Is Libya On The Brink Of Another Civil War?

Geopolitics, Politics & Conflict

In Libya, where elections are supposed to be held on December 24th, there has been a delay in approving the official candidate list, which could mean that elections will be delayed as well. No one even knows who has the ultimate authority to postpone elections. There are real fears this delay will lead to more bloodshed and a possible return to all-out civil war. On Thursday, a group of armed men surrounded the Presidential Council building in Tripoli, which houses the PM’s office, just as the PM (Abdul Hamid Dbeibeh) announced his candidacy for president. In the meantime, clashes broke out Tuesday in Sebha between local government and pro-Haftar forces, sparked by reports (unconfirmed) that Haftar loyalists seized military vehicles intended to be used in election security. Sebha is in Libya’s south, where the government has little control, adding to speculation that Haftar was simply reminding them of that. We see no way out of bloodshed here. There is too much at stake for Haftar, a powerful presidential candidate who has also been sentenced to death in absentia in Misrata for war crimes.

The European Union on Monday imposed sanctions against the Russian private military outfit, the Wagner Group, and related entities and individuals for human rights abuses and destabilizing activities in Ukraine, Syria, Libya, and the Central African Republic. The sanctions extend to three Russian oil and gas companies said to be benefitting from Wagner’s activities. Russia uses these private military groups to do its dirty work while still being able to say it is not a state-sponsored activity (Russia is not alone in this tactic, of course).

Over a year after the two countries established ties, Israeli Prime Minister Naftali Bennett met Abu Dhabi's crown prince Mohammed bin Zayed Al-Nahyan, the very first such visit. In private talks, two officials discussed a number of areas of cooperation, including trade, technology, the environment and tourism. The two countries released a joint statement calling Bennett’s trip “another milestone in the development of warm relations,” following their agreement last year to normalize diplomatic ties. Two nations also agreed to establish a joint research and development fund. Last year, two countries signed an agreement under which crude oil from OPEC’s third-largest producer could be shipped to European markets via an oil pipeline in Israel connecting the Red Sea with the Mediterranean.

Markets & More

The Omicron variant is turning out to be a puzzling force of instability in the oil market. The IEA sees global measures to address Omicron as denting demand, sending oil into a surplus early next year. In fact, the IEA sees global oil production exceeding demand this month. OPEC+, on the other hand, is cautioning the market not to be too hasty when it comes to predicting the damage Omicron may or may not do. OPEC+ will continue to ramp up production by another 400,000 bpd in January–at least that’s the plan for now–Omicron or no Omicron. Meanwhile, crude inventories in the United States have drawn down by 60 million barrels since the start of the year, and US oil production companies are trying to thread the needle between keeping investors happy, correctly anticipating market demand in the Covid era, and not getting too far ahead of itself with regard to investments or asset purchases as policies turn toward net-zero initiatives.

Across the pond, European gas prices are still out of this world, reaching more records this week after German foreign minister Annalena Baerbock said that the Nord Stream 2 pipeline couldn’t be permitted in its current state, because it doesn’t comply with EU law. Dutch month-ahead gas prices even surpassed the October 5 high this week, reaching more than 300 euro per MWh in France, Switzerland, and Italy to name just a few countries being battered by the high prices.

British and Dutch front-month LNG futures also rose substantially this week, reaching $33/MMBtu. Asian LNG spot prices rose as well, to above $37. The market is clearly anticipating the rivalry that currently exists over LNG cargoes to linger into next summer.

Saudi Arabia is now banking on its first budget surplus next year in almost a decade–partly because it plans to restrict its public spending, and partly due to increasing oil prices. The Saudis are expecting a surplus equivalent to 2.5% of its GDP.

Texas-based Colgate Energy will go public at a valuation of $4B. This is a significant development because we have seen an oil production IPO since 2018. Colgate owns around 108,000 net acres in the Delaware portion of the Permian basin, producing approximately 62,000 boepd. Last month, it acquired an additional 22,000 net acres in New Mexico from an undisclosed seller for $190M. This summer, it also scooped up some 25,000 net acres and 10,000 boepd in Texas for approximately $508M from Occidental.

Analysts are forecasting that China’s appetite for crude oil will be diminished at the start of 2022, thanks to covid restrictions. While China’s imports of crude are expected to be higher year over year in January, it will ease by the end of the quarter, analysts say, hitting 10.7 million bpd in March–more than a million barrels shy of the levels seen in March of 2021. China’s 2021 crude imports will be lower than in the previous year–the first dip since 2004 when record-keeping began.

Discovery & Development

Montenegrin authorities have denied local media reports claiming the discovery of a large quantity of high-quality petroleum and gas deposits by Russia’s Novatek and Italy’s ENI. The two companies launched exploratory oil and gas drilling In March under a 30-year concession contract signed in 2016. ENI and Novatek each hold a 50% stake in the concession.

Russian Gazprom has launched operations on the Yamal Gas Arctic subsea gas pipeline connecting the production facilities on the Yamal Peninsula with the Tula mainline gas pipeline.

Abu Dhabi National Oil Company (ADNOC) announced up to one billion barrels of oil equivalent discoveries in onshore Block 4. The concession is operated by Japanese Inpex.

Sinopec added another 104.88 bcm of newly proven nat gas reserves at its Baima Block in the Fuling shale gas field in the Sichuan basin, bringing total proven reserves to almost 900 bcm–about 34% of China’s total proven shale gas reserves. The Fuling field set a gas shale production record recently, producing a total of 1.41 trillion cubic feet of shale. Its daily production is thought to be more than 700 million cubic feet, capable of meeting gas demand for 40 million households.

Ecuador authorities declared force majeure on crude oil exports and production after erosion in the Amazon region forced a halt in 2 pipelines. The country’s Trans-Ecuadorian Pipeline System and Heavy Crude Pipeline, as well as the Shushufindi-Quito petroleum products pipeline, had to be shut. The three pipelines face the risk of rupture from erosion of the Quijos and Coca riverbeds. Ecuador produced 483,000 bpd of crude oil last year, exporting 360,000 bpd of that–between 120,000 and 198,000 bpd is exported to the United States. No details have been made available as to when the pipeline will be repaired and returned to operations.

Deals, Mergers & Acquisitions

EnCap combined two of its portfolio companies–Advance Energy Partners and Ameredev II LLC) that operate in the Permian, forming a $4 billion behemoth that will be one of the largest privately-owned oil producers in the Permian’s Delaware Basin. EnCap hopes to take the new combined company public as soon as next year.

Qatar Energy will buy a 17% stake in two of Shell’s oil and gas exploration blocks in Egypt’s Red Sea. The assets cover an area of 3,084 square kilometers in water depths of 150 to 500 meters. Shell will remain the operator in both blocks.

Shell has announced the acquisition of US-based solar and energy storage developer Savion from Macquarie's Green Investment Group for an undisclosed amount. Savion currently has more than 18 gigawatts of solar power and battery storage under development for customers.

Norway’s Equinor will seek to raise $1 billion from the sale of a stake in its Martin Linge oilfield in the North Sea, Reuters reported. The company is hoping to offload a 19% interest in the asset retaining 51%. The field started production last year and is expected to reach a peak output of 115,000 barrels of oil equivalent per day.

The megamerger of Australian Woodside Petroleum and BHP Petroleum International for $28 billion has received the green light from Australian competition authorities. The deal was signed in November and will create a global, top-10 independent oil and gas producer.

Regulations, Subsidies & More

California regulators put forward a change to the way the state handles its solar incentives. If affected, the change will reduce current incentives, potentially doubling the return on investment that homeowners can expect to achieve by installing rooftop solar. The prospective changes would effectively tap solar users to pay a fairer share of the operating costs for the electric grid.

In response to high gas prices, the EU is looking to jointly purchase gas from strategic reserves. First, the EU gas market rules would need to be updated. Ultimately, while specifics are still lacking, the system would allow member states through joint cooperation to tap gas in storage from other countries if there was a need to do so.

The year-end subsidies for China’s wind farms are coming to an end, sparking a massive drive of “commando” teams working 24 hours a day to install wind turbines in the country at full speed to take advantage of the subsidies. 6 GW of wind projects that are under construction will likely miss the deadline, meaning that instead of receiving $134 per MWh, they might get half that. One of the hangups to installing these turbines is that there aren’t many ships available that can hoist the 100-meter tall towers, but companies have brought in vessels from overseas, and offshore oil and gas service boats have been retrofitted to perform this function. It is expected that China will complete 10.6 GW of wind capacity before the year is out. For perspective, the world is estimated to have not quite 36 GW of offshore wind turbines as of the end of 2020–so this mad dash in China is not just a flash in the pan.

Israel will halt offshore natural gas exploration until at least the end of 2022 in order to shift focus on renewables.

In the US, a federal grand jury has charged Texas-based Amplify Energy Corp., the operator of the pipeline that leaked 25,000 gallons of crude into the shores of Orange County, California, with one misdemeanor count of negligent oil discharge. Amplify and two of its subsidiaries now face a maximum of five years probation and millions in fines.

The US Environmental Protection Agency has proposed changes to the ethanol mandate that would raise the ethanol tax.