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Global Energy Advisory January 5, 2018

Oil

Oil prices hit highs last seen before the 2014 slump thanks to continuing violent protests in Iran as well as the momentum from production outages that occurred last month in Libya and the UK. On top of that, preliminary data about OPEC’s production in December suggested the cartel had stayed below its self-imposed ceiling of 32.5 million bpd, in keeping with its production cut pledge.

Yet so much good news could turn into too much good news. The OPEC figures, for instance, were achieved not thanks to conscious effort on the part of the members but to external factors, including the pipeline blast that took an estimated 30,000 bpd off Libya’s December production and the 50,000-bpd slide in Venezuela’s output – a slide that has been ongoing for a few years now and there are no signs of a reversal in the near future.

At the same time Nigeria, Kuwait, and Iraq increased their oil production, while Saudi Arabia once again cut deeper than it was supposed to, seeking to make sure prices stay high. In spite of the Kingdom’s efforts, however, we could see a price correction soon, some analysts have warned.

Net long positions on WTI, gasoline, and heating oil hit their highest in the week to December 26, reaching 1.183 billion barrels. This means that there is little space to buy anymore but a lot of space to sell and a selloff is unavoidable. At the same time, the effect of such a move by speculators would be limited, as long as the bullish factors for oil remain.

Deals, Mergers & Acquisitions

• A U.S. Appeals court has dismissed the lawsuit Canadian miner Crystallex brought against Venezuela’s PDVSA, seeking to take control over its U.S. business, Citgo, as compensation for the nationalization of assets under the late Hugo Chavez. A World Bank tribunal had awarded Crystallex $1.2 billion plus interest in 2016 but Venezuela has only made part of the payments. Contrary to Crystallex’s hopes, the court this time sided with the Venezuelan attorneys, who argued PDVSA and Citgo are entities separate from the country, which was the defendant in the original lawsuit.

• Russian Alrosa, the world’s top producer of rough diamonds has put up for sale gas assets in the Yamal-Nenets region, in northwestern Siberia, which Novatek plans to bid for next month. The starting price of the package is $520 million. In December, Novatek launched the first shipment of LNG from its Arctic LNG project, also in Yamal-Nenets.

• Shale has finalized the the first phase of the divestment of its LPG marketing business in Hong Kong and Macau for $150 million. The buyer of the company is DCC, the international sales and marketing group. The supermajor will remain operator of the Hong Kong LPG plant. Its sale will be completed in the second phase of the divestment plan.

• Suncor and Teck Resources have settled a commercial dispute over the Fort Hills oil sands project by raising their stakes in it. Suncor will now hold 53.06% in Fort Hills, up from 50.8%, and Teck will have a 20.89% interest, up from 20%. The two companies are partners with Total in the Fort Hills project.

Tenders, Auctions & Contracts

• Tullow Oil’s Ghana unit has awarded Danish Maersk Drilling a four-year contract for the Maersk Venturer drillship, to be deployed at the Jubilee and TEN fields offshore Ghana. The two are among the most promising new fields discovered in Africa in the last few years

Discovery & Development

• Spain’s Repsol has begun commercial production from the Sagari natural gas field in Peru. The field, according to Repsol, will produce 5.6 million cum of gas daily, which will represent a quarter of Peru’s natural gas demand. The launch of production at the field will also raise the overall output from Block 57, in which it is located, by a fourth. The Sagari field holds an estimated at 1-2 trillion cu ft of gas.

• Transneft has completed the expansion of the East Siberia-Pacific Ocean crude oil pipeline, doubling the export capacity for China to 30 million tons of crude annually or an average 600,000 barrels daily. China has become the world’s top crude oil importer and Russia last year became its largest supplier, overtaking Saudi Arabia.

• TransCanada has commissioned the construction of the Leach Xpress natural gas pipeline that will run between West Virginia and Ohio. The $1.6-billion project will have a capacity to transport some 1.5 billion cu ft of gas daily from the Appalachian fields to the national market. In addition to this news, TransCanada also said this week the FERC had greenlit another two gas projects: the Mountaneer Xpress and the Gulf Xpress. The two will cost a combined $3.2 billion.

• The U.S. administration has plans to open up more Arctic and Atlantic waters for oil and gas exploration, cancelling the five-year leasing program approved by the Obama administration. This could offer explorers a lot more drilling opportunities although it remains doubtful to what extent they would be willing to exploit the opportunity in the face of high offshore project development cost and strong environmental opposition.

Company News

• Petrobras has agreed to cough up almost $3 billion to put an end to shareholder lawsuit it got hit with because of its involvement in what has turned out to be a major corruption scandal that toppled former Brazil president Dilma Roussef. As part of the investigation into the corruption scheme, senior Petrobras executives were implicated of receiving bribes in exchange for inflating the prices for services performed by companies working for Petrobras.

Politics, Geopolitics & Conflict

• A US court found Turkish banker Mehmet Hakan Atilla of participating in a money-laundering scheme aimed at helping Iran circumvent U.S. sanctions. Turkey’s PM Erdogan has called the ruling “unprecedented interference” in Turkey’s internal affairs.

• Protests in Iran continue and the army is ready to step in, its chief told local media. He added, however, that it is unlikely this will become necessary.

• Israel’s parliament passed a bill that aims to effectively make Jerusalem an Israeli-only city. The law is bound to aggravate tensions with the Palestinians as well as with Israel’s Arab neighbors.

• Sudan has extended a unilateral ceasefire with rebel groups until the end of March as part of an agreement with the U.S. to resolve its internal political conflicts in exchange for the lifting of sanctions that have been in place for two decades.




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