Global Energy Advisory 25th March 2016

Politics, Geopolitics & Conflict

• No need to worry about any big future push to get all of Libya’s oil back on pre-Gaddafi footing to worsen the supply glut. There is that, at least. Libya now has a third government, tacked on by a hasty decision by the UN. This new UN-backed “unity government” is now adding to the chaos that has hijacked already elusive Libyan stability since the collapse of the Gaddafi regime in 2011. This is a power-sharing deal gone bad. There were two rival governments: one internationally recognized government with a parliament that couldn’t even set foot in the capital, Tripoli, and has been relegated to the country’s east; and one Islamist-backed government controlling Tripoli and using a myriad of militias to prop itself up. Under the new UN plan, these two parallel governments were to hand power over to a new Government of National Accord (GNA) under prime minister designate Fayez al-Sarraj. It’s not going to happen. The UN envoy can’t even get into Tripoli to talk about it, and neither side has even endorsed the new GNA formally. The GNA can try to move into Tripoli, but it’s not going to get very far. It won’t have control over Libya’s money or its army, as it stands. And it would also have to deal with the militias controlling Tripoli. If they make a move, the conflict will move to the next bloodier level. ISIS will reap the benefits of this greater chaos.

• With Brussels added to the list of ISIS attacks in Europe, coming after Paris and last week, Istanbul, Europe must deal with a problem that it can’t control without putting the entire continent on lockdown: ISIS’ ability to attack soft targets. The ISIS cells operating in Europe are not large in number, are largely sleepers waiting to be temporarily activated for an attack, and are difficult to track and trace because of their semi-autonomy from the wider group. They are scattered and spread out across Europe in small groups and are looking for soft targets and timing attacks for maximum human casualties. Airports are among the best soft targets on ISIS’ list—as in Brussels, where they targeted the departure terminal.

• As ISIS’ gains give impetus to al-Qaeda groups whose MOs had needed a bit of a rethink, Al-Qaeda in the Islamic Maghreb (AQIM) attacked the In Salah gas facility run by BP and Statoil in Algeria, promoting the two companies to relocate all staff from this facility and a second, the In Amenas gas facility, which was attacked in 2013 and in which 40 workers were killed. The In Salah facilities were hit by two apparently homemade mortars fired from outside the perimeter. BP and Statoil work with Algeria’s state-owned energy company Sonatrach at the gas facilities. The two facilities are extremely important for Algerian gas production, and the In Salah project is tied to Algeria’s third-largest gas field.

Discovery & Development

• Australian Woodside Petroleum is scrapping its $40-billion floating LNG (FLNG) project in Western Australia’s Kimberly coast, in the Browse Basin, due to cost considerations as oil and gas prices remain depressed. Western Australia was hoping for some $1 bill in royalties from this project.

• Poland has completed construction of its $794-million LNG terminal near the Baltic Sea and should get its first commercial shipment in July this year. It could also get a boost from a planned pipeline to Norway. The pipeline, funded by Polish state-run PGNiG, is an old plan that was shelved and, now revived again, could be completed by 2022 and would carry gas from Norway. Poland is hoping the two projects will help it become a regional gas hub in Europe and reduce reliance on Russian gas. Poland has secured one contract for LNG for the new terminal so far, from Qatargas, for 1.5 billion cubic meters annually for 20 years.

• Cyprus has officially launched its third round of gas exploration licensing in Blocks 6, 8, and 10 in the offshore economic zone (EEZ). Interested parties have four months to submit applications. Earlier licenses went to Noble Energy, Total SA, Eni and Kogas of South Korea. Noble has made a 4.5 trillion cubic feet discovery and development is underway, while Eni has come up dry in two gas drillings, and Total will drill its first exploratory well later this year.

• Noble Energy and Israeli partner Delek are looking to raise up to $4 billion to develop the giant offshore Leviathan gas field, according to unnamed sources cited by mainstream media. According to the sources, Noble and Delek will secure their portion of the funds to their ownership in the supergiant gas field. Noble owns 40 percent of the field, while Delek owns 45 percent through two different units. Private talks are said to be underway with a number of lenders to cover some 65 percent of Leviathan’s development costs.

• Chevron has shipped its first cargo from its $54-billion Gorgon LNG complex departed Barrow Island in northwest Australia for delivery into Japan. The cargo will be delivered to one of Chevron’s foundation buyers, Chubu Electric Power. The Chevron-operated Gorgon project is a joint venture between the Australian subsidiaries of Chevron (47.3 percent), Exxon Mobil and Shell with 25 percent each and three Japanese companies as partners with minor stakes. At full capacity, we’re looking at 15.6 million ton per year of production from this project.

• New Zealand will be taking bids for oil and gas exploration in five areas totaling more than half a million square kilometers, including for offshore blocks in the Northland-Reinga, Taranaki, East Coast and Canterbury basins, as well as onshore blocks in the Taranaki Basin. Bidding on the blocks is open until September, with results in December. There are around 149 million barrels of oil reserves remaining in fields already in production.

• Kuwait's state oil company has discovered a new oil and gas field in the country’s west. The find is being pegged as significant, but tests are still being carried out. This is in the al-Jathatheel field. No estimates have been revealed as of yet. Kuwait has 102 billion barrels of proven reserves, according to EIA estimates. The country plans to increase production from 3 million barrels per day to 4 million bpd by 2020.

Deals, Mergers & Acquisitions

• TransCanada will acquire Houston-based Columbia Pipeline Group, which operates a 15,000-mile network of interstate natural gas pipelines extending from New York to the Gulf of Mexico for nearly $10 billion. The acquisition will give TransCanada some 57,000 miles of pipeline in North America. The deal is expected to close during the second half of the year. The acquisition comes after US President Barack Obama in November rejected the Keystone XL proposal.

• Canadian Banker's Petroleum has announced the sale of oil exploration and production rights in Albania to Hong Kong-based Geo-Jade Petroleum for $442 million. The company has been one of Albania’s largest foreign investors and had been exploiting the Albanian oil fields of Patos-Marinze and Kucova. However, its income fell by half last year as a result of the oil price downturn, and a request by the Albanian tax authorities for $75 million following a tax reassessment of company expenses in 2011. The company was accused of reporting unrealistic expenses in order to avoid a profit tax. The Canadian company filed two complaints with the International Court of Arbitration, which the company later withdrew after reaching a deal with the Albanian government to resolve the issue in an amicable way.