Licenses & Tenders
• Shell and Statoil have been awarded the Timissit Permit License in the Illizi-Ghadames Basin onshore Algeria. This was the first licensing round in Algeria since the 2013 attack on the BP/Statoil Amenas gas facility. The license area is in southeastern Algeria and covers 2,730 square kilometers. Statoil oil is the operator with a 30% interest, while Shell holds a 19% interest, with the largest share, 51%, held by Algeria’s state-run Sonatrach. This is a shale gas play that could be significant for Europe.
• France’s Total SA has been awarded a license to explore for natural gas in the Nile Delta, offshore Egypt.
• Edgo Energy has secured licenses for two blocks (Qarordon and Surkhsimo) in Tajikistan, close to the Tajik-Afghan border and part of the proven Tajik hydrocarbon basin. The Surkhsimo license area has produced gas and is connected by pipeline to the Tajik capital, Dushanbe. Wells have been drilled in both blocks, testing a mixture of gas and oil. Edgo is focused on the Middle East, Africa and Asia.
• A new arrival on the oil and gas scene, UK-based Delonex Energy Limited, has acquired two oil exploration blocks in the Ogaden basin, eastern Ethiopia. The license area covers blocks 18, 19, and 21, located in the Abred-Ferfer area, with a total area of 29,865 square kilometers.
Discovery & Development
• Statoil is pulling out of the development of the Canadian “Corner” oil-sands project due to high costs and shipping bottlenecks. This is bad news for Canadian oil-sands, as Statoil’s withdrawal following French Total SA’s withdrawal of another development project in May this year. Statoil will delay development for at least three years and cut 70 jobs before it makes a final decision.
• Russian Rosneft and ExxonMobil have discovered oil at the Universitetskaya-1 well in the Arctic, estimating 100 million tons of oil and 338 billion cubic meters of gas. However, the project cannot technically be developed due to US sanctions that prohibit US companies from joint ventures with Russian energy companies. Given the impeccable timing of this discovery we would refrain from taking the estimates seriously until more testing is conducted to determine real recoverable reserves.
• Parkmead Group of Aberdeen has announced the discovery of a new gas field in the Netherlands, which the company suspects will feed into existing production in the area. The discovery was at the Diever-2 exploration well in the Diever West prospect, onshore. Other partners in the license include Canadian Vermillion Energy and Dutch firms NAM and EBN. Vermillion is the operator.
• Noble Energy Inc., based in Houston (and best known for its Israeli discoveries in the Levant Basin) has announced that its 2012 Scotia exploratory well is non-commercial. This will result in a $75-million exploration expense.
• Petronas is threatening to pull out of a $10 billion LNG Canadian project, citing slow progress on a new taxation scheme. For now, Petronas says the project remains uncertain and the company will not likely be able to make a final investment decision by the end of the year. British Columbia has promised new LNG tax legislation this month, with approval by the end of November. Petronas is hoping its threat to withdraw will pressure the authorities to act more swiftly and provide additional incentives.
• After having a pilot plan for exploratory drilling in the Golan Heights approved on 11 September, with drilling scheduled to begin on 28 September, Afek Oil and Gas has now been blocked from drilling with a temporary injunction delivered 30 September in response to a petition from the Israel Union for Environmental Defense. The plan was to drill 10 exploratory wells over an area of 396 square kilometers. In 2011, surveys estimated that there were approximately 40 billion barrels of oil under the surface of the Ela Valley at depths of around 200-400 meters. This is an oil shale project, rather than a shale oil project. Afek received its drilling license in 2013. Afek Oil is a subsidiary of the New Jersey-based Genie Energy Ltd, which is the parent company of Israel Energy Initiatives.
Geopolitical & Conflict Updates
The Israeli Defence Force (IDF) has launched Operation Protective Edge against Hamas, targeting weapons, infrastructure and command and control systems in a campaign that is expected to expand over the coming days. It is very likely that one of the key indirect targets here will be the 1.4 trillion cubic feet of natural gas off the coast of Gaza—a $4 billion find (from 2000, courtesy of BG Group) that could help make the Palestinian state economically viable. Israel has always held that this money would fund terrorist attacks and not be used to help the Palestinian public. They have also noted that the any deal with Israel to buy Palestinian gas would be a deal with Hamas, and would inevitably fund Hamas. The Gaza gas fields are part of the broader Levant assessment area, where Israel has made phenomenal discoveries in the form of the Leviathan and Tamar gas fields, run by Houston-based Noble Energy and its Israeli partner, Delek.
Hungary has suspended delivery of gas to Ukraine "indefinitely", due to an increase in demand as winter approaches. Ukraine has been receiving gas from Hungary, Poland and Slovakia since Russia cut off supplies to Ukraine in June in a dispute over unpaid bills.
At the same time, Russian and Ukraine have reached a preliminary agreement over the resumption of gas flows. The deal requires that Ukraine pay $2 billion in debt to Gazprom by the end of this month, plus another $1 billion by the end of the year. Ukraine will have to prepay for more gas at a price of $385 per 1,000 cubic meters. It’s not a bad deal overall; however, it will be a tough time to ratify it, ahead of a 14 October vote over the 2015 budget and 26 October general elections.
Russia Sanctions Fallout
Continuing with our monitoring of fallout from sanctions on Russia, we note this week that in addition to the Rosneft-Exxon untimely Arctic discovery, Schlumberger Limited, the world's largest oil services provider is withdrawing approximately 20 American and European Union employees from Russia due to sanctions and the feared blowback from these sanctions.
Mexico oil theft
On 29 September, federal authorities arrested five people in connection with crude oil theft in Altamira, Tamaulipas, according to our partners at Southern Pulse. According to the Attorney General (PGR), the criminal affiliates of the Gulf Cartel are responsible for the theft of four million liters of crude oil per month. Municipal police reportedly turned a blind eye to the group’s illicit activities in exchange for a share of the profits. In simultaneous raids at several locations, federal police apprehended the thieves, including the owner of Petrobajío, the cell’s leader whose bank accounts were frozen. Officers also seized 35 eighteen wheeler trucks, 22 smaller trucks, 32 cell phones, 40 computers, three weapons, two properties and $45,000 in cash. The Attorney General’s office charged each member of this criminal group with theft, possession of crude oil obtained illegally, possession of weapons and profiting from resources obtained through criminal activity.
Potential violence and political instability is possible in the following key oil and gas venues over the next 3-4 weeks:
• Mozambique: general elections on 15 October (election-related tensions are high in this emerging gas giant)
• Ukraine’s general elections will be held on 26 October (there are zero reformist candidates for this election, but plenty of veteran corrupt forces and we see little chance for any semblance of transparency or progress coming out of this)
• Brazil: The latest poll shows that President Dilma Rousseff and Socialist Party candidate Marina Silva are tied in a likely second-round runoff in Brazil's presidential election in October. No candidate is predicted to win an outright majority in the 5 October election and the expected runoff is scheduled for 26 October
Foreign Investment in Oil & Gas
• The Secretary of Economic Development and Competitiveness for the Mexican state of Coahuila, Antonio Gutiérrez Jardón, expects to receive $64 billion in investments for the exploration and production of unconventional hydrocarbons over the course of the next 15 years. The secretary is expecting that some 8,000 shale wells will be developed. The 8,000 wells have been identified through seismic testing performed by the Instituto Mexicano del Petróleo, which included roughly 500 km2 in the Northern part of the state. At the moment, Coahuila maintains three important unconventional basins that hold the shale gas and shale oil: Sabinas, Burro-Picachos y Burgos. It is estimated that the prospective reserves in these basins amount to the equivalent of almost 25 billion barrels of petroleum crude, or 40% of Mexico’s total hydrocarbon reserves.
• Romanian authorities, facing declining oil production, are attempting to lure in US investment to develop shale and deep-water resources. To this end, the authorities—led by Prime Minister Victor Ponta—are noting a series of recent reforms to improve the investment climate. In 2013, Romania ended its moratorium on shale exploration. While production is declining, the EIA estimates that Romania is home to Europe’s fourth-largest crude oil reserves and fifth-largest natural gas reserves.
Oil & Gas Infrastructure
• Canada's largest pipeline company, Enbridge, announced at its annual investor conference that it will spend $44 billion through 2018 on new pipelines and power projects to keep pace with demand. The company is looking to diversify beyond its core North American oil shipping business, seeking opportunities to expand its presence in power generation and natural gas pipelines. Enbridge CEO Al Monaco told attendees at the company's annual investor conference in Toronto that the company's vast oil network will continue to contribute the "lion's share" of earnings through 2018, but that it is seeking ways to emerge as a larger player in sectors that only contribute roughly 10% to its current earnings.
• Uganda is planning to select a winning bidder for the construction of a 60,000 barrel-per-day oil refinery by the end of this month. The facility will cost an estimated $2.5 billion and the government was in talks with a group of companies led by SK Group of South Korea and RT Global of Russia.
• Tullow Oil has moved into the development phase of its Lake Albert project in northwest Uganda, which would include the construction of the world’s longest continuously heated and insulated 24 inch, 1,400 km crude oil export pipeline. The pipeline would run to neighboring Kenya and through the South Lokichar basin and on to the port at Lamu and will be a decisive factor in the future of Kenya’s commercial oil production and exports.
• A new oil pipeline servicing the Permian Basin in Texas and transporting up to 300,000 barrels per day is now operational, as of 30 September. The BridgeTex pipeline, a project of Magellan Midstream Partners and Occidental Petroleum Corp., connects to the Permian Basin to Houston refinery markets. Construction of the pipeline began in November 2012.
• Enbridge has announced that the 616-mile Sandpiper pipeline, which will carry oil from the Bakken play in North Dakota through Minnesota, has been delayed by regulators in Minnesota.
• Russia and Turkey have agreed to increase the capacity of Gazprom’s Blue Stream pipeline to 19 billion cubic meters per year. The pipeline brings Russian gas to Turkey via the Black Sea, with a current capacity of 16 billion cubic meters. This pipeline is part of the gas transmission corridor that runs through Ukraine, Moldova, Romania and Bulgaria. The pipeline was constructed by a joint venture of Gazprom and Italian corporation Eni.
• Spain's Enagas has bought out two shareholders in the Trans-Adriatic Gas Pipeline (TAP), which will bring Azeri gas to Europe. Enagas operates Spain’s natural gas grid and three LNG terminals. The company has acquired a 16% stake in TAP from France’s Total SA and Germany’s E.ON.
• TransCanada has declared force majeure on its ANR natural gas pipeline after a rupture in Michigan on 16 September caused a loss in pressure and reduced supplies to customers. The cause of the leak remains unknown.
• Chevron has shut down a natural gas pipeline running from the Gulf of Mexico to Henry Hub storage in Louisiana after an accident (the nature of which Chevron has not detailed) left one worker dead and two others injured.
• Dominion Energy received federal approval to export liquefied natural gas from its Cove Point terminal on the Chesapeake Bay in Maryland, overcoming environmental opposition. This is the fourth US LNG export project to get the green light to begin construction. The project will be allowed to export up to 5.75 million metric tons of LNG per year.
• India’s state-owned gas utility GAILBSE is in talks to buy an additional 2-2.5 million tons of US LNG after the US Federal Regulatory Commission earlier this week approved the construction of the Cove Point LNG export terminal, which GAIL plans to use for export of gas to India. GAIL has contracted for 40% of the project’s capacity to produce 5.75 million tons a year of LNG for export.