Geopolitical & Conflict Alerts
Iraq/Kurdistan
Following on our briefing of last week, the Kurdistan Regional Government in Northern Iraq has officially announced it is preparing to hold a referendum on independence, as central and southern Iraq remains under siege by a Sunni insurgency. Kurdish forces have largely taken control of the key strategic area of Kirkuk, a major oil-producing region situated in the strip of territories disputed between the Iraqi central authorities in Baghdad and the Kurdish authorities in Erbil. As we have noted repeatedly over the past year and a half, the KRG is hesitant to make a bid for independence without Kirkuk, and the burgeoning civil war in central/southern Iraq has provided a unique opportunity for the Kurds to take over Kirkuk in order to protect it from Sunni insurgents. However, what will change in this scenario is the security of Iraqi Kurdistan, which has until now managed to keep its borders tight and its internal security impressive. This will change because the new borders it is creating with the near takeover of Kirkuk are challenged by clashes with insurgents, which will mean that the interior may no longer be the safe haven it has long been for international businesspeople.
Suddenly, in this atmosphere, the Kurdish position has become very clear, even in official statements. The referendum is expected to be held "in a matter of months". The official partitioning of Iraq has begun in earnest, and the Kirkuk oil…
Geopolitical & Conflict Alerts
Iraq/Kurdistan
Following on our briefing of last week, the Kurdistan Regional Government in Northern Iraq has officially announced it is preparing to hold a referendum on independence, as central and southern Iraq remains under siege by a Sunni insurgency. Kurdish forces have largely taken control of the key strategic area of Kirkuk, a major oil-producing region situated in the strip of territories disputed between the Iraqi central authorities in Baghdad and the Kurdish authorities in Erbil. As we have noted repeatedly over the past year and a half, the KRG is hesitant to make a bid for independence without Kirkuk, and the burgeoning civil war in central/southern Iraq has provided a unique opportunity for the Kurds to take over Kirkuk in order to protect it from Sunni insurgents. However, what will change in this scenario is the security of Iraqi Kurdistan, which has until now managed to keep its borders tight and its internal security impressive. This will change because the new borders it is creating with the near takeover of Kirkuk are challenged by clashes with insurgents, which will mean that the interior may no longer be the safe haven it has long been for international businesspeople.
Suddenly, in this atmosphere, the Kurdish position has become very clear, even in official statements. The referendum is expected to be held "in a matter of months". The official partitioning of Iraq has begun in earnest, and the Kirkuk oil field goes to the Kurds. On the oil front, Erbil won another victory for its unilateral exports of crude to Turkey when Iraq's highest court this week refused to temporarily ban these exports.
Meanwhile, the ISIS-led insurgency in Iraq continues to gain momentum. In terms of the energy sector, this has not yet significantly affected oil exports.
• The undeveloped Akkas gas field in the Sunni-dominated Anbar province has become a (not so) safe haven for refugees fleeing the violence.
• ISIS insurgents continue to attack Iraq's largest refinery (for domestic consumption only-not exports), but reports vary as to who is in control. Western reports claim that Iraqi security forces are in control but under attack, while Turkish media reports claim that ISIS is even selling oil on the black market taken from the Baiji refinery, as well as from wells in the Hamrin Mountains-another area under their control. According to Turkish officials, the oil extracted from Hamrin was previously sold to Iran through the KRG, a process that was halted when ISIS took control of the area. The new buyers of this illicit oil remain unknown.
• US military "advisers" and special operations forces are on the ground, with their role being downplayed as one of guidance for Iraqi forces
• Prime Minister Nouri al-Maliki is reportedly prepared to contribute to further partitioning by conceding large areas to Sunni insurgents in order to pull enough forces in to protect Baghdad, which is where the insurgency is headed
• For all intents and purposes, this could turn into a much wider war. The US appears to want to get rid of Maliki, who is close to Iran and who just might have Russia's support in all of this-while Washington would not mind getting back at Moscow over Ukraine. Everything is connected on some level.
Libya
Libyan rebels blockading key eastern oil ports have agreed to reopen the remaining two blocked terminals at Es Sider and Ras Lanuf to allow oil exports to resume. The two terminals handle a combined capacity of around 560,000 barrels per day. The ports have been blocked for almost a year now by rebels seeking self-rule and more immediately an oil revenue-sharing agreement. In April, two other ports were re-opened-Zueitina and Hariga.
Israel/Egypt
UK-listed BG Group has signed a preliminary deal to export $30 billion in Israeli natural gas to Egypt. Under the possible deal, Israel would ship 7 billion cubic meters of gas annually to BG's LNG plant in Idku, Egypt, for 15 years. The gas would be shipped through an undersea pipeline tentatively to be financed by BG. The pipeline would be scheduled to be operational in 2017. This volume of gas proposed in the deal represents about 20% of the expected output of Israel's supergiant Leviathan field. If finalized, this would be the second deal for Israeli gas to Egypt. Just over a month ago, another deal to ship gas to Egypt from Israel's smaller offshore field, Tamar, was tentatively reached by Houston-based Noble Energy and its Israeli partner, Delek Energy. This does not rule out getting Israeli gas to Europe through Turkey or Greece, but it does ensure that a sizable amount of that new gas is now off limits. But for BG investors, it's good news, though it comes late in the game. BG has been having significant troubles in Egypt. As we noted in a special report earlier this year, in January the company had to declare force majeure at its Idku processing plant due to lack of gas supplies. However, both deals could take up to six months to finalize.
Russia/Cyber Espionage
As a natural evolution of the geopolitical crisis stemming from Russia's annexation of Ukraine's Crimean Peninsula and the follow-on operations in eastern Ukraine, reports are emerging of Russian hackers attacking US and European energy companies, with the capability to disrupt power supplies, among other things. Generally, OP Tactical has found that US and European energy companies have far from sufficient security in terms of protection from industrial espionage, sabotage and strategic manipulation by external forces. (For cyber security assessments and/or detailed assessments of the real threat posed by Russian hackers, please contact OP Tactical).
Deals, Mergers & Acquisitions
• American utility UGI is preparing to acquire French Total's liquefied petroleum gas (LPG) distribution business in France for around $600 million, as Total sheds mature market assets in favor of emerging markets
• Aramco Overseas Co (AOC), a unit of state-run oil giant Saudi Aramco, has agreed in principle to buy Hanjin Group's 28.4 percent stake in South Korean refiner S-Oil Corp for an estimated $1.95 billion
• Total is also negotiating with PetroChina for the sale of the French oil giant's stake in a Chinese refinery
• China Offshore Oil Engineering Company (COOEC) and Norway's Kvaerner are setting up a JV in China for global oil engineering projects
Latin America Briefing
(From our partner Southern Pulse)
MEXICO - Oil revenues down
The Finance and Public Credit Secretariat (SHCP) announced on 30 June 2014 that oil revenue totaled US$37.8 billion between January and May 2014, a 0.5 percent decrease over the same period last year. The SHCP attributed this decrease to a 4.2 percent reduction in the contributions of state oil company Petróleos Mexicanos (Pemex). Despite a drop in oil income, total revenue reached US$123.95 billion, an increase of 3.2 percent over the same period in 2013.
GUATEMALA - Head of Agexport asks Congress to approve investment law
On 28 June 2014, Fanny D. Estrada, director of the Guatemalan Association of Exporters (Agexport), asked Congress to speed up the approval of an investment law that would protect domestic and international investors and attract more foreign direct investment. Estrada believes that Guatemala is losing competitiveness to other Latin American countries that already have such investment laws.
NICARAGUA - Government plans shift to renewable energy
Nicaragua is preparing a plan that will allow it to generate 90 percent of its electricity from clean sources by implementing wind, hydro and geothermal projects by 2020, according to Energy and Mines Minister Emilio Rappaccioli, in a 30 June 2014 report. The introduction of new generation projects based on renewable energy will allow for the reduction of thermal power generation based on fossil fuels from 49 percent in 2013 to nine percent by 2027. President Daniel Ortega will present the new plan when ready.
COSTA RICA - President SolÃs rejects proposals to lower fuel prices
According to a 25 June 2014 report, the Public Services Regulatory Authority (ARESEP) sent President Luis Guillermo SolÃs proposals for lowering high fuel prices. One proposal suggested eliminating fuel taxes while the other recommended reducing spending at the National Oil Refinery (RECOPE). President SolÃs, however, believes that the tax elimination proposal is an invalid option considering the harsh fiscal condition the country is currently facing. Finance Vice Minister Fernando RodrÃguez also dismissed the tax elimination option, considering it irresponsible and impractical.
PANAMA - Electricity subsidies costly for government
The government will have to provide US$475 million to cover the electricity subsidy for the second semester of 2014, beginning on 1 July. The new Economy and Finance Minister, Dulcidio De La Guardia, stated on 25 June 2014 that the amount was calculated by the outgoing administration and may vary. If said amount is added to the US$500 million that has been allocated for the rental of emergency power plants in case of drought, plus other accounts, spending would approach US$1 billion in 2014.
VENEZUELA - PDVSA releases production figures
Petróleos de Venezuela (Pdvsa) President and Minister of Petroleum and Mining Rafael RamÃrez said on 27 June 2014 that in the past year 703,000 barrels of oil were routed to domestic daily consumption and 100,000 barrels per day were lost due to waste and smuggling. RamÃrez said it was necessary to reevaluate the government-controlled price of gasoline, the lowest in the world, in order to reduce the losses. His comments came the same day as the 2013 Pdvsa production report, which revealed that the company produced 3.015 million barrels a day, a drop of 0.6 percent from 2012's 3.034 million per day.