Note: The information in this report is highly sensitive, as are references to sources. Dissemination or re-publication of any kind of any part or all of this report is strictly prohibited.
Who Was Really Behind the Saudi Journalist Murder?
The consensus view is that MbS, the Saudi Crown Prince, was definitively behind the disappearance and apparent murder and possibly even dismembering of self-exiled journalist and critic Khashoggi. Media sources are tying murder suspects to MbS, and the pressure is mounting for the Trump administration to respond in a way that suggests punishment.
But there is a non-consensus view emerging as well from sources both in Qatar and Turkey. A Qatari consensus that actually sides with MbS on this murder is significant given the heated rivalry between the two and the economic blockade the Crown Prince implemented against its Gulf neighbor.
The non-consensus belief, according to our sources, is that MbS was not involved in the disappearance and presumed murder of Khashoggi; rather, hardline elements opposed to MbS within the Saudi regime orchestrated this murder to destabilize MbS, and timing was not amiss. The key platform for MbS reform is the “Davos in the Desert” investment conference, where he has his best chance of showcasing his “vision”.
The “old guard” in Saudi Arabia is very much against reform, and the alleged murder has already destroyed the high-flying guest list for this forum, as top investment figures drop out. With one murder, investor confidence has taken a massive hit, which puts MbS’ entire reform vision in jeopardy.
A source with access to Saudi royal advisers, however, is not convinced that hardline, or “dissident” opposition to MbS orchestrated this catastrophe, noting that MbS himself is hardline (though not in an Islamist sense) and has no qualms about getting rid of dissent such as that of Khashoggi’s criticism. That said, those hardline elements opposed to MbS in the Kingdom are doing whatever they can to take advantage of the situation.
It is also a misperception that MbS is a close ally of Trump. He is not. He is closer to Russia and Turkey, but happy to use Trump to achieve certain goals. But this, too, is an area of contention between MbS and the Saudi “old guard”.
The old guard is now attempting to create some major tension ahead of MbS’ official takeover of power in Saudi Arabia. For this reason, it is not unfeasible that it would be the Qataris who leak intel showing that a group of dissidents was behind the murder. From the Qatari perspective, even MbS is better than a return of the “old guard”.
Turkish officials say they are investigating the Khashoggi disappearance and murder—evidence of which they claim to have on video and audio—however, we remain unconvinced. Our investigative and mid-level sources with access to high-level officials in Turkey maintain that the Turks are in fact taking a step back from this. They do not wish to become embroiled in what is essentially an internal Saudi power struggle between MbS and those who oppose him and wish to see Saudi Arabia become more insular and stay away from reform of any kind.
Separately, our sources in Saudi Arabia—including royal court advisers and a former British intelligence official in the Kingdom—are concerned about one particular figure who is negatively influencing MbS presently: That figure is Saud Al-Qahtani, in charge of what can nominally be called “media affairs” but also includes more nefarious powers such as tightening the leash on dissidents in opposition to MbS. He also controls hacking groups that are used for MbS’ benefit. He controls at least 3,000 people in this effort. The presence and influence of this figure is, in large part, why many of our sources in and connected to the Kingdom do not believe that other hardline opposition elements orchestrated the journalists’ murder to destabilize MbS.
Regardless of the perpetrator, the blowback from this inside the Kingdom is enormous and MbS is at risk. The possibility of another high-level royal drama that could include support for King Salman’s brother, Prince Ahmed bin Abdulaziz (a hardliner), against MbS, has increased.
In the meantime, MbS is banking on Jared Kushner to intervene in Washington on his behalf, though this tactic is far from a certainty. Trump needs a good backstory in order to avoid sanctioning MbS because he is under a great deal of pressure to react strongly. He must now aim to punish MbS while not destabilizing him. After all, the Crown Prince is a key figure in Trump’s overall Middle East plans and his wide economic reform (Vision 2030) plans stand to be highly lucrative for the U.S.
China Is Buying Up Greece and No One’s Paying Attention
The most strategically significant development of this decade and the next will be China’s ‘one-belt one-road” plan. This is where Chinese soft power starts to pay off in its quest for global dominance of trade, commerce and influence-peddling. Right now, that means conquering Greece, where the Chinese are presently buying up property with zero thought for margins and no consideration for investment strategy from a financial perspective.
Greece will be China’s hub that connects East and West. Our sources on the ground in Greece note that the Chinese level of real estate buying right now is one of desperation, while a Greek analyst with a network of consultants in China notes that the end game here is for every single Chinese company to have a satellite office in Greece to connect to the West.
At the end of the day, chances are that it will ultimately be the Chinese who end up having the requisite influence in both Greece and Turkey to resolve a stalemate over Cypriot oil and gas exploration. This hit another tense moment this week (Thursday), when Turkish state-run news agencies reported that the Turkish navy said a Greek frigate had been “harassing” a Turkish ship in the Mediterranean. The Turks claim that their ship was carrying out seismic research activity in an area that Greek Cypriots claim for future oil and gas exploration. The Greek’s deny there was any incident with a Turkish naval vessel, but did concede that they had been monitoring the vessel’s activities.
Global Oil & Gas Playbook
Mexico’s president-elect Andres Manuel Lopez Obrador this week met for the first time with representatives of the international oil companies with operations in Mexico reassuring them that the next government will honor existing oil contracts as long as the team that is reviewing them at the moment finds no evidence of corruption.
Lopez Obrador has a demonstrated a determination to reverse the years-long decline in local crude oil production and he has also announced plans to raise Mexico’s refining capacity in a bid to reduce the country’s dependence on imported fuels amid rising demand. However, at this week’s meeting, the president-elect did not mention anything about opening up new fields to foreign explorers.
Obrador has also pledged to boost the powers of Pemex, the state energy major whose monopoly position on the Mexican market was threatened by the previous administration’s sweeping sector reform that saw foreign companies enter Mexican waters in droves.
Even without offering new fields for exploration, Obrador’s stance during the meeting is a marked departure from his campaign statements: at the time he vowed to return control of Mexico’s energy industry in the hands of the people. While we are all familiar with the difference between campaign speak and actual policies, there was worry in the oil industry that the new leftist president could throw a wrench in the works of Mexico’s oil industry growth.
This worry should be quenched by now as it is clear for anyone Pemex does not have the capacity to reverse the production decline and expand local oil and gas output without foreign money and expertise.
Deals, Mergers & Acquisitions
- Shell has struck a deal for the sale of its exploration and production operations in Denmark for $1.9 billion with Norwegian Energy Company. The Danish subsidiary of Shell is a fully-owned unit of the supermajor that had some 67,000 barrels of oil equivalent in daily production as of last year.
- SDX Energy, a company focusing on North Africa oil and gas, has ended its negotiations for the acquisition of some of BP’s operations in Egypt with no deal. The supermajor had been looking to sell Egyptian assets estimated to be worth around $500 million for a few months. The company accounts for about a tenth of Egypt’s oil production and over half of its natural gas production.
- Total is seeking stake acquisition opportunities in India’s LNG and natural gas distribution industries, CEO Patrick Pouyanne said this week. Also in the French supermajor’s sights are retail fuel stations, the executive told Indian media. Total is also keen to supply LNG to one of the world’s fastest-growing economies.
- Idemitsu, Japan’s second-largest oil refiner has completed the acquisition of Showa Shell Sekiyu, a unit of the Anglo-Dutch supermajor, in a share swap deal that valued the business at some $5.6 billion. The merged company will account for almost a third of Japan’s gasoline sales on the domestic market.
Tenders, Auctions & Contracts
- Qatar Petroleum struck a deal with Chinese Oriental Energy to supply 600,000 tons of liquefied petroleum gas to China for a period of five years beginning in January 2019. The companies commented this is only the beginning of a long-term partnership on a booming LNG market. Oriental is the largest LPG company in China, operating distribution networks and storage facilities.
- Saudi Aramco is eager to invest in India’s downstream oil sector as well as in solar power, the company’s chairman, Saudi Energy Minister Khalid al-Falih said at a recent industry event in New Delhi. Among the segments Aramco is looking at are petrochemicals and refining but also storage and fuel retail.
- Ghana has announced its first-ever licensing round for oil and gas blocks as it looks to boost its reserves and production, the latter being some 200,000 bpd to date. Half of that comes from the Jubilee field, which is developed by Tullow Oil in partnership with Kosmos Energy, Anadarko, and the Ghana state oil company.
- Petrobras and CNPC have inked a deal to study the feasibility of completing the construction of a refinery that would have a capacity of 150,000 bpd but construction has been repeatedly delayed because of Petrobras’ financial problems. Under the contract with CNPC, Petrobras will control 80% of the Comperj facility and CNPC will hold the rest through a subsidiary.
- Poland’s state gas company PGNiG signed a 20-year contract for LNG supplies with U.S. Venture Global. Under the deal, PGNiG will buy 2.7 billion cubic meters of LNG from the U.S. company. Under the terms of the agreement, the Polish company will receive full rights over the cargoes as soon as they are loaded, allowing it to resell them to anyone anywhere.
Discovery & Development
- Equinor has begun pumping oil from the Oseberg Vestflanken 2 field in the Norwegian North Sea shelf. The field will be operated from an unmanned, remotely controlled platform, the Oseberg H. The facility, which will mainly tap the new reserves at Oseberg Vestflanken 2, will also be able to improve recovery rates from adjacent mature fields, Equinor said. Total investment in this phase of operation of the field cost the Norwegian state energy major $800 million.
- BHP Billiton produced 33 million barrels of oil equivalent in the third quarter of the year, which was virtually unchanged on the year but 15% higher than in the second quarter. The amount also exceeded BHP’s own guidance for production, which stood at 29 million barrels of oil equivalent. The Anglo-Australian company kept its full-year production outlook unchanged at between 113 and 118 million boe.
- China’s Unipec, the foreign trade arm of Sinopec is negotiating higher LNG deliveries from Exxon’s LNG project in Papua New Guinea ahead of winter. The state refiner is obviously working to make sure last year’s gas shortage that left millions of households in northern China without heating in the deepest winter does not happen again. Some estimates have pegged China’s LNG demand growth this year as 40%.
- Kinder Morgan reported earnings per share of $0.21 for the third quarter, beating analyst expectations of $0.20 and is a substantial increase on last year’s $0.15 per share in third-quarter earnings.
- Australian gas major Santos booked a 22.7% increase in revenues for the third quarter of the year despite unchanged production of oil and gas. The company benefited from higher oil and LNG prices.
- Aker BP became the latest energy sector player to beat analyst forecast with its Q3 results. The Norwegian company booked earnings before interest and tax of $548 million, up from $219 million a year earlier and higher than the $521 million forecast by analysts.