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Global Intelligence Report – 20th March 2019

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Sources

- Senior Eni executive in Libya
- High-ranking European diplomat in Libya
- Libyan energy consultant to supermajors
- High-level energy industry source in Kazakhstan
- Member of the circle of elite close to the Kazakh president

Haftar Officially Controls Libya’s Oil, and Oil Majors Are All Ins

Recent developments over the past few weeks have confirmed that General Khalifa Haftar, as the Head of LNA, has taken control of the majority of Libya’s oil fields. We have recently said that Haftar has emerged as the main political figure in Libya, and we now we have additional confirmation that the Italian government is increasingly supporting him in his endeavour to take control of the country’s oil wealth. This confirmation comes from a senior executive with Eni in Libya.

Likewise, a high-level European diplomatic source has confirmed that Italy is supporting Haftar’s positioning within the Libyan political context, indicating that Haftar “is seen as the obvious solution for some of the Western countries that have invested heavily in Libya’s oil sector”.

LNA’s priority is to take full control of the oil industry because Haftar understands that control of the energy sector will ‘provide him with political supremacy’. It is increasingly recognized within political circles that Haftar is able to engage with the militia as well as the local tribes—a combination that will weaken the position of the Government of National Accord (GNA) in Tripoli.

And it is already becoming obvious that Haftar’s political dominance is being accepted by an increasing number of countries, including Russia. What has also become evident over the past few weeks is the fact that Russia has sided with Egypt and other Arab countries – with the exception of Qatar - to increase their military and financial support to the LNA.

While the U.S. is hoping for some of the largest Libyan oilfields to re-commence production sooner rather than later, an energy consultant noted that ‘it might be wishful thinking’. According to a European diplomatic source, there is a strong sentiment amongst several European countries that the U.S. seems to have detached itself from the Libyan crisis, while Russia has taken on the role of mediator.

While Moscow has confirmed Russia’s support of the LNA, the Kremlin is also engaging behind the scenes in an attempt to find a common ground for the two competing political forces in Libya. There is no doubt that Russia--along with the other countries that are vying to gain a prominent role within Libya’s oil sector--want to establish a level of political stability that will allow the oil sector to become fully operational once again. But at the same time, they understand that this is not going to be quick; they’re in it for the long game.

And as a political analyst with knowledge of Libya’s politics noted ‘Moscow’s plan is working. Its continuous engagement with all stakeholders in Libya is proving successful as Russia is already winning large lucrative contracts in infrastructure in preparation for its involvement in oil exploration and transport once things get going.

In the meantime, Haftar could very well make a run on Tripoli next, and that has the GNA in a panic, but so too is Italy and everyone else on Haftar’s side. They don’t want him to make a move on Tripoli just yet because that would surely be a bloody move and the storm that would come before the presumed stability might be a flashback to 2014. Haftar will take Tripoli, but right now it’s just a threat to keep the GNA nervous.

Long-Time Leader of Oil-Rich Kazakhstan Resigns

President Nursultan Nazarbayev has ruled Kazakhstan and its oil wealth with an iron fist for decades, and on March 19 he suddenly resigned. In fact, he has been granted “president-for-life” status. While he is resigning as president he will be staying on as the head of the Security Council (one of the most powerful bodies in the country), as well as the Constitutional Council, and as the leader of the ruling Nur Otan political party.

Now it’s time for investors to start looking at who is going to take over for Nazarbayev—even if only in name as president (in a transitionary phase). Two figures will now take center stage, but neither will be able to trump the other without Nazarbayev’s blessing. Technically, Kassym-Jomart Tokayev, the president of the Senate, takes over for Nazarbayev if he dies or resigns.

But that’s only until next year, when new elections are held. Then investors should be keeping a close eye on Nazarbayev’s once-wayward son-in-law, a powerful figure in the energy sector—Timur Kulibayev. Kulibayev is first deputy chair of Samruk-Kazyna, the main shareholder in KMG-- KazMunaiGas (KMG)--Kazakhstan’s national operator for the exploration, production, refining and transportation of hydrocarbons. He’s married to Nazarbayev’s equally powerful daughter, Dinara. He experienced a fall from grace in 2012, when he became too independent from his father-in-law and was summarily removed from the oil and gas sector. But he’s back, now, and while he may not be as visible as he once was, our sources say he has regained the president’s support. His empire is vast and his influence even more so.

Global Oil & Gas Playbook

Deals, Mergers & Acquisitions

- Eni has farmed out to Qatar Petroleum a 30% interest in the Tarfaya Offshore Shallow Petroleum Agreement that covers a dozen exploration blocks offshore Morocco. The region is yet to be explored but work has already begun on geological and geophysical studies across the blocks.

- Aramco and Novatek are in talks for the acquisition of a minority stake by Aramco in Novatek’s Arctic LNG-2 project. The Russian company’s chairman, Leonid Mikhelson, said he expected the deal to be closed within the next few months. This will provide Aramco with a presence in what is perhaps the fastest-growing segment of the international gas market.

- The Canada Pension Plan Investment Board has sealed a joint venture deal with U.S. midstream major Williams for two pipeline systems in the Marcellus and Utica shale plays The $3.8-billion deal will give the Canadian fund a greater presence in the fast-growing U.S. gas market.

Tenders, Auctions & Contracts

- Petrofac scored a contract worth $1 billion with the consortium operating the Ain Tsila gas project in Algeria. The consortium includes local state major Sonatrach, Enel, and private Petroceltic. Production of gas and condensate from the project is slated to begin next year or in 2021.

- Inpex is in a rush to seal a deal with Abu Dhabi’s Adnoc for an LNG joint venture that will produce LNG to be used as bunkering as the International Maritime Organisation gears up for the entry into effect of stricter bunkering fuel emission rules. Some see the new rules as a major booster for LNG demand in the bunkering fuel sector.

Discovery & Development

- BHP will drill more wells in a field offshore Trinidad and Tobago after it struck gas at one exploration well in the northern section of the Bongos prospect. Earlier, it struck gas at two other wells in the southern section of the license plot. The gas the company produces from the field once commercial reserves are proven will be fed into its planned Atlantic LNG project.

- Eni said it had struck gas at the Nour North Sinai block it is exploring in Egypt. The next step is to perform a feasibility study to determine whether the prospect contains commercial amounts of gas. Eni is also operator of the giant Zohr gas field in Egypt. In Nour, it partners with BP and Mubadala.

- China’s crude oil production remained largely flat on the year during the first two months of 2019, up by a modest 0.5% to 30.69 million tons despite efforts to boost domestic production to reduce the country’s reliance on imported crude.

- Iran reported higher natural gas exports from its South Pars offshore field in the last two months. These were up by 15% on the year in terms of value despite U.S. sanctions seeking to suffocate the country’s energy industry. Iran is currently expanding production at the field despite the pullout of Total and CNPC, who were supposed to operate the field’s next phases of development.

Regulatory Updates

- The Texas LNG project has received the final environmental approval of federal regulators despite worry that it could interfere with the local ecosystem. Texas LNG will have an annual production capacity of 2 million tons initially, to be sourced from nearby fields in the state, including the Permian and the Eagle Ford. At a later stage, this capacity could be doubled.

- Israeli Delek Group, the operator of the giant Leviathan natural gas field offshore Israel, plans to list its participation in the project in London as part of a corporate restructuring. The move, according to the company, is part of its plan for international expansion. Leviathan is one of the largest gas discoveries globally in the last decade. Production is scheduled to begin later this year.

Politics & Geopolitics in the Oil Patch

- Saudi Arabia now has emerging market status, which means it has access to billions more dollars in its quest to diversify its economy. On Monday, the Saudi stocks hopped on the FTSE Russell Emerging Markets Index. In May, it will be added to the MSCI Emerging Markets Index (EEM).

- Juan Guaido, the contender for the Venezuelan presidency, will seek to overturn a court ruling that awarded a compensation of almost $9 billion to Conoco for the forced nationalization its operations in Venezuela during the Hugo Chavez era. According to the attorney general appointed by Guaido’s parallel government, the court had made “severe miscalculations errors” in deciding on the compensation size. In the meantime, the US is finding it necessary to turn its attention to rebels in Colombia, who are gaining strength as they take advantage of the vacuum in Venezuela.

- Protests in Algeria—another key oil venue—have resulted in a decision by the country’s aging and ill president, Bouteflika, to give up his plans to run for a fifth term. Protests and calls for his resignation, however, have not been quelled as mass demonstrations demand his immediate resignation.

- As Trump continues to water down Iran sanctions, the administration has granted Iraq another 90-day waiver to buy Iranian oil.




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