Sources
• Iranian energy ministry official
• British geopolitical expert for major consulting house
• Energy consultant operating in Iran
• Western diplomat in Libya
The Iran Energy Opportunity You Didn’t Expect
It’s time to look beyond the immediate and direct effect of U.S. sanctions on Iran’s oil industry and watch where it’s taking things in a different direction. The biggest sector winner in this game is going to be renewables, and our sources in Iran, and within the Iranian Energy Ministry are on board with a complete change in tact: Iran is making big plans to go green precisely because of the bite of sanctions.
This has been an incredibly frustrating year for the energy players in Iran, but this time around, the continuously confrontational relationship isn’t leading to an attitude of simply biding one’s time until it all blows over. This time it’s about spurring lasting change, and that means opportunities where we didn’t expect them previously.
According to an official with the Ministry of Energy in Iran—who numbers among our sources--one of the main priorities of the government for 2019 is renewable energy, and they are now moving forward with cementing a legal and policy framework for the renewable industry. Although ‘renewable energy’ is not defined in Iranian law, several measures are already in place to ensure the rapid growth of the industry this year—yes, THIS year already. The Ministry of Energy will be in charge of all activities and it has established a specific division, the Renewable Energy and Energy Efficiency Organisation (SATBA). SATBA is responsible for issuing licences for the construction of renewable projects and will regulate all operations.
An energy consultant who has been operating in Iran for over a decade has highlighted that there is an increasing interest from European energy companies and financial lenders in Iran’s shift towards renewables. By the end of 2018, Iran had already signed bilateral agreements with several countries in the wider region on the issue of renewable energy. Iranian companies – both private-owned and quasi-state-owned – are becoming shareholders alongside their European, Middle Eastern and Asian counterparts in multi-national consortiums that are seeking to establish large-scale renewable projects in the country.
While small-scale renewable projects have been successfully implemented in Iran over the past couple of years through domestic financing, the biggest challenge has been attracting foreign lenders that could fund large-scale renewable projects. This is due to foreign banks’ reluctance to lend to Iran and the practical difficulties of transferring funds to and from Iran.
To that extent, our source in the Iranian Energy Ministry confirms that 2019 has already been busy with the government moving very quickly to push forward the establishment of new legislation to promote renewable energy as a priority area for the country’s economy and to implement a series of incentives to secure foreign financing.
It is anticipated that by the end of the first quarter of 2019, the government incentives will have attracted considerable investment for the sector. We anticipate a certain resilience for Iran in the face of sanctions, and renewables are shaping up to be the key bulwark in that resilience picture. But there are also lots of new opportunities to chase.
Libya: Something’s About To Give
There’s always something going on in Libya, but this week, there are two specific things that should have investors saying—finally—that it’s time to take a much deeper look, and that this goes beyond the normal on-again-off-again violent attacks and shifting of players gunning for the country’s oil wealth. We’ve entered another level now. The first is General Haftar’s military push into the city of Shebha to secure the south and protect oil-producing infrastructure. This is only the first push because Haftar says he’s going to secure all of Libya’s oil regions. A win in Shebha will dictate where this goes next, and it also suggests that Haftar has secured support from enough corners (most importantly external actors) to make this push. The second thing that’s happened is Glencore has lost its exclusive marketing rights to the main Sarir and Messla grades of Libyan crude. It’s had exclusive rights to these since 2015 and it lost that at the close of 2018. Reuters originally reported this, and a source with a British consultancy working with hedge funds confirmed this for us Tuesday, saying the playing field for Libyan oil is widening now, and Glencore (which is also carrying around a lot of legal and reputational baggage right now) is being pushed out of exclusivity. Exclusivity signals, in part, that no one else was vying for it. But that’s not true now. While Libya is one militia conflict after another, and one hijacked oilfield after another, the intensity of this playing field is ratcheting up to the point where one can see a winner emerging in the name of stability (if nothing else). That means Libya doesn’t necessarily have to be exclusive anymore, and both BP and Shell started lifting directly from Libya last year, and now they’re taking up Sarir and Messla grades as well. Glencore has always thrived on conflict zones or zones of major political instability. That’s how it has built up its exclusivity. When it loses that, it suggests that something’s about to give.
U.S.-Turkey Whiplash
Our sources on the Hill and a geopolitical expert with a major consulting house ensure us that we should not lose any sleep over the recent drama between Trump and Erdogan, with Trump on Sunday threatening to devastate Turkey’s economy if it attacks the Kurds in Syria, and then promising Turkey major economic benefits on Monday. A geopolitical expert with over a decade of experience in Turkey suggests that the mood on the ground in Ankara is largely one that is conscious of Trump’s dramatic negotiating tactics, and that the consequences of “economic devastation” for Turkey at the hand of the U.S. would be too severe even for Trump to go through with. Further, experts suggest that Trump and Erdogan, from a psychological standpoint, have far too many similarities and this ends up complicating their reactionary responses to each other and leading to empty threats aired in the public arena.
Global Oil & Gas Playbook
The Never-Ending Story of Saudi Aramco
Saudi Arabia’s crown jewel, Aramco, will have to open up its books to potential investors a bit later this year as it plans to issue a $10-billion international bond denominated in U.S. dollars to help finance a deal valued at up to $70 billion.
The deal in question is the acquisition of a 70% stake in Saudi petrochemicals giant Sabic from the kingdom’s sovereign wealth fund, which will give Aramco much greater exposure to what many see as the future of the oil and gas industry: petrochemicals. However, Aramco is spread thinner and thinner with an ambitious investment program for the next few years, so it needs to tap international bond markets.
The problem is, a bond issue might never happen. Initially, reports about bond plans emerged last year, when the size of the issue was reportedly $40 billion. However, it all ended with reports only: Aramco is a notoriously opaque company that has never disclosed any financial statements since its nationalization in the 1970s.
Investors aren’t keen to pick up bonds without some essential information about the financial health and prospects of the issuer, even if it is Aramco and even if the bond is issued after an independent audit found Aramco’s oil reserves were slightly higher than earlier reported. In other words, despite the reserve update, a bond remains uncertain and, as a result, so does the acquisition of 70% in Sabic.
This, in turn, will once again worsen the prospects for Aramco’s listing, now delayed until 2021 but, according to new statements by Oil Minister Khalid al-Falih, on track to take place in that year. If the company is unwilling to open its books for bond investors, how willing would it be to open them for stock investors? On the other hand, this bond issue might turn out to be a way to gauge investor sentiments towards Aramco well ahead of the listing. Next week, we’ll give you the inside story on Aramco’s status from Riyadh insiders.
Deals, Mergers & Acquisitions
• Shell has finalized the purchase of French Total’s Hazira LNG plant and export terminal in Gujarat, India, for an undisclosed sum. The two supermajors were already partners in the venture and Shell said it planned to take over the project last year, to develop an integrated gas value chain, only fitting for one of the world’s biggest LNG and natural gas players, which Shell became after the acquisition of BG Group.
• BP Energy Partners has bought a controlling stake in an LNG distribution company based in British Columbia. Cryopeak LNG Solutions distributes the fuel in areas where there are no pipelines. The acquisition comes amid protests in British Columbia against a gas pipeline that should feed the fuel into the planned LNG Canada plant in Kitimat, B.C. BP Energy Partners is a private company, a unit of TBP Investments, a private equity firm.
• Husky Energy plans to exit the fuel retail business, the Canadian company said, as part of a strategic review of its assets. The assets that could end up sold include a network of 500 service stations, distribution facilities, and other fuel retailing-related infrastructure. Husky may also sell its small refinery in Prince George, British Columbia.
• Norwegian energy company DNO finally succeeded in its attempt to take over sector player Faroe Petroleum. The company managed to amass more than 50% in the target company despite opposition from the board and the management of Faroe, effectively winning control over the company. This will add to its portfolio of operations, mostly focused on Kurdistan, Iraq, Faroe’s North Sea operations.
• Norway’s Equinor completed the acquisition of Chevron’s stake in the Rosebank project in the North Sea. Chevron and a 40% stake in Rosebank, with partners Suncor Energy, also with 40%, and Siccar Point Energy with a 20% interest. The acquisition, Equinor said, will strengthen its UK North Sea portfolio.
Tenders, Auctions & Contracts
• German Siemens was awarded a supply contract by Canadian Encana for the latter’s Pipestone Processing Facility in Alberta. The facility will have a capacity of 19,000 barrels daily of oil condensate and 170 million cu ft daily of natural gas. Siemens will deliver to Encana one feed and sales gas train and one refrigeration compression train for the PPF, which should start operations in 2021.
• Philippine fuel retailer Phoenix Petroleum has scored a contract with the government for the construction of the Philippines’ first LNG import terminal. Phoenix Petroleum partnered with Chinese CNOOC for the project. Annual capacity is seen at 2.2 million tons of LNG and the facility is slated to begin operations by 2023. Construction will begin this year.
• Italy’s ENI and the Bahrain National Oil and Gas Authority inked a preliminary deal for the joint exploration of an offshore area, Block 1, off the northern coast of the sultanate as part of efforts to boost Bahrain’s offshore oil and gas output. This will be Eni’s first project in the country. The final concession contract will be signed within a few weeks.
Discovery & Development
• Aker BP has confirmed discoveries of an estimated 450-550 million barrels of crude and natural gas in the DWT/CTP block offshore Ghana and will now proceed to complete the drilling of the latest well there, at the Pecan field. The estimated reserves of the area could increase to between 600 million and 1 billion barrels of oil equivalent after results come in from another two appraisal wells yet to be drilled on the site.
• Egypt plans to begin natural gas shipments to European markets, potentially undermining Gazprom’s dominance on the continent. The first step of Egypt’s expansion into international gas markets is the launch of exports to Jordan after a seven-year pause. Yet the government is ambitious to turn the North African country into a major gas player, which means entry into European gas imports. Several large discoveries in recent years have pushed Egypt’s gas production higher and the prospects are bright.
• BP and Eni will jointly work on the exploration of an onshore block in central Oman. Block 77 is near a project BP already operates, Block 61, which includes the Khazzan gas field and the Ghazeer project, which is under development.
Company News
• The Trans-Adriatic Pipeline project has completed financing worth $4.5 billion, which will make it possible for the pipeline to be completed on schedule and start operating in 2020. TAP is the last section of the $40-billion Southern Gas Corridor that will bring in natural gas from the Caspian Sea into Europe, diversifying the continent’s sources of the vital fuel away from Russia. The pipeline’s capacity will be 10 billion cubic meters annually.
• Brazil Supreme Court Judge Dias Toffoli has temporarily allowed Petrobras to continue its asset sale offensive that aims to relieve a huge debt load. A colleague of Toffoli in December issued an injunction against Petrobras because of a lawsuit filed against the company by Brazil’s Workers’ party. The lawsuit sparked worry that Petrobras may not be able to complete all planned divestments. The full Supreme Court will hear the case next month.
Politics, Geopolitics & Conflict
• Two exploration vessels commissioned by Exxon for work offshore Guyana have still not returned to the exploration area after the Venezuelan navy intercepted them last month.
• North Korea and the U.S. are reportedly preparing for a second summit between President Trump and Kim Jong Un after a senior North Korean official was seen in Beijing, en route to Sweden.
