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Global Energy Advisory - 25th November

Politics, Geopolitics & Conflict

• Donald Trump is keeping NATO on its toes with regard to Russia. After slamming the pact for being “obsolete” and saying its maintenance was extremely expensive for the U.S., now signals are coming from Russia that the Kremlin expects a shift in American-Russian relations that would benefit Russia, such as the lifting of sanctions for its oil industry. NATO’s primary reason for existence has been to contain Russia. One further sign of the shift Moscow is expecting came from Donald Trump Jr., who was reported to have met last month in Paris with a pro-Russian Syrian politician, Randa Kassis. Talking heads speculate that this might lead to a change in the U.S. position in Syria.

• The Vatican-brokered talks between the regime in Venezuela and the MUD opposition party have been frozen, according to the later. President Maduro denied this information but it appears likely that the political crisis will continue while economic recession rages in the country. MUD wants Maduro out but the President and his government are firm that he will complete his term, which ends in 2019.

• Britain has been revealed to have used aid money for Malawi, one of the world’s poorest countries, to advance its energy interests. The goal, as reported by Greenpeace, which obtained a document under freedom of information legislation, was to make British energy firms the preferred partners of Malawi’s government for the development of the African country’s oil and gas reserves. These are believed to be substantial but some of them are in ecologically sensitive areas such as Lake Malawi, whose southern shores are a UNESCO world heritage site.

Deals, Mergers & Acquisitions

• Anadarko has sold some of its assets in East Texas to commodity trading firm Castleton Commodities International. The deal, valued at $1 billion, involves Anadarko’s upstream and midstream operations. According to the buyer, the deal will increase its daily gas production to 320 million cubic feet.

• An anonymous investor has bought a 5 percent stake in Tullow Oil, using derivative instruments that have helped conceal their identity. The stake is held by JP Morgan Chase and affiliates and could signal investor interest in a takeover of the Anglo-Irish energy firm. Tullow Oil focuses on Africa oil and gas, and has hefty stakes in two giant fields, Jubilee and TEN, in Ghana, and was also behind the major discovery that put Kenya on the oil and gas map and has positioned the country to become the key energy hub for east Africa.

• Indian Oil Corp. will spend $5.5 billion on the expansion of a refinery that it co-owns with Iran. The expansion will see its daily throughput increase to 300,000 barrels of crude. The investment is necessitated by growing demand for oil products across the country and specifically in the southern states, which the Nagapattinam plant supplies.

Tenders, Auctions & Contracts

• Apache Corp has plans to drill almost 100 new wells in the Western desert in Egypt, over the 2016/2017 fiscal year. The total cost of the wells, of which 74 are development wells and 23 exploration wells, is projected to be $909 million. After the wells are put into operation, they should raise the output at Apache’s fields to 146,000 barrels of crude and 810 million cubic feet of gas daily.

• Cambodia has invited Azeri companies to take part in the development of its oil and gas reserves. The Asian country has no commercial production of oil but potentially solid reserves. So far, these have been divided into six offshore blocks, 19 onshore blocks, and another four that are located in an overlapping claims area, disputed with neighboring Thailand.

• Sempra Energy has quit its proposal to buy an interest in a natural gas concession in Peru owned by Brazilian conglomerate Odebrecht. Sempra’s moved followed the Brazilian government’s refusal to delete an anti-corruption clause from the acquisition contract. The clause would have provided a loop for the government to take over the concession were Odebrecht to be found in violation of corruption laws.

• Canadian refiner NARL Refining has sealed a crude oil supply deal with Russia’s Lukoil. The company will supply NARL’s 115,000-bdp Come-by-Chance refinery in Newfoundland, on the eastern coast of Canada. Lukoil will replace as supplier BP, with which NARL had an uneven relationship that ended in a U.S. federal court.

Discovery & Development

• Eni has made the final investment decision for an $8-billion plan for the development of the Coral South gas field off Mozambique’s coast. The fields hold an estimated 16 trillion cubic feet of natural gas and production is slated to begin in 2020. The Italian firm has a 50 percent indirect stake through its local subsidiary, which has 70 percent in the field. Its partners include Portugal’s Galp Energia, Korean Kogas, and Mozambique’s Empresa Nacional de Hidrocarbonetos.

• Canada’s ambitions to start exporting more crude to Asia face an obstacle: the port of Vancouver is unable to handle the bigger tankers that the crude needs to be loaded on. Vancouver is the only large port on Canada’s western coast, from where the crude would travel to Asian markets. However, due to depth issues, it can only load smaller tankers, carrying around half a million barrels of crude. This would affect the competitiveness of Canadian crude. To compare, Middle Eastern producers can load supergiant tankers with capacity of up to 2 million barrels.

• The Malaysian state of Malacca is building a new port in the Malacca Straits, aiming to divert part of the huge tanker traffic that currently docks at Singapore. Annual oil trade in the region is worth $600 billion, as it caters for a third of global oil demand. The $3-billion project, funded mostly with Chinese money, will also include storage, and refueling and repairs services.

Regulatory Updates

• Argentina’s state oil company YPF will start paying market prices for the oil it processes at its refineries, after the government decided to remove oil subsidies that forced YPF to buy the crude at $62 a barrel. With the move, the government will gain access to more cash from the company, as international oil benchmarks are currently below $50 a barrel.

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