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Saudi-Iranian oil rivalry has been shaped

Saudi-Iranian oil rivalry has been shaped

Sukru Cildir of Lancaster University wonders how Saudi-Iranian oil rivalry has been shaped by American power. It has not historically been going for a long time and the recent decarbonisation wave sweeping the world does not seem to affect either party.


The relationship between Saudi Arabia and Iran, both oil-rich states in the Middle East, has oscillated from co-operation to conflict throughout history. Alongside a range of factors that shape their rivalry including sectarianism and nationalism has been the politics of oil.

Oil is a strategic international commodity, and its use as a political tool is widespread. Its role in the Saudi-Iranian rivalry can’t be understood without unpicking the international context, and the power structures that govern the way countries interact with each other. At the heart of this is the dominance of the US over this international system.

The dynamics between the US, Iran and Saudi Arabia over oil were laid bare in September 2019, after a series of drone attacks on Saudi oil facilities. The attacks caused the suspension of 5.7m barrels per day (mbpd) of crude oil production, nearly half the Saudi output.

The Houthis, a Yemeni faction, claimed responsibility. However, American and Saudi government officials accused Iran of committing these attacks. In return, the Iranians blamed foreign forces in the region for the insecurity and told the US to leave the area.

While the Saudi-Iranian oil rivalry is ostensibly the business of these two countries, it has always had an international dimension, overshadowed by the US.


Read more: Saudi and Iran: how our two countries could make peace and bring stability to the Middle East


After the revolution

The 1979 Iranian revolution marked a turning point for the place oil played within the Saudi-Iranian relationship. Before then, both countries were important allies of the US, a position which brought with it political and economic benefits, particularly to their oil industries. But the 1979 Islamic revolution in Iran paved the way for a separation of paths.

While Saudi Arabia remained a staunch ally of the US, Iran adopted a revolutionary and anti-Western foreign policy, which prompted its isolation from an international system that was dominated by the US.

As a result, ever since 1979, the Iranian oil industry has been subject to American pressure, through a range of economic sanctions and embargoes, which has crippled Iranian oil production. Iran has been unable to reach the level of oil production of over six mbpd that it had in the pre-revolution years. Meanwhile, Saudi oil production reached over 12 mbpd in 2018.

This led to the Iranian oil industry being deprived of necessary foreign investment and technology transfer, and it has fallen behind Saudi Aramco, the kingdom’s state-owned oil company, and other regional competitors. Saudi Arabia has largely backed the US policy of isolating and sanctioning Iran, particularly the Iranian oil industry, which has, as I’ve argued elsewhere, contributed to the ongoing tensions in the Saudi-Iranian relationship.

As Saudi Aramco prepares for an IPO in December that could make it the world’s biggest publicly listed company, Iran is desperate to revitalise its own outmoded oil industry. As Iranian oil minister Bijan Zanganeh admitted in early 2019, many of Iran’s ageing oil facilities are in fact “operating museums”.


Read more: Saudi Aramco’s $1.5 trillion IPO flies in the face of climate reality


The US continues to have such an influence on Middle Eastern oil politics because of the way it has successfully pushed its own international agenda since 1945. After World War II, the US cemented its dominance over an international system built on the basis of liberal and capitalist principles. While the US rewards its allies with economic and political benefits, it punishes its challengers through a range of political and economic measures, not least economic sanctions.

Oil became a strategic international commodity in the post-World War II period, and began to play a pivotal role in the way the US maintained its global dominance. To do this, the US aimed to open up and transnationalise oil-rich economies in the Global South such as Saudi Arabia and Iran, to both promote its national interests and solidify its privileged position within the current system.

Accordingly, the supply of Middle Eastern oil into international markets without disruption – and at a reasonable price – became an essential instrument for maintaining American dominance, even though the US didn’t need to import oil from the Middle East.

A world of US dominance

The political economist Susan Strange provided a theoretical framework back in 1987 to explain the structure of US dominance over the international system through four main dimensions: production, finance, security and knowledge. This is also a useful way to understand how the US shapes the international oil market – and the Saudi-Iranian rivalry.

By 2018, in the wake of a shale boom, the US became the largest oil-producing country in the world by reaching production of 15 mbpd. Financially, oil has been priced and traded in US dollars, in particular since the early 1970s when a series of negotiations and agreements linking the sale of oil to the US dollar were made between Saudi Arabia and the US. This has increased global demand for US dollars, and helped the US deal with its trade deficit and keep its interest rates low. It has also helped the US to monitor the petroleum trade by controlling global bank transfers.

Saudi-Iranian oil rivalry has been shaped
A system dominated by the US. Anton Watman/Shutterstock

The US also stands as a main security provider to oil-rich Gulf monarchies, with publicly acknowledged military bases in over 12 countries in the Middle East. Additionally, it has a supremacy over global knowledge, most obviously through its continued domination and control of the sector’s technological needs. By leading global innovation and technological development in the shale revolution, for example, and having the highest budget for research and development, the US largely controls global technology transfer. This has also deprived Iran of necessary technology, capital and know-how to modernise its ageing oil industry, constraining production.

Therefore, despite the fact that the Saudi-Iranian oil rivalry seems like a regional issue, the role of American power in a globalised world has been key to shaping this regional political competition over oil.

Sukru Cildir, PhD Candidate, Lancaster University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Reducing Carbon emissions and conserving Hydrocarbons

Reducing Carbon emissions and conserving Hydrocarbons

The key factors of all energy policies across the MENA are about reducing carbon emissions and conserving hydrocarbons reserves per this article, dated September 30, 2019, of Power Technology reporting (see below) on the latest World Energy Council’s congress of Abu Dhabi, early this month.

Clean energy steals the limelight at World Energy Congress

With an estimated $100bn-worth of renewables projects under study, design and in execution across the region, the policy momentum behind energy transformation is now being converted into new, potentially lucrative business opportunities across the Middle East and Africa.

Reducing carbon dioxide emissions and conserving hydrocarbons reserves are key factors shaping energy policy in the Middle East and North Africa (MENA).

But it is the more immediate combination of lower oil prices and the fall in the cost of renewable energy technologies that have seen every country in the region announce ambitious clean energy targets.

Clean energy, which includes renewables such as solar and wind power, as well as alternative fuels including waste-to-energy and nuclear, accounts for only a small proportion of electricity generation in the MENA region today.

Change is coming

According to the International Renewable Energy Agency (Irena), installed solar and wind capacity across the MENA region reached respectively 2,350MW and 434MW in 2017, up from just 91MW and 104MW in 2010.

And with an estimated $100bn-worth of renewables projects under study, design and in-execution across the region, the policy momentum behind energy transformation is now being converted into new, potentially lucrative business opportunities in the region.

Saudi shake-up

The significance of the region’s energy transition was clear to see at the latest edition of the World Energy Congress, which was hosted in Abu Dhabi in September.

Unsurprisingly, Saudi Arabia’s pavilion was the most-buzzing hive at the congress.

In addition to its broad programme of structural economic reforms and the recent appointment of a new energy minister, the region’s biggest economy has by far the most ambitious clean energy programme planned in the Middle East.

As Riyadh’s Renewable Energy Project Development Office (Repdo) outlined plans to launch tenders for its third round of its ambitious National Renewable Energy Programme (NREP) before the end of 2019, representatives from Saudi Arabia’s sovereign investment wealth fund, the Public Investment Fund (PIF), were meeting technology providers on the sidelines of the event to discuss the opportunities for building large-scale solar manufacturing facilities in the kingdom.

Emerging technologies

While solar and wind power are the main focus of the region’s energy diversification plans, some of the world’s largest energy companies were keen to showcase the potential for emerging technologies including waste-to-energy.

Another glimpse into the future was provided by discussions about the potential to store energy from peak-power sources such as solar and wind.

With the race to achieve cost-effective battery-storage solutions already underway, other technologies using hydrogen are being piloted in the region to offer another method to mitigate the intermittency issues of solar and wind power.

The challenge facing the region’s utilities is to convert their ambitious clean energy ambitions into actual investment projects.

This article is sourced from Power Technology sister publication www.meed.com, a leading source of high-value business intelligence and economic analysis about the Middle East and North Africa. To access more MEED content register for the 30-day Free Guest User Programme. 

Energy giants spent $1bn on climate lobbying

Energy giants spent $1bn on climate lobbying

Polluters, as all those big energy producers (Big Oils, OPEC members and non members alike) are labelled, appeared to be ‘undermining’ UN climate Paris agreement. In effect, Oil, Gas and Coal world giants are exploiting a lack of conflict-of-interest protection at UN climate talks to push for continued fossil fuel use despite its contribution to catastrophic climate change through expensive lobbying campaigns because as it happens these oil, gas and coal giants could stand to waste trillions in a moderate world climate change. Patrick Galey elaborates on Phys.org.

Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

By Patrick Galey
The five biggest publicly listed oil and gas majors made profits of $55 billion in 2018
The five biggest publicly listed oil and gas majors made profits of $55 billion in 2018

The five largest publicly listed oil and gas majors have spent $1 billion since the 2015 Paris climate deal on public relations or lobbying that is “overwhelmingly in conflict” with the landmark accord’s goals, a watchdog said Friday.

Despite outwardly committing to support the Paris agreement and its aim to limit global temperature rises, ExxonMobil, Shell, Chevron, BP and Total spend a total of $200 million a year on efforts “to operate and expand fossil fuel operations,” according to InfluenceMap, a pro-transparency monitor.

Two of the companies—Shell and Chevron—said they rejected the watchdog’s findings.

“The fossil fuel sector has ramped up a quite strategic programme of influencing the climate agenda,” InfluenceMap Executive Director Dylan Tanner told AFP.

“It’s a continuum of activity from their lobby trade groups attacking the details of regulations, controlling them all the way up, to controlling the way the media thinks about the oil majors and climate.”

The report comes as oil and gas giants are under increasing pressure from shareholders to come clean over how greener lawmaking will impact their business models.

As planet-warming greenhouse gas emissions hit their highest levels in human history in 2018, the five companies wracked up total profits of $55 billion.

At the same time, the International Panel on Climate Change—composed of the world’s leading climate scientists—issued a call for a radical drawdown in fossil fuel use in order to hit the 1.5C (2.7 Fahrenheit) cap laid out in the Paris accord.

InfluenceMap looked at accounts, lobbying registers and communications releases since 2015, and alleged a large gap between the climate commitments companies make and the action they take.

It said all five engaged in lobbying and “narrative capture” through direct contact with lawmakers and officials, spending millions on climate branding, and by employing trade associations to represent the sector’s interests in policy discussions.

“The research reveals a trend of carefully devised campaigns of positive messaging combined with negative policy lobbying on climate change,” it said.

It added that of the more than $110 billion the five had earmarked for capital investment in 2019, just $3.6bn was given over to low-carbon schemes.

Oil companies and climate change
Forecast combined capital spending in 2019 by the major oil companies – BP, Total, Shell, Chervron, ExxonMobil – on oil and gas and low carbon projects and spending on lobbying and branding.

The report came one day after the European Parliament was urged to strip ExxonMobil lobbyists of their access, after the US giant failed to attend a hearing where expert witnesses said the oil giant has knowingly misled the public over climate change.

“How can we accept that companies spending hundreds of millions on lobbying against the EU’s goal of reaching the Paris agreement are still granted privileged access to decision makers?” said Pascoe Sabido, Corporate Europe Observatory’s climate policy researcher, who was not involved in the InfluenceMap report.

The report said Exxon alone spent $56 million a year on “climate branding” and $41 million annually on lobbying efforts.

In 2017 the company’s shareholders voted to push it to disclose what tougher emissions policies in the wake of Paris would mean for its portfolio.

US donations

With the exception of France’s Total, each oil major had largely focused climate lobbying expenditure in the US, the report said.

Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.

AFP contacted all five oil and gas companies mentioned in the report for comment.

“We disagree with the assertion that Chevron has engaged in ‘climate-related branding and lobbying’ that is ‘overwhelmingly in conflict’ with the Paris Agreement,” said a Chevron spokesman.

“We are taking action to address potential climate change risks to our business and investing in technology and low carbon business opportunities that could reduce greenhouse gas emissions.”

A spokeswoman for Shell—which the report said spends $49 million annually on climate lobbying—said it “firmly rejected” the findings.

“We are very clear about our support for the Paris Agreement, and the steps that we are taking to help meet society’s needs for more and cleaner energy,” they told AFP.

BP, ExxonMobil and Total did not provide comment to AFP.

Explore further: Money talks when trying to influence climate change legislation

Read more at: https://phys.org/news/2019-03-energy-giants-spent-1bn-climate.html#jCp

Libya’s oil chief being bullish

Libya’s oil chief being bullish

Energy Reporters posting an article on Libya’s oil chief being bullish amid his country’s chaos that does seem to be wanting to end.

Libya aims to more than double its oil production to 2.1 million barrels per day (bpd) by 2021 provided security and stability are boosted, said Mustafa Sanalla, the chairman of the state oil company, the National Oil Corporation (NOC).

Libya oil chief bullish amid chaos

By Energy Reporters  | 07.01.2019  | Production

The war-torn state produces 953,000 bpd, compared to its pre-war capacity of 1.6 million bpd, according to Sanalla.
The oil boss demanded increased security at El Sharara oil field to ensure the 315,000 bpd site – which on December 8 was overrun by tribal activists, protesters and security guards demanding unpaid wages – could return to production.
El Sharara, around 750km southwest of the capital Tripoli, is the country’s largest oil field. Until recently it was producing about 270,000 barrels of oil per day, more than a quarter of Libya’s daily oil production.
The oil activists demanded the rebuilding of cities and towns affected by post-2011 armed conflict and providing liquidity for banks in the south to boost recovery efforts.
“What happened in El Sharara discourages foreign companies,” said Sanalla, who announced a visit to China in early 2018 to discuss oil investment opportunities.
“The legitimate and rightful concerns of the southern Libyan communities are being hijacked and abused by armed gangs, who instead of protecting the field to generate wealth for all Libyans, are actually enabling its exploitation and looting,” said Sanalla.
He also confirmed the improved security conditions in the Sirte basin in central Libya which would enable the launch of production at the Farigh gas field to 24 million cubic feet per day in three months, with an eventual output goal of 270 million cubic feet per day, Sanalla said.
Prime Minister Fayez al-Serraj (pictured) recently agreed to set up funds in excess of US$700 million for the development of southern Libya, which has suffered from decades of neglect after talks with the El Sharara militants. The talks followed a warning from Sanalla that the government should not encourage the militant groups at El Sharara with concessions as this would set a dangerous precedent for other direct action.
Despite security problems, the NOC said it expected full-year revenue to surge by 76 per cent to US$24.2 billion for 2018.

Prime Minister Fayez al-Serraj. Libya’s oil producers struggle with security challenges, making the war-torn state an unreliable member of Opec. Picture credit: Wikimedia

Eight factors determining the price of oil

Eight factors determining the price of oil

As put by Kimberly Amadeo in her article on The Behind-the-Scenes Role of Commodities Traders,  Oil prices are controlled by traders who bid on oil futures contracts in the commodities market. That’s why oil prices change daily. It all depends on how trading went that day.

Other entities can only affect the traders’ bidding decisions. These influencers include the U.S. government and the Organization of Petroleum Exporting Countries. They don’t control the prices because traders actually set them in the markets.

The oil futures contracts are agreements to buy or sell oil at a specific date in the future for an agreed-upon price. They are executed on the floor of a commodity exchange by traders who are registered with the Commodities Futures Trading Commission (CFTC). Commodities have been traded for more than 100 years. The CFTC has regulated them since the 1920s in the US and by equivalent institutions in every developed and / or developing country.  It is also function of the following:

The eight factors determining the price of oil

According to the September monthly report of the International Energy Agency (IEA), in August 2018, for the first time, the bar of 100 million barrels produced per day was crossed. World oil consumption represented 97.4 million barrels per day (MBJ) in 2017 (including 57 MBJ by non-OPEC countries), equivalent to 1,127 barrels or 179,000 liters per second. Also, despite the commitments of the Paris Agreement (COP21) of December 2015 (entered into force in November 2016), global awareness for the climate does not seem to reach the oil sector. A list of eight reasons that determine the current course.

  • The first reason, as noted in international reports would be a recovery of growth for 2018, but with a slowdown forecast for 2019 and 2020. Many international experts, as well as international institutions such as the IMF and the World Bank, foresee a possible global crisis horizon 2020/2025 in case of acceleration of protectionist measures between the US and Europe, as well as between the US and China.  Moreover, the latest report of the IEA of October 2018 warns the countries dependent on the oil revenues, due to a change in the trajectory of growth based on a new configuration of the global energy demand (Energy efficiency, renewable energies, hydrogen inlet horizon 2030 all based on the Knowledge economy) that will impact the demand for traditional hydrocarbons.
  • The second reason is respect for the quota of each member of the OPEC as decided upon in December 2016 in Vienna with notably Saudi Arabia representing 33% of OPEC’s. It is worth noting that OPEC in its entirety represents 33% of global marketing, even though the current tensions between Iran and Saudi Arabia can lead to a disagreement between unsatisfied OPEC’s members.
  • The third reason is the agreement between OPEC’s Saudi Arabia and non-OPEC Russia; these two countries producing each more than 10 million barrels per day. Moreover, any different decisions from these two countries would impact the price of hydrocarbons downwards.
  • The fourth reason is the political situation in Saudi Arabia, the world not seeing yet evident in the action of the kingdom’s Crown prince, with the fear of internal political tensions, but above all the sale of 5% shares of the country’s largest company ARAMCO, to maintain its shares at a high level; sale that has been postponed.
  • The fifth reason is the tension in Kurdistan (this area producing about 500,000 barrels/day), declining Venezuelan production, socio-political tensions in Libya and Nigeria.
  • The sixth reason is the American president’s speech on the US having second thoughts on the agreement on Iran nuclear deal; with sanctions beginning to be applied on November 5th, 2018. This would certainly be mitigated by the European position that decided to set up a barter system to circumvent the transactions in Dollars, and the Chinese market or the Iranians can get paid in Yuan.
  • The seventh reason is the weakness of the Dollar in relation to the Euro.
  • The eighth reason is the decline or rise of US stocks, while not forgetting the Chinese stocks.

In the short term, the above eight reasons may influence the price of oil either upward or downward, with some factors being more predominant than others.  The Minister of Energy of Saudi Arabia reported on October 30th, 2018, under American pressure to raise its oil production to 12 million barrels per day against 10.7 million currently, to fill in for the Iranian production and in this case, it will be followed by Russia that does not want to lose market share.  In this hypothesis, the price of Brent should, except for a significant global crisis where the prize could fall below 60 Dollars, fluctuate between 65 and 75 Dollars, 70 Dollars a barrel, being the price of equilibrium in order not to penalise either the consumer countries or the producing ones.  The oil price went lower than $60 mainly as consequent to the massive entry of U.S. shale oil and gas with a production exceeding 10 million barrels/day.

In August 2018, according to the US Energy Information Agency (EIA), the US has even turned into the world’s leading producer of oil, in front of Russia and Saudi Arabia, with 10.9 million barrels per day and this production should even exceed 11.5 million barrels per day in 2019.

Washington unleashed Fossil-Fuel Exports and sold out on Climate

Washington unleashed Fossil-Fuel Exports and sold out on Climate

This article dated October 16, 2018 is part of a collaboration between the Center for Public Integrity, The Texas Tribune, The Associated Press and Newsy. It is in 2 parts.  Excerpts of part 2 are below with my Bolds.

How Washington unleashed fossil-fuel exports and sold out on climate

By Jie Jenny Zou

WASHINGTON — Energy Secretary Rick Perry’s keynote speech at the World Gas Conference in June opened with a marching band and ended with an exhibition by the Harlem Globetrotters. It was a spectacle befitting the industry symposium, which kicked off with a reception featuring a violinist perched on a pedestal in a 20-foot-long dress and trumpeters bearing ExxonMobil and ConocoPhillips banners on their instruments.

“We’re sharing our energy bounty with the world,” Perry gushed from a stage at the Washington Convention Center. “I wish I could tell you the entire world is on board. There is still this stubborn opposition to natural gas and other fossil fuels.”

Long undervalued, natural gas was once burned off indiscriminately as an unwanted by-product of oil drilling. But the fuel’s fortunes have changed. Cooled to minus 162 degrees Celsius, natural gas condenses into a liquid marketed as a clean alternative to coal. In just three years, the U.S. has emerged as a top producer of liquefied natural gas, or LNG, selling shiploads of the commodity to countries such as China, which are seeking low-carbon energy sources to combat climate change.

Natural gas, it turns out, isn’t so great for the climate, but that hasn’t stopped America from sending its fossil fuels abroad. Since Donald Trump took office in 2017, exports of LNG and crude oil have surged, rivalling the likes of Saudi Arabia and Russia. To achieve what it calls “energy dominance,” the Trump administration has taken its cues from an unlikely source: its predecessor.

The Harlem Globetrotters put on a basketball exhibition at the World Gas Conference in Washington, D.C., on June 26, 2018. The performance followed a keynote speech by Energy Secretary Rick Perry. (Kyle Pyatt/Newsy)

 

When Perry hawked LNG and coal to India in April, he was advancing a dialogue the Department of Energy began under Barack Obama in 2014. That same month, Vice President Mike Pence pledged to work with the Japanese government to bring LNG to Asia — building on a partnership that began in 2013. Leaked administration plans for a “central institution” to promote “clean and advanced fossil fuels” abroad could combine several Obama-era initiatives.

Compared to Trump, Obama is regarded as an environmental champion. But history paints a more complicated picture. As the young senator promised “change we can believe in” during the 2008 presidential campaign, change was also sweeping American oilfields. Advances in hydraulic fracturing, or fracking — a way of recovering oil and gas from tight rock called shale — created a glut. Industry responded by pitching fossil-fuel exports as a “win-win” that would benefit consumers and enhance American power. Helping to deliver the message was a coalition of White House advisers: academics such as Columbia University’s Jason Bordoff, energy gurus such as Daniel Yergin, and national-security experts such as John Deutch — all with links to firms profiting from the boom.

President Donald Trump and Energy Secretary Rick Perry at the “Unleashing American Energy” event on June 29, 2017, at U.S. Department of Energy headquarters in Washington, D.C.  (Simon Edelman/U.S. Department of Energy)

 

Leading the charge within government was then-Energy Secretary Ernest Moniz, a nuclear physicist with longstanding ties to the oil and gas industry and an enthusiastic proponent of natural gas. Under his watch, the Energy Department moved swiftly to foster LNG exports in 2013 before shifting its focus to decades-old restrictions on the export of crude oil. Days after the Paris climate agreement was reached in 2015, Obama signed a budget bill to keep the federal government running; slipped inside was a provision allowing crude oil to be sold freely for the first time since 1975. The move was praised by an alliance of 16 companies, most of which are now capitalizing on an export-driven boom in the Permian Basin of West Texas and south-eastern New Mexico. By 2016, a new global market connected U.S. drilling rigs with refineries in China and LNG terminals in the United Kingdom.

What’s good for corporate profits, however, may not be good for the planet. A growing body of research suggests natural gas isn’t the climate panacea many promised it would be, with mounting concerns over its main component: methane, a greenhouse gas roughly 86 times more potent in the short term than carbon dioxide. In the race for energy supremacy, the U.S. has become not only the world’s largest natural-gas producer but also a top exporter of oil — a fuel that remains among the most harmful for the climate and public health. As energy exports climb, so too does global consumption of fossil fuels, drawing billions in infrastructure investment that — some argue — tilts the world away from renewable sources of energy such as wind and solar.

Read more of Part 2 and Part 1 of this series As oil and gas exports surge, West Texas becomes the world’s ‘extraction colony’

 

SONATRACH will launch offshore drilling

SONATRACH will launch offshore drilling

Algeria’s state-owned oil and gas company SONATRACH will launch offshore drilling with France’s TOTAL (NYSE: TOT) and Italy’s ENI (NYSE: E) on two sites in the east and west of Algeria at the start of 2019, its CEO said on Oct. 7.

“We should start drilling at the beginning of next year,” Abdelmoumene Ould Kaddour told reporters on the side-lines of a signing ceremony with TOTAL for a petrochemical plant that will produce 550,000 tonnes of polypropylene per year.

“The potential is huge. We have gas in the east around Skikda, and oil in the west around Mostaganem,” he added.

SONATRACH and TOTAL have also agreed to invest $406 million to boost the output of the gas field named Tin Fouye Tabankort Sud.

“Our partnership with TOTAL is good and it allows us to implement our long-term strategy,” Ould Kaddour told reporters.

TOTAL Chairman and CEO Patrick Pouyanne said in a statement earlier on Oct. 7 that TOTAL and SONATRACH had signed new agreements, including a contract to develop the Erg Issouane gas field.

In the meantime, here is the same event as reported by the francophone local media: Algeria is officially embarking on offshore oil exploitation. The CEO of SONATRACH, Abdelmoumen Ould K, confirmed that the first offshore drilling would be launched in the first half of 2019.

For Algeria, these new drillings have become more than an alternative to oil extracted onshore. It is important to know that the recurring increase in crude oil and technological advances in offshore operations offer more opportunities and margins for petroleum companies.

In all likelihood, it is the Italian giant ENI who as the partner of SONATRACH for the development of its offshore activities. SONATRACH has long conducted negotiations with ENI’s to launch these explorations. These negotiations have advanced considerably since the conclusion in January 2017 of a memorandum of understanding (MoU) with the Italian company Versalis (a 100% subsidiary of the Italian group ENI) to carry out studies on petrochemical projects.

The MoU with Versalis deals with feasibility studies for the realisation of petrochemical complexes in Algeria, and the strengthening of cooperation between the two companies in the field of Petrochemicals.

It is to be noted that offshore oil exploitation has its peculiarities if compared to the conventional oil exploitation. This difference is due to the environment in which it occurs. In fact, up to 200 m in depth, it is possible to fix the operating platform. More than 200 m, pressures are increasing and becoming less sustainable. The control of operations, even though robots, is then more difficult. In these conditions, floating platforms are more appropriate. Most offshore oil farms do not exceed 500 m in depth.

The first offshore drilling will be carried out in the provinces of Oran and Béjaïa, delimited as offshore exploration zones after seismic studies were carried out in their territorial waters. The interpretation of the 2d seismic data of the 1200 km of the Algerian coasts, led the prospecting to these two provinces. In Algeria, offshore areas that are likely to hold hydrocarbons are located between 2000 and 2500 metres in depth, according to the results of the first seismic studies carried out on the Algerian offshore. As for the cost of single offshore drilling, it is close to $100 million.

Abdelghani Henni, back in January wrote that Algeria ranks third globally after China and Argentina in technically recoverable shale gas reserves with 20 Tcm, according to the U.S. Energy Information Administration. (Source: Shutterstock.com)
Developing abundant shale gas has become a necessity for Algeria to reverse its declining domestic natural gas production and safeguard its economy.  Shale gas is however not for NOW. The struggle is ferocious between the French and the Americans and it is not over yet.

Meanwhile, it must be said that all the onshore and diminishing conventional oil reserves are located deep in the Algerian Sahara whereas all offshore are obviously in the country’s territorial waters of its northern shores.  Shale gas on the other hand prospected pockets are mostly all located also in the Sahara but close to many inhabited oases whose populations are predominantly and adamantly against any exploration of such fossil resources.

What to do with the vastness of the Saharan Desert

What to do with the vastness of the Saharan Desert

This article is meant to be as informative about the problematics of consultation and decision making in Algeria as it is possible to muster at this conjecture. What to do with the vastness of the Saharan desert where large pockets of gas lay buried according to all known geological analyses for millennia. The strategic decision regarding the exploration or not would be the prerogatives of a small circle of civil servants that as techno-functionaries with their small private interests are more likely to weigh in more than the country’s development.  The locals would certainly not look at it the same way.
As for exploring the societal-economic impacts related to the extraction of shale gas and comparing their different technical-economics characteristics that any extraction of the dormant shale gas could have on local and national communities, it is indeed not for tomorrow. In any case, what do they, these so-called elite know about all this gentleman in the picture? It seems to be the typical case of Algerians; unable to manage a small professional organisation and yet to aim to steer a whole country towards the exploration of this resource. The demonstration is no longer necessary when we think of parliaments in non-democratic states, we often think of a room full of raised hands. This compelling image of unanimity conveys a simple idea: that these assemblies are stuffed with loyal servants of the ruling elite. Rather than scrutinise, challenge, amend, and block initiatives from the government, they provide guaranteed support. Rather than act as a check on executive power, they provide symbolic, merely ceremonial approval. (Russia: new research shows even authoritarian regimes …. ). Alternatively, that is how the conventional wisdom goes.
Meanwhile, it is said however in London and from all mainstream US media “feedback” on shale oil production, that the benefits of fracking are more likely to be appreciated by communities in actively and highly developed countries rather than by those in low or middle-level development countries.
Besides, it is reasonably well known that the potential risks and disadvantages of shale gas and its extraction are more likely to be experienced by the communities of the latter countries like Algeria than by those that are in very or very highly developed countries and that for the same reasons.
However, there is no longer need for further proof that even the communities of developed countries would also be as vulnerable to some environmental and health risks. It is demonstrated by the increasingly greater awareness and consequent movements of resistance against exploitation of all fossils. From the streets to the big investors, but there are always the Big Oils monetising the defence of their careless turnovers against all attempts to demonise their short-term business plans of exploitation of shale gas.
There are also these famous Algerians with their vast Sahara projects; they are rather keen to follow because they are not difficult to convince with only a small handful of Petro-Dollars. Is it worth all the trouble whereas the same vastness could easily  be covered by solar and wind farming infrastructure.

OPEC convening on Friday June 22, 2018 to set output

OPEC convening on Friday June 22, 2018 to set output


OPEC convening on Friday June 22, 2018 to set output policy in a would-be regular meeting like all those that have been taking place since last year, to try and control the oil market is said this time to mean relaxation of production cuts. Other members like Iran, Iraq, Venezuela and Algeria have already voiced their opposition to such a move.

Iran said on Tuesday that reaching a deal on oil output is unlikely. “I don’t believe at this meeting we can reach agreement. OPEC is not the organisation to receive instruction from President Trump … OPEC is not part of the Department of Energy of the United States,”  Reuters quoted Iran’s oil minister Bijan Zanganeh telling reporters after arriving in OPEC’s headquarters in Vienna.

Algeria’s expert Dr. A. Mebtoul in Prospects for OPEC’s June 22nd, 2018 meeting identified nine interdependent determinants of the price of oil for the period between 2018, 2020 and 2030.  Could OPEC’s conventional oil vs.US shale oil  be less confusing than that?

Don Bredin, University College Dublin and Simon James Jeune Spencer, University College Dublin in this article do help us see a clearer picture of the current situation.   


OPEC meetings: why it’s so hard to predict how the oil market will react

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vladm / shutterstock

Don Bredin, University College Dublin and Simon James Jeune Spencer, University College Dublin

The Organisation of the Petroleum Exporting Countries, better known as OPEC, meets in Vienna on June 22. OPEC is a group (many call it a cartel) of 14 of the biggest oil nations, representing most of the world’s reserves and just under half of current oil production. For the first time in many years, the cartel will assemble against a background of tightening supply and significantly rising oil prices.

Though the emergence of Russia and the US as major oil producers means OPEC no longer wields quite as much power as it did in the 1970s, its announcements are still big news. So will OPEC choose to raise production? Will its members even be able to agree at all?

These are questions we have looked at in our recent research on OPEC’s decision making. We found that whether or not all cartel members agreed on what to do significantly affected how the market reacted to an OPEC announcement.

This latest meeting comes as the price of oil is fast increasing, several years after it crashed from around $100 a barrel (bbl) to $50/bbl. OPEC members, who generally produce their oil relatively cheaply, will also be aware that long-run prices above $50/bbl will motivate shale production in rivals, including Canada and the US.

Focus on ‘forward prices’

Commentary on OPEC decisions usually focuses on “spot prices” – that is, how much a barrel of oil would cost if you actually wanted it right away. But trading is also possible where we assume delivery at some specified future date, that is “forward prices”. The other way to assess OPEC decisions is to look at these forward prices – and especially at the relationship between forward and spot prices. This relationship is known as the oil market’s “term structure”.

The graph below provides a simple demonstration of the importance of term structure in the oil markets. The blue line shows the familiar story of spot prices, including the 2014 crash and the recent rally. However, the red line, showing the price of three-year forward oil, tells a very different story. There was no distinct fall in forward prices around the OPEC policy change of 2014 and no recent recovery. Rather, there was a continuous and gradual decline followed by an ongoing period of stability.

The authors have looked at the difference between the two lines.
Bloomberg, Author provided

Given OPEC decisions have long-term ramifications, an analysis that looked only at spot prices would certainly not tell the whole story. This is why our recent study also examined the impact of OPEC decisions on how forward prices relate to spot prices – the term structure.

We found that decisions to raise production tend to be followed by forward price increases, while decisions to cut tend to be followed by forward price decreases. These findings are seemingly counter-intuitive – after all, basic economics tells us that more supply leads to lower prices and vice versa. So why would additional OPEC production actually make oil more expensive in the future?

Things are best explained by viewing OPEC decisions as something of a too-little-too-late response to market fundamentals. If you look back at the graph above, you’ll see that the OPEC decision to allow (spot) prices to fall in 2014 appears to have been anticipated by the forward market over several years.

Optimism vs caution

Most OPEC meetings aren’t as dramatic as 2014, of course. The most frequent outcome is “no change” in production quotas and previous research has found that prices rise following such decisions.

We however have divided the “no change” decisions into those which follow a unanimous decision by members to maintain production unchanged, and those which follow a failure by OPEC members to make a unanimous decision (leading to no change by default). For example during the two OPEC meetings in 2015, both decisions were no change in production. However, the June meeting was based on “agreement to maintain”, while the December meeting was based on “failure to agree”.

Petroleum Ministry, Tehran. OPEC’s meeting in December 2015 collapsed after Iran couldn’t agree with other members on production quotas.
Shutterstock

We found that the market reacts significantly differently to the two types of no-change decision. Failure to agree decisions lead to higher spot prices and expectations of higher prices, over a prolonged period. This is not the case for agreement to maintain decisions. The implication is that there is more market optimism following an agreement to maintain production and more caution following a failure to agree.

So OPEC members should not be fooled by the current short-run price increases. Though reports suggest an increase in production is likely, they may yet (and, from a purely self-interested point of view, should) decide not to increase their production quotas, at least so long as forward prices remain low.

But there will no doubt be some voices at the table looking to boost production because prices in the short term suggest that more oil could be absorbed by the market.

The ConversationIf there is no quota change, it will be interesting to watch whether members agree to maintain production unchanged, or whether they maintain production unchanged as a result of a failure to agree. Our study shows that when it comes to OPEC decisions, agreement matters.

Don Bredin, Professor of Finance, University College Dublin and Simon James Jeune Spencer, PhD Researcher, Commodity Finance, University College Dublin

This article was originally published on The Conversation. Read the original article.

Re-activating Algeria’s National Energy Council

Re-activating Algeria’s National Energy Council

 Algeria has the institutions that it needs to energize if it wants a State with the rule of Law; a sine qua non condition for a sustainable development and above all for its credibility at both national and international levels. Could Re-activating Algeria’s National Energy Council for a robust energy strategy be an absolute necessity and at the earliest of times?
For starters, the National Energy Council (CNE) alone could set Algeria’s energy strategy but it is itself  in great need to be, as it were, re-energized.

This contribution looks in depth at the National Energy Council and the management of SONATRACH (SH).  

Legal texts are a necessity but an insufficient condition: the important thing is to act on the functioning of Algerian society, as a function of the power relations of the various political, economic and social components, themselves as linked to the world economy so that these laws are applicable.

The National Energy Council

The National Energy Council, as a supreme organization for the country’s energy strategy, set up by Presidential Decree on April 8th, 1995, in its Article 6, stipulates

·      “The Council shall meet periodically on the convening of its president”, the President of the Republic whose secretariat (article 5) is provided by the Minister of Energy and composed of the so-called sovereignty ministers (National Defence, Foreign Affairs, Energy and Finance), the Governor of the Bank of Algeria and the planning delegate.  This Article 6 states also that:

  • ·      The National Energy Council is responsible for monitoring and evaluating the long-term national energy policy, including the implementation of a long-term plan to ensure the energy future of the country.
  • ·      An energy consumption model to be based on all national energy resources, external commitments and the country’s long-term strategic objectives;
  • ·      The preservation of the country’s strategic reserves in the field of energy; Long-term strategies for the renewal and development of national oil reserves and their recovery;
  • ·      The introduction and development of renewable energies; strategic alliances with overseas partners involved in the energy sector and long-term trade commitments.

As far as prerogatives are concerned, it is no longer SH to grant the operating perimeters under the new Oil Act of April 28th, 2005 as amended on July 29th, 2006 together with January 2013 Law extending the rule of 49/51% ownership and Introducing the exploitation of Shale Gas and reconducting the same procedures but onto ALNAFT, a Ministry of Energy dependent agency, thus maintaining functional relations with this structure as well as with another agency, the Authority of Regulation to monitor prices mechanisms.

The new law established at least 51% of SONATRACH’s shares of the perimeters granted by ALNAFT and less than 49% to the various other oil companies.

Other SONATRACH’s organizations

The General Assembly Is composed of the Minister of Energy and Mines, the Minister of Finance, the Bank of Algeria’s Governor, the delegate from the Planning Department, a representative of the Presidency of the Republic.

Article 9.3 specifies that the General Assembly shall meet “at least twice a year in ordinary session” and in “special session on the initiative of its Chairman or at the request of at least three of its members, of the auditors or of the President and CEO of SH”. At the end of each session, the General Assembly is required to send its report to the President of the National Energy Council, who is the President of the Republic.

The Board of Directors is composed of the President and chief executive officer of SH, the CEO of SONELGAZ, the utility provider the vice-president of pipeline Transport, vice-president of marketing, the department’s director general of hydrocarbons, another departmental representative and of two representatives of the SH Union.

The Executive Committee is the real working ankle of SH and comprises the CEO of SH, the secretary general of SH, the Vice-Presidents of upstream, downstream, pipeline and marketing-of the executive director of Finances, the director Executive of Human Resources and of the executive director of all central activities (DAG), the Director of strategy, Planning and Economics-of the Executive Director Health, safety and environment. And not to mention the holdings that are annexed to the Vice-Presidents. Thus, upstream is attached to the holding oil and paratanker services; For downstream, holding refining, chemical hydrocarbons (example Naftec) ; For the commercialization of the holding Sonatrach, it is attached to it the holding Sonatrach/valuation of hydrocarbons (example Naftal). At the international level, the Sonatrach group has set up a system of reorganization of its activities through the grouping of subsidiaries abroad around an international holding company (S.I.H. C) created in July 1999 which operates in different countries.

For a new strategic management of SH

Transparency in the management of SH should be based on a scientific and operational approach, from the general to the particular, to seize the interactions and be able to carry out actions through successive steps. 

Making SH more efficient would imply several strategic actions: starting with repositioning it in the international and national context immediately followed by a system of real-time organization based on networks and no longer on the current hierarchical vision type of organization. Transparent cost centers including the management of any partnership; rational management of human resources, an essential element of strategic management, involving executives listening to the collective of workers through a permanent and constructive dialogue.

All these actions refer in fact to the establishment of the rule of law and the urgency of renewed governance. If we want to fight against overbilling, illegal transfers of capital, make more efficient control of SH (this concerns all sectors), there is an urgent need to revive the now completely collapsed information system, posing the problem of transparency of accounts and accounts. Having had in the past, lead a financial audit on SH with an important team of executives of SH and experts, it was impossible for us to accurately identify the structure of the costs of Hassi R’mel and Hassi Messaoud whether for the barrel of oil and the MBTU of gas as delivered to ports, because of all those consolidation and transfer accounts of SH distorting any visibility.

In any case, the business management is inseparable from global internal and global governance.  The growth or not of the world economy in the field of hydrocarbons, the geostrategic factors and the new model of global energy consumption play as an essential vector in the increase or decrease in revenue from SH, to avoid isolating the micro-governance of the national and global macro-governance that are inextricably linked. That is why it is necessary to revise the current ‘oil law’ which has not attracted potential foreign investment, for it is unsuitable for the new economic and to rethink the strategic management of SH in order to reduce costs by better management and hopefully position amongst the TOP global companies.  ademmebtoul@gmail.com