Libya Attempts To Lure Oil And Gas Companies Back

Politics, Geopolitics & Conflict

Libya has officially lifted force majeure on oil and gas exploration, hoping to lure international oil companies back to E&P activities. While this decision was based on claims of an improved security situation, the fact remains that the country is a tinderbox waiting to explode - again. "NOC welcomes them to resume their work in Libya and assures them of its readiness to provide all necessary support to resume their operations, as well as assisting them in facilitating the return, along with providing a safe working environment in cooperation with the civil and military authorities of the Libyan state," NOC said in a Dec. 5 statement. While the GNU (the government of national unity) has promised to provide support to ensure safety for E&P companies, the ability to make good on that promise will remain elusive at best. The "status quo" in this case should not be confused with security in any sense.

The protest momentum in Iran has not eased, and the sentencing of five people to hanging for killing a paramilitary member could add more fuel to this fire. The 5 death sentences were compounded by long-term prison sentences for 11 others, including three children. A total of 11 people have now been sentenced to death. This week saw nationwide strikes, with factories and shops closed in protest. In another twist, the estranged sister of Iranian Supreme Leader Ayatollah Ali Khamenei has written an open letter calling for the end of his tyranny and saying she hoped he would be overthrown.

Chinese President Xi Jinping's visit to Saudi Arabia this week (as well as to the Arab summit) is another phase of a foregone conclusion that has seen the Saudis move closer to the Chinese. While there is a significant amount of criticism of the Biden administration for snubbing the Saudis, a Chinese connection was inevitable with or without Washington's on-again-off-again punishing of the Saudi Crown Prince for the Khashoggi murder. The recent decision by the Biden administration that the Crown Prince has immunity in a lawsuit over the Khashoggi murder does nothing to change the momentum of Saudi relations with China.

Energy Markets

With the implementation of the price cap on Russian oil, another problem has emerged in the form of a massive bottleneck of oil tankers (25 by Thursday) queuing up in the Black Sea to cross Turkey's Bosphorus strait and outside of the Sea of Marmara to get through the Dardanelles strait. Most of these tankers are bound for Europe. So, Turkey is holding it all up because it is demanding (as it announced last month that it would) proof of insurance in order to pass through the straits and into the Mediterranean. That insurance must expressly cover them in the event of any violation of the price cap or sanctions in general. Yes, with all the vessels passing through Turkish waters, there is a high risk for Turkey of a vessel not being insured in the event of a devastating oil spill. That is fair enough. However, we suspect there is much more going on here, and that is primarily related to two things: 1) Erdogan's ambition for Turkey to become a (the) European hub for oil and gas, which cannot just be about Russian oil and gas; and 2) a very necessary message to Russia that Turkey is not another victim of weaponization of Russian energy like Europe is. It has options. Turkey is going to be an energy hub that is not dependent on Russian oil and gas alone. This is another power move by Erdogan that gives him yet more leverage, which he has won at every step of Russia's war on Ukraine. He loves this opportunity to show the world that he can also manipulate the market.

Both the API and EIA confirmed a major crude draw in the U.S. this week, along with sizable product builds. The U.S. has lost more than 20 million barrels of crude over the last few weeks leaving the U.S. with inventories 9% under the five-year average, with SPR releases slowing. Overall, it was a net gain for petroleum/petroleum products by 3.776 million barrels. U.S. crude imports over the last four weeks are down year over year, but heavy products imports are up. U.S. refiners are running at 95.5% of their capacity. U.S. crude production has stuck around 12.1 million bpd since June.

Discovery & Development

Papua New Guinea is looking to attract more interest in its oil industry and is changing up its fiscal and regulatory environment for upstream projects in 2025 to make oil activity there more attractive. PNG's oil production has been on a steady decline for three decades, sitting now at just 10,000 bpd, from 120,000 back in the '90s. PNG is looking to create a production-sharing regime starting in 2025, from its current concessional contract method used now. PNG is also looking to create a national petroleum authority to issue permits and licenses.

Malaysia's Petronas Carigali has announced a new discovery at the Nahara-1 well in Block SK306. The shallow water discovery was in the Balingian Province. Petronas Carigali is the operator with 100% interest in its PSC.

Murphy Oil has spudded an offshore well Tulum-1 in Mexico's Salina basin, Block 5. Results are expected in February. The well could have a gross resource potential of 150-350 million boe. Murphy has mapped 34 prospects in Block 5, with a combined resource potential of somewhere between 800 million and 2 billion barrels. Murphy holds a 40% stake in the Block, with Petronas and Wintershall Dea as partners.

Glencore has decided to scrap its $1.3 billion Valeria coal mine in Queensland's Bowen Basin as investor confidence has waned given coal's uncertainty and increase in Australia's royalties. The mine was expected to have the capability of producing 20 million tonnes of thermal and metallurgical coal per year. The mine was purchased from Rio Tinto in 2018.

Britain is viewing coal's future differently, approving its first new coal mine in three decades. The mine will cost $201 million and take 2 years to build and will be capable of producing 2.8 tonnes of coking coal per year to be used in steelmaking-not power generating. Britain says that without this coal mine, it would need to import coking coal. Britain plans on the mine being net zero in its operations.

Deals, Mergers & Acquisitions

The US has pledged to ship between 9 bcm and 10 bcm of LNG to the UK over the next year as part of the country's new energy security pact. Those figures were mostly understood prior to the official announcement this week.

Regulations

Los Angeles has approved a ban on oil and gas drilling in the city limits-the final step in the efforts to outright ban oil and gas drilling. The approval to ban was unanimous, at 12-0. All existing oil wells and operations will be decommissioned over the next two decades. The city boasts 26 oil and gas fields with 5,000 wells. Residents have had health concerns with oil and gas operations in the city for years.

Hungary has scrapped its price cap on fuels this week as fuel shortages hit the country. Lower imports clashed with panic buying, prompting the premature dissolution of the year-old cap, which was set to expire at the end of December. Removing the cap will help Hungary ensure fuel supplies, but could raise inflation beyond current levels, which is already 21%. The Danube refinery is still undergoing maintenance and has been restricted to 50-55% capacity. Hungary also said it will take away "extra profits" reaped from higher fuel prices. MOL has been paying a 40% special tax on the Brent-Ural spread since the end of July.