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Global Energy Advisory – September 7th 2018

Refinery

Japanese wholesale oil traders are starting to wind down their Iranian oil orders ahead of the November 4 deadline when U.S. sanctions against Tehran are set to kick in. Other large Asian consumers, however, are looking for—and finding—ways to continue importing Iranian crude despite the sanctions.

China, for one, has found a solution by switching to Iranian tankers, property of the National Iranian Oil Company, which are also insured by Tehran. Beijing has made it clear it will not bow to Washington’s pressure--especially amid the escalating trade conflict between the U.S. and China that could see tariffs on another US$200 billion worth of Chinese goods imposed by this week’s end.

Indian state refiners have also shifted to Iranian tankers after the government allowed them to do so as a way of avoiding a violation of U.S. sanctions. India has stated it has no intention to stop importing Iranian oil or harm its trade relation with Tehran in any way but it is in a more difficult position than China as it is officially an ally of the U.S.

This week, State Secretary Mike Pompeo and Defense Secretary James Mattis arrived in new Delhi to push Washington’s “zero imports” strategy. Media reports suggest the “zero import” missions will fail, although India may agree to a reduction to avoid harming its relations with the United States. Pompeo suggested that some temporary waivers might be handed out.

Iran also has a number of ways of skirting the sanctions, including deeper discounts, barter deals, and even smuggling, by turning off tracking systems on its tankers and in this way keeping the destination and size of export-bound cargoes a secret. These measures combined could ensure daily exports of 800,000 barrels of crude, so they are only a partial solution to the sanctions but a solution nevertheless.

Deals, Mergers & Acquisitions

• Transocean has announced it will buy rival Ocean Rig for $2.7 billion to be funded with a combination of cash and stock. This is the second Transocean acquisition this year, after the Swiss-based major snapped Norwegian rig maker Songa Offshore for $1.1 billion, reflecting the improving price environment in oil and the industry’s brighter growth prospects.

• India has run into difficulties in its attempt to sell a 5% stake in energy giant ONGC that is worth about $1.6 billion. The problems come down to investor worries about the possibility of New Delhi reinstating fuel subsidies. In addition, natural gas prices in the country are, from an investor’s perspective, too low right now to make the acquisition attractive. The ONGC stake sale is part of a wider state divestment program.

• U.S. oil independent Callon Petroleum has bought for $538.6 million oil and gas assets in the Delaware Basin from Cimarex Energy. The assets span 28,000 net acres, most of the land adjacent to acreage Callon is already developing in the area.

Tenders, Auctions & Contracts

• ConocoPhillips has approached the Indonesian Energy Ministry with a request to extend its license for the development of the Corridor natural gas field beyond its December 2023 expiry. It has to submit a formal proposal now otherwise the right to exploit Corridor will pass to state energy company Pertamina. This is what has happened to a number of oil and gas licenses that the government in Jakarta refused to extend amid rising resource nationalism and falling Pertamina production.

• Nigeria’s National Petroleum Corporation has inked a preliminary agreement with a consortium of two Chinese companies for the construction of two ethanol plants to increase the supply of the cleaner fuel in the country. The Western African country and top oil exporter on the continent has been struggling to improve the quality of the fuels it uses by reducing their sulfur content since 2016, when it agreed to take part in a UN initiative for cleaner fuels.

• Qatar Petroleum is in talks with German RWE and Uniper for the joint construction of an LNG terminal in Germany. The Qatari state company’s participation could be either in the form of providing the production capacity necessary to supply the terminal or by acquiring a stake in the project. Germany is Europe’s largest energy consumer and Qatar is the world’s top LNG exporter.

• Exxon has sealed a deal to build a petrochemical complex in China’s Guangdong province and invest in an LNG import terminal there. China is the biggest chemicals market and Exxon’s facility, featuring a 1.2-million-ton ethylene cracker, will add to a booming petrochemical sector in the country. The value of the project or the LNG terminal remained undisclosed.

Discovery & Development

• Magellan Midstream Partners will allocate $2 billion for the construction of a crude oil pipeline from the Permian to the Gulf Coast, after securing binding commitments from producers that has made the project commercially viable. The Permian—which is to date the biggest oil-producing region in the U.S.—has been experiencing a growing strain on its pipeline capacity, forcing local oil prices down.

• Suncor, Canada’s largest oil producer will stop approving new production expansion projects until it gets more clarity on new pipeline progress. This year, the company will boost its production by 10% and in 2019 it will add another 10% but starting 2019 it will stop approving future expansions as new pipeline projects get cancelled or delayed.

• African explorer and producer Africa Energy announced the spudding of its first well in an offshore field in Namibia. Africa Energy is a minority partner in the project alongside operator Tullow Oil, ONGC Videsh, and Paragon Investment. The Cormorant Prospect where the well is being drilled, may contain up to 124 million barrels of crude in resources.

• ONGC has announced new oil and gas discoveries in the central Indian state of Madhya Pradesh and in West Bengal, in the east of the country, which could lead to the opening up to exploration of two more basins on the subcontinent. India imports as much as 80% of the oil it consumes and boosting local production is a top priority for the government.

Politics, Geopolitics & Conflict

• Iran has given the European Union until November 5 to come up with practical steps to continue buying Iranian crude or Tehran will drop the nuclear deal that the EU has been struggling to keep in effect after President Trump’s pullout.

• Protests and riots in southern Iraq continue with one protester killed earlier this week in Basra as security forces used live ammunition on the crowds. The protests have now entered into their third month.

• Foreign diplomats are urging the Venezuelan government to allow humanitarian aid and workers in the country, which is writhing in the agony of the worst economic crisis in its history. President Maduro has repeatedly refused humanitarian aid for fear of it having a destabilizing effect on his government.

• Libya’s oil could be under threat again, as fresh militant clashes may be coming to its oil region, just after the June-July standoff that crippled production and exports ended. Ibrahim Jadhran—who led the attack on Libya’s Oil Crescent in June resulting in crippling the country’s oil production and exports during the summer—is now teaming up with tribes and forces loyal to Muammar Gaddafi and with Chadian rebels to plan a new military operation, aiming to strike the oil region again.

• Salmeen al-Bahseeni, the governor of a Yemeni southern Hadramout province pumping 100,000 bpd—half of Yemen’s total oil production—threatened to suspend oil shipments from the region if the internationally recognized Yemeni government doesn’t meet the demands of protesters in Yemen’s south who have been protesting against government policies as the economic and humanitarian situation continues to deteriorate and the local currency to plunge.




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