The Geopolitical Flashpoint For Oil Markets Next Year

As multiple forces stake their claims on the next major venue for war over oil and gas resources in what will be the key geopolitical flashpoint for 2020, oil prices are focused instead on US supply and economic data, enjoying a stellar week of gains to hit three-month highs. Once again, it’s optimism over a trade deal (sentiment never learns), but also the fundamental reality of strong data in the form of profits from Chinese industrial firms, which rose in November at a pace faster than they have in eight months. 

Syria Starts Exploring The Levant Basin, for Peace or World War

Syria’s Assad says he has launched oil and gas exploration with Russia in the Mediterranean in a move that brings the Levant Basin into very clear focus. 

This is the basin that’s put Israel on the oil and gas map for the first time in history (with its massive Leviathan gas field just starting commercial production). 

It’s the basin that Lebanon has been struggling to start exploring amid an eternal domestic political stalemate. 

It’s the basin that Syria signed away to the Russians long ago, but war kept it from doing anything about it. 

It’s the basin that features Cyprus right in the middle, moving along steadily with oil and gas exploration despite ongoing Turkish threats.

It’s the basin that will either bring a massive regional war with enough external players to turn it into a world war or… a peace that has been extremely elusive. That puts a lot of global pressure on fossil fuels.

And now, as Turkey and Libya sign a maritime boundary agreement that everyone else rejects, tensions are rising, and Cyprus, Greece and Israel are lining up to preempt other power moves over this basin’s hydrocarbon riches. On January 2nd, Cyprus, Greece and Israel plan to sign a deal for the construction of a Mediterranean natural gas pipeline. That pipeline will traverse the Mediterranean starting offshore Israel and then moving through Crete, the Greek mainland and, finally, to Italy. 

If it doesn’t bring war first (more likely at this point), the lure of cheaper gas that would bridge the Middle East, North Africa and Europe, will bring the kind of peace that only money can buy. 

Mexico Prepares Lethal Blow to Private Electricity & Renewables Market

Investors across the energy sector in Mexico have been worried that the new populism/nationalism of AMLO would end up with canceled contracts for oil and gas projects, or potentially even rail. That hasn’t happened, but now the Mexican Federal Electricity Commission (CFE) is proposing to cancel renewable energy contracts instead. 

The Commission is seeking to both cancel contracts and eliminate discounts on transmissions costs for power generators using its network. In a single move, they could destroy the country’s renewable energy market. Right now, those transmission discounts sit at 50%, and the CFE wants to get rid of them. The discounts are the key to the renewable energy market in Mexico, and the self-supply contracts risk over $16 billion in investment. In other words, CFE plans to stop subsidizing electricity generation by private companies in order to level the playing field but this move will destroy private sector electricity generation, of which over half is renewables.