can hardly be called a result of bilateral talks. What’s more, these terminals are being developed by private companies and the EU has limited control over decisions made by private companies despite the financial support for the projects. Furthermore, these terminals are being built in Croatia, Greece, and Cyprus—not exactly what one would call major gas-consuming European markets.

Perhaps more importantly, however, is the simple fact that 75% of Europe’s existing LNG capacity is idle. This speaks volumes about the continent’s demand for the fuel, regardless of political rhetoric on the topic of Russia and Russian gas. The problem is the same as it has always been: price competitiveness. Whatever assurances about more LNG capacity Juncker makes to Trump, the EC’s president cannot force EU members, let alone the few non-members of the union, to buy costlier LNG for purely political reasons.

Deals, Mergers & Acquisitions

• Total’s Gabon subsidiary has sold its 32.9%-stake in a local field to local Assala Upstream Gabon for $100 million as part of efforts to streamline its operations. The Rabi Kounga field was discovered in the mid-1980s and was previously operated by Shell. The field has reserves of around 440 million barrels. Assala Upstream is a unit of Carlyle Group-backed Assala Energy.

• Brazil’s Petrobras has announced the start of the binding period for the sale of several fields in the Sergipe state. The fields belong to the Sergipe Terra 2 cluster and the sale is part of Petrobras’ large-scale divestment program aimed at reducing its debt burden. The Sergipe Terra 2 Cluster is one of three field clusters in the state of Sergipe, part of a package of 19 onshore fields to be sold under the company’s divestment program.

• Petrofac will sell 49% in its Mexican business to Perenco International as it seeks to focus on its core business of oilfield services and reduce its exposure to upstream oil and gas. Perenco, a Singapore-based global oil and gas independent, will pay an initial consideration of $200 million with another $200 to be paid by the date of the deal’s completion.

• Total has sold its stakes in 11 production licenses off the Norwegian coast to Aker BP for a combined $205 million. Four of the license areas contain an estimated 83 million barrels of oil equivalent. The acquisition, according to Aker, will strengthen its presence in the area allowing for more tie-ins from existing production operations there.

• BHP Billiton has concluded the sale of its U.S. shale oil operations to BP and Merit Energy, a local U.S. oil independent, for $10.8 billion. BP will buy BHP’s assets in the Eagle Ford, Permian, and Haynesville in two transactions for a combined $10.5 billion. The rest of the assets, in Fayetteville, will go to Merit Energy. BHP bought the shale assets as part of its takeover of Petrohawk Energy paying north of $20 billion for them.

Tenders, Auctions & Contracts

• Sudan National Petroleum Corporation has refused to extend a development contract with Canadian Stamper Oil & Gas Co and State Oil Corporation for the Al-Rawat field that may contain as much as 182 million barrels of crude. According to Sudanese media reports, Sudapec had discovered that Stamper and its subsidiary State don’t have the necessary expertise or financial resources to develop the field.

• Saudi Aramco signed a $590-million deal with Turkish construction firm Tekfen for the building of satellite gas compression plant pipelines for Aramco’s Haradh Gas Increment Program. The program seeks to expand Haradh’s production by over a billion cubic feet of gas.

• Russia’s Rosneft has inked a deal with Polish Grupa Lotos for the supply of 6.4 million to 12.6 million tons of crude oil to Poland over the next two years. The two have been partners since 2013, when they signed an oil delivery contract for up to 2.4 million tons annually in 2014 and 2015. This contract was extended until end-2017 with the amounts to be delivered by Rosneft increased to 2.7 million tons annually.

Discovery & Development

• Inpex has started commercial production at the Ichthys LNG project off the Australian coast, beating its neighbor there Shell, which is yet to launch production at the Prelude field. LNG shipments from Ichthys are set to start in September, with 70% of what the project yields going to Japan. The project’s annual capacity is 8.9 million tons of LNG.

• Mexico’s new president wants to increase the country’s crude oil production to 2.5 million bpd from the current 1.9 million bpd by the end of his term and also boost the refining capacity of the country, which has struggled with declining oil production and rising fuel imports. Gasoline production, in particular, has fallen by 50% since 2013 and Lopez Obrador will seek to reverse this trend to reduce Mexico’s dependence on imports.

• Russia’s oil output increased by 150,000 bpd in July, which is half of the cuts it agreed to make in 2016 under its market rebalancing deal with OPEC. The increase brought the total to 11.21 million bpd, according to Energy Ministry data.

Company News

• Apache Corp has booked a 66%-slump in net profits for the second quarter to $195 million on the back of higher income tax provisions.

• BP reported a forecast-beating second-quarter profit of $2.8 billion, a fourfold increase on an annual basis. As a result, the company said it will up its quarterly dividend for the first time since 2014.

• Devon Energy reported a loss of $425 million for the second quarter despite an increase in production and an improvement in revenues. The company attributed the negative result to forex losses resulting from the movements of the greenback to the Canadian dollar along with restructuring charges.

Politics, Geopolitics & Conflict

• Two North Korean tankers have been spotted in Chinese waters despite sanctions against Pyongyang.

• Iran is preparing to stage a large-scale military exercise in the Strait of Hormuz amid rising tension between Tehran and Washington.

• Israel has stopped fuel and gas shipments to Gaza in further escalation of the pressure against the enclave, with defense minister Avigdor Lieberman saying shipments will only resume when Gazans put an end to “the balloon launches and clashes” at the border.

• France has pushed forward the country’s plan to shut down all of its coal-fired power plants by two years. President Emmanuel Macron now plans for France to be coal-free by 2021. France only produces around 1 per cent of its energy from coal-fired stations, but the commitment is a signal that the country is determined to lead on climate issues.




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