Politics, Geopolitics & Conflict
- In Libya, it’s not a good sign for General Haftar that the UAE - his ally - has publicly backed the Tripoli-based Libyan National Oil Company (NOC) after the general launched a bid to replace the board of an eastern unit of the NOC. There are some indications that the LNA strongman is giving in to some extent. Late on Wednesday, Haftar stated that he would be open to dialogue amid his offensive on Tripoli, which contradicts his continual rejection of UN talks to end the conflict. The UAE, which has been materially supporting Haftar’s push on Tripoli, seems to have lost its taste for expensive conflict, and the writing on the wall became clearer earlier this month when it abandoned ally Saudi Arabia in Yemen and launched a second separatist front in this conflict in the south.
- As protests rock Egypt’s main cities, Israel and Egypt have ostensibly cleared the last hurdle to exporting Israeli gas to Egypt. Holding up the deal was a transport obstacle and Israel’s unwillingness to provide an offshore pipeline to run gas from the Tamar and Leviathan gas fields to feed the Egyptian grid. The new deal will allow Eastern Mediterranean Gas (EMG) to links its pipeline to the Israeli city of Ashkelon to el-Arish in Egypt’s Sinai Peninsula (where we note there are plenty of security concerns). This is a deal between private companies, rather than the Egyptian government. The benefit for the Egyptian government is longer term because this Israeli gas will be processed in liquefaction stations in Egypt for re-export to Europe. That could turn Egypt into a major hub for European gas.
- Paralyzed by political crisis since the fall of long-time Algerian leader Bouteflika, Algerian state-run Sonatrach is now believed to be in talks with Chevron for a potential shale deal. Deal talks had soured earlier this year while supergiants took a step back from Algeria to see how the political dust would settle. There is nothing concrete with these talks as of yet, but it is notable as the first visit by a giant Western oil firm since February. Exxon gave up on Algerian shale talks when the crisis climaxed in Q1.
- In addition to sanctions on Chinese firms transporting Iranian oil, the US has also slapped new sanctions on Venezuela and Cuba, specifically targeting those transporting oil from Venezuela to Cuba. The sanctions are meant to target Cuban interests aiding Maduro, but Cuba has its own problems to deal with in the form of a severe energy crisis that depends on cheap Venezuelan deals for its survival. Doubling down on its sanction-busting purchases, China has increased its crude oil imports from Venezuela for August, taking 1.45 million tonnes for the month, compared to 703,742 tonnes in July. But while the month on month purchases saw a sizable increase, the amount of crude flowing from Venezuela to China is down year on year, when it was 1.78 million tonnes.
- South Sudan’s Boma State governor David Yau Yau has denied a watchdog report accusing him of creating an oil company with two British foreign nationals. The report accused South Sudan of conspiring with multinational corporations to profit from the war. In Yau Yau’s denial, he pointed out that only the national government has the power to make oil agreements with foreigners. The still unfavorable risk environment in South Sudan may dampen enthusiasm for seven oil blocks that will be offered in October during the next licensing round.
- LNG prices continue to plunge with the US contributing to a supply glut, but that has not tampered investment interest, and supergiants are picking up momentum with plans to dominate this segment. French Total SA is gunning to become the world’s second largest LNG player. BP is also pursuing a bigger share of LNG through a series of new supply deals. Spot Asian LNG for December delivery is predicted to hit no higher than $6 per million British thermal units--the lowest December spot prices since 2010.
- If you are keeping a close eye on the juniors trading on the Toronto Stock Exchange (TSX), it’s worth noting that 8 Canadian energy companies have been booted off of the S&P/TSX Composite Index because their market capitalizations dropped below minimum requirements. The companies include: Birchcliff Energy, Ensign Energy Services, Kelt Exploration, NuVista Energy, NexGen Energy, Precision Drilling, Peyto Exploration and Development and TORC Oil & Gas.
Discovery & Development
- Norwegian Equinor, Austrian OMV and Petoro have announced an oil discovery in the Sputnik exploration well in the Barents Sea, with recoverable resources estimated at 20-65 million barrels of oil (preliminary). Fluid samples contained light oil and water, and the task ahead is to determine commercial viability. The Sputnik well has proven oil in a large channel system.
- China’s state-owned CNOOC has said that its Lingshui 17-2 nat gas project in the South China Sea - which is 100% CNOOC operated - is expected to produce first gas at end 2021. This will be new territory for CNOOC as sole operator, unlike its other natural gas ventures with Big Oil as partners.
- Tesla’s Gigafactory 3 is scheduled to begin production by the end of October. With Phase 1 construction behind it, and Phase 2 now in the works, Tesla’s gross profit for 2020 for Gigafactory 3 is estimated to be $1.949 billion, reaching $4.558 billion in 2021. Some estimates have Tesla’s Gigafactory 3 turning a profit from the get go during the first quarter of operation. Gigafactory 3 is critical for Tesla’s success in China, and China is critical for Tesla’s success overall, being the largest market for all automobiles.
- Japan's government has pledged an additional $10 billion in public and private financing to LNG projects worldwide to further boost demand. Japan already invests in major projects, including LNG Canada and Mozambique LNG.
- Toyota is teaming up with Guangzhou Automobile Group and FAW Group to come up with new hydrogen fuel-cell cars as it tries to take advantage of China’s colossal car market. China, Japan, and South Korea have set a target to reach a million hydrogen cars before 2030. So far, however, EVs have won out in that market, with China only having 1500 hydrogen cars on its roads. Toyota already has one hydrogen car, the Mirai. Hydrogen vehicles have yet to catch on in any great number because of the capital requirements of establishing sufficient infrastructure to refuel hydrogen vehicles.
- Chevron is planning to significantly ramp up output and boost recovery with a waterflood project at its St. Malo field in the Gulf of Mexico, offshore Louisiana.
Deal, Mergers & Acquisitions
- Houston-based natural gas company Tellurian Inc. has signed an MOU with India’s Petronet to sell an 18% stake in its proposed $28B Driftwood LNG terminal and export five million tons of LNG a year from it for 40 years. This is a $7.5B deal ($2.5B in cash and $5B in debt) that will net Petronet an 18% equity interest. Petronet will also purchase five million tonnes per annum of LNG from Driftwood. The MOU is expected to be finalized by the end of first-quarter 2020, which means construction could also begin next year, as it already has FERC authorization.
- The European Commission has approved Macquarie Infrastructure and Real Assets (MIRA) acquisition of Ocean Breeze Energy – owner of the Bard Offshore 1 wind farm – from Italian Unicredit Bank for $1.1 billion. Bard Offshore 1 offshore farm has a total capacity of 400MW and can generate enough electricity to power more than 450,000 households.
- Colombia will open up 59 oil blocks for its next round of auctions on October 31, when it is hoping to sign 20 E&P contracts. The list of qualified bidders will be released on October 21. Colombia, through its state-run entity Ecopetrol, is also making a push to start fracking projects in H2 2020, but a lawsuit is ongoing that will determine the fate of its fracking prospects before it even begins. Initially, Colombia is piloting 4 fracking projects which have the potential to bring in $5 billion a year once they are producing.
Legislation & Regulations
- Is Black Sea offshore oil back on? Not quite - but there’s been a move in the right direction. The Romanian government has proposed a draft bill giving energy groups a larger share of earnings from offshore gas projects in the Black Sea. The new bill would change some stipulations of the current offshore law passed last year, that imposed burdensome financial conditions to investors. The law was criticized by some large investors like ExxonMobil and OMV, who earlier this year froze their Neptun Deep project, the biggest offshore project in the Black Sea, due to higher taxes. Neptun Deep was discovered in 2012 with an estimated 42-84 billion cubic meters of gas reserves. The new draft project proposed by the government reduces the total tax burden from 90% of estimated profits to 60%. Romania currently has had the highest effective tax rate for natural gas production. This has all but killed Romania’s offshore oil potential. Exxon and OMV were set to decide on moving ahead with commercial exploitation by the end of 2018 but delayed that decision over changes to the law and new taxes.
- Brazil’s upcoming $25-billion oil auction to be held on November 7 has received a regulatory boost with Congress’ approval this week of part of a bill concerning revenue-sharing proceeds. This doesn’t mean that lawmakers disagreements over revenue-sharing have ended. Instead, the newly approved legislation means that the auction can move forward without an agreement on the distribution of revenue proceeds. There are still other aspects of the petroleum bill that need to be cleared before the auction can take place on November 7th.
- Kazakhstan may be asking for additional payment from oil majors to settle a dispute over revenue sharing in the Karachaganak gas condensate field. Last year, energy majors developing the field agreed to pay $1.1 billion to Kazakhstan to settle a dispute. Kazakhstan filed a $1.6 billion claim against foreign firms developing Karachaganak in 2015, saying that the country had not received its fair share of income from the giant project. The Karachaganak field is jointly operated by Shell and Eni with a 29.25% share each. Chevron Corp. has an 18% stake, Lukoil PJSC has 13.5%, and state oil company KazMunaiGaz National Co. owns 10%.
- Addressing the UN Climate Action Summit, Ireland’s Prime Minister Leo Varadkar has said that the country will phase out oil exploration. According to the plan, no new licensing round for the Atlantic area will be brought forward by the Government. This is the area where most of the exploration is now focused. Still, the prime minister concluded that exploration for natural gas should continue for now.
- Three US senators have introduced a bill that would limit the amount of crude oil and natural gas the US can export. The bill would essentially undo President Obama’s action that lifted the decades-long bank on crude exports, but would still allow a president to approve exports on a case-by-case basis if determined to be in the nation’s best interest. Even though it is unlikely to be voted on, it may gain traction among the more progressive members who would like to see investment dollars pulled from the industry.