Daily Briefing: Energy Production: Geopolitical Implications for M.E. and Elsewhere (January 21,2020)

Haifa Oil Refinery
(Source: Wikipedia)

Table Of Contents:

Germany Puts Its Head in Russia’s Energy Pipeline Noose: Soeren Kern, Gatestone, Dec. 30, 2019

Is Iraq About To Become a Chinese Client State?: Simon Watkins, OilPrice.com, Jan. 8, 2020

Israel Begins Exporting Natural Gas to Egypt: Dima Abumaria, The MediaLine, Jan. 15, 2020

The U.S. Dominates New Oil and Gas Production: Jude Clemente, Forbes, Dec. 8, 2019


Germany Puts Its Head in Russia’s Energy Pipeline Noose
Soeren Kern
Gatestone, Dec. 30, 2019

A Swiss company working on the controversial Nord Stream 2 gas pipeline directly linking Russia to Germany has suspended pipelaying operations after U.S. President Donald J. Trump signed into law new sanctions.

The sanctions are part of an effort by the United States to halt completion of the €9.5 billion ($10.5 billion) pipeline, which would double shipments of Russian natural gas to Germany by transporting the gas under the Baltic Sea. Opponents of the pipeline warn that it will give Russia a stranglehold over Germany’s energy supply. Proponents counter that with European domestic natural gas production in rapid decline, the pipeline will enhance the security of supply.

American sanctions may delay Nord Stream 2, but they are probably too late to kill the project. More than 80% of the 1,230-km (764-mile) pipeline has already been laid and the project is expected to be completed in 2020, according to Russia’s Deputy Prime Minister Dmitry Kozak.

On December 17, the U.S. Senate, by a vote of 86 to 6, passed the National Defense Authorization Act (NDAA), the annual defense spending bill, which includes the Nord Stream 2 sanctions language. The measure previously cleared the U.S. House of Representatives on December 11 by a vote of 377 to 48. President Trump signed it into law on December 20.

The legislation requires the U.S. State and Treasury departments to submit a report within 60 days that identifies “vessels that are engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline project, the TurkStream pipeline project [a new gas pipeline stretching from Russia to Turkey across the Black Sea] or any project that is a successor to either such project.”

Approximately 350 companies are involved in building the undersea link, including the Swiss company Allseas Group SA, whose ships have been laying the last section of pipe in Danish waters.

On December 21, Allseas said that it had suspended its activities until further notice. Its decision came after U.S. Senators Ted Cruz and Ron Johnson warned AllSeas CEO Edward Heerema that the company would face “crushing and potentially fatal” sanctions if it continued work on the pipeline:

“Allseas and its key personnel who knowingly sell, lease, or provide those vessels for the Nord Stream 2 project will be sanctioned if those activities do not cease immediately. For the next half decade your company and those personnel will be entirely barred from the U.S. In the meantime, any transactions they attempt to conduct with anyone who is in the U.S. or using the U.S. financial system will be blocked. Moreover, all property you have within our jurisdiction will be frozen, including assets related to Allseas USA headquartered in Houston, TX, any financial assets in U.S. banks, and any physical vessels or materials owned by Allseas that come into the U.S. “If you were to attempt to finish the pipeline in the next 30 days, you would devastate your shareholders’ value and destroy the future financial viability of your company.” … [To read the full article, click the following LINK – Ed.]

Is Iraq About To Become A Chinese Client State?
Simon Watkins
OilPrice.com, Jan. 8, 2020

Following the political and popular backlash in Iran over details of its plans to make the Islamic Republic effectively a client state through various multi-layered oil and gas deals, China has switched its attention for the moment to Iran’s close ally and neighbour, Iraq. Like Iran, Iraq has enormous and still relatively underdeveloped oil and gas reserves, it is an irreplaceable geographical stepping stone in China’s ‘One Belt, One Road’ programme, and it is in need of major ongoing funding. China already has leverage over Iraq as the leading oil company (Rosneft) of its close geopolitical ally, Russia, already has effective control over the oil and gas infrastructure of the north Iraq semi-autonomous region of Kurdistan, and Chinese companies operate on a number of fields in south Iraq. Last week saw key developments in China’s cornerstone project of making Iraq into a client state.

The first of these developments was the announcement from Iraq’s Finance Ministry that the country had started exporting 100,000 barrels per day (bpd) of crude oil to China in October as part of the 20-year oil-for-infrastructure deal agreed between the two countries. As highlighted by OilPrice.com, the broad framework of this arrangement was agreed last September during a visit by Iraq’s then-Prime Minister Adel Abdul Mahdi to Beijing, with the purpose of expanding China’s then US$20 billion of investment in Iraq in addition to the US$30 billion or so in annual trade between the two countries. According to last week’s statement, Chinese firms Zhenhua Oil and Sinochem were the importers of the Iraqi barrels involved, and OilPrice.com understands that all trade financing surrounding these exports – and many of those to come – have been done by the China Export and Credit Insurance Corporation.

This arrangement neatly rolls into China’s wider plan for Iraq (and Iran) as it aims to gradually increase its presence across the country, just as it has done in many countries in Africa in what has been regarded by many as a new wave of colonisation, as analysed in depth in my new book on the global oil markets. For Iraq and Iran, China’s plans are particularly far-reaching, OilPrice.com has been told by a senior oil industry figure who works closely with Iran’s Petroleum Ministry and Iraq’s Oil Ministry. China will begin with the oil and gas sector and work outwards from that central point. In addition to being granted huge reductions on buying Iranian oil and gas, China is to be given the opportunity to build factories in both Iran and Iraq – and build-out infrastructure, such as railways – overseen by its own management staff from Chinese companies. These are to have the same operational structure and assembly lines as those in China, so that they fit seamlessly into various Chinese companies’ assembly lines’ process for whatever product a particular company is manufacturing, whilst also being able to use the still-cheap labour available in both Iraq and Iraq. … [To read the full article, click the following LINK – Ed.]

Israel Begins Exporting Natural Gas to Egypt
Dima Abumaria

The MediaLine, Jan. 15, 2020

Israel has begun exporting natural gas to Egypt as part of a deal worth an estimated $15 billion over 10 years, the Egyptian petroleum and mineral resources minister and his Israeli counterpart announced on Wednesday.
The Israeli Energy Ministry confirmed in a statement to The Media Line the first transmission of natural gas to Egypt, calling it an important development that will benefit both countries’ economies.

“It will enable Israel to export some of its natural gas to Europe via Egyptian LNG [liquefied natural gas] facilities [and then via ship], and will come in the context of Egypt’s growing role as a regional gas hub,” the statement said.
The revised deal, signed this past October, specifies the export of up to 85 billion cubic meters of gas. The Israeli company Delek, operator of Israel’s Leviathan and Tamar offshore gas fields, will provide 60bcm of natural gas from Leviathan, and another 25bcm from Tamar, to the Egyptian firm Dolphinus over the course of 15 years.

Tamar has been operating for some time, and the larger Leviathan field began commercial pumping on December 31. Ahmed Kandeel, an Egyptian expert on international relations and head of the Energy Studies Program at Al-Ahram Center for Political and Strategic Studies in Cairo, told The Media Line that the project had great significance. “When economic cooperation increases between Egypt and Israel, it helps to enhance the security and stability of the region,” he said.

Kandeel added that despite what many call a cold peace, the relationship between Egypt and Israel was well developed and the countries have been cooperating on security and counter-terrorism for a while now. “This [security] cooperation basically facilitated the cooperation in terms of gas,” he explained. “The relations exist and are strong, as there is already trust between the countries.”

He further said that Egypt was already self-sufficient in natural gas and therefore most of the gas coming from Israel would be exported to Europe after first being processed and liquefied, something that “will benefit Europe in terms of reducing its dependence on Russian gas that [currently] meets 40% of Europe’s gas needs, especially since the latter has a policy to diversify its sources of gas imports.” He confirmed to The Media Line that Egypt has the infrastructure to export gas.

Kandeel explained that Cairo had once exported gas to Israel, but after Israel’s offshore gas discoveries, Eastern Mediterranean countries, including Egypt and Israel, had developed a common interest in cooperating, “especially since global trends tend toward dispensing with traditional fuels [e.g., coal and petroleum] to preserve the environment.”

Zvi Mazel, a former Israeli ambassador to Egypt, told The Media Line that the joint project was important, as Israel, since its independence, has been trying to make peace with its neighbors. “Egypt is the most important Arab country,” he said. “After so many wars between us, I think it’s very important to maintain these relations and do everything to strengthen them.” … [To read the full article, click the following LINK – Ed.]

The U.S. Dominates New Oil and Gas Production
Jude Clemente

Forbes, Dec. 8, 2019

The American fracking for oil and natural gas boom will continue on through the 2020s. And why not? Since fracking took off in 2008, we have more than doubled our proven oil reserves to ~65 billion barrels. Natural gas reserves have surged over 80% to ~430 trillion cubic feet. Already the largest oil and gas producer, the U.S. is set to increase its share of ~17% of global oil production and ~23% of gas. In the 2020s, the U.S. is set to supply over 60% of new oil and gas. …

This is according to experts at Rystad Energy, “an independent energy consulting services and business intelligence data firm” based in Norway. Rystad says the U.S. shale industry will continue to mount production even if prices drop. The reality is that oil and gas companies already have. Oil prices have been sliced in half since the triple-digits seen in mid-2014, yet U.S. crude oil production has still jumped over 50% to nearly 13 million b/d. For 2019 alone, the weekly oil rig count has plummeted 25% to 663 rigs as of Friday, yet weekly output has risen another 1.2 million b/d. Natural gas prices have fallen 17% this year and gas rigs are down 34%, yet gas U.S. output has still risen over 10%.

As companies focus on “cash flow discipline and free cash flow generation,” Rystad says that even with an 11% reduction in shale oil investments next year, U.S. tight oil production alone will be closing in on 11 million b/d by 2022, up from 9.1 million b/d this month. This jump in shale output comes even as WTI prices fall to $54 in 2020 and 2021. For natural gas, although the associated gas supply coming from the Permian will help keep U.S. prices low, another 10% rise in U.S. shale gas output to above 100 Bcf/d is to be expected over the next two years. This means that we will soon be producing 50% more gas than Russia, just having passed it in 2009.

Indeed, Rystad’s bullish outlook for U.S. shale is hardly alone. The Paris-based International Energy Agency reported in November that the U.S. will supply 85% of the new oil and 30% of the new gas through 2030. The current bear oil and gas market will not last forever – nothing ever does. Surviving through the pain of lower pricing, the industry has so sharpened its knife that higher prices will offer drastically easier times.

Ultimately, 1) oil having no significant substitute, 2) gas rising toward being 50% of all U.S. power capacity, and 3) a surging export complex to export both fuels ensure that our massive resource base will be developed. Simply put, those pushing divestment should realize that it obviously cannot work: divestment does nothing to reduce demand. … [To read the full article, click the following LINK – Ed.]

For Further Reference:

EU Warns Turkey Against ‘Illegal’ Mediterranean Gas Exploration Plans Times of Israel, Jan. 19, 2020The European Union has urged Turkey to drop plans to drill for oil and gas around Cyprus and the eastern Mediterranean, saying such exploration was “illegal.”

Natural Gas in East-Mediterranean Basin – Changing the Energy Landscape, ResearchGate, Dec. 2018 Significant petroleum reserves have continued to be discovered in the East-Mediterranean Basin, mainly in the last ten years, which would transform the region into an important natural gas export play. In this paper, the situation of natural gas development in the East-Mediterranean Basin is analyzed on a country by country (Cyprus, Egypt, Israel, Gaza, Lebanon, Syria, Greece and Turkey) basis, including their potential to export gas along with the impact they may have on the regional energy landscape and balance of power, which could be significant. Also, key uncertainties and challenges in the way for developing the reserves are reviewed along with increasing interest from regional and international players and circle of influence.

The Crude Life Interview: U.S. Senator Kevin Cramer: Jason Spiess, Oilman Magazine, Jan. 10, 2020U.S. Senator Kevin Cramer explains how the death of Iranian Revolutionary Guard Corps-Quds Force General Qasem Soleimani will impact the energy economy. Senator Cramer cites the importance of energy infrastructure when discussing geopolitical events.

Watch: Market Movers Europe, Jan 20 24: Davos 2020: Trump, Thunberg, Merkel speak, While Focus Falls on New Russian PM:  Samuel Eckett, S & P Global, Jan. 15, 2020 — In this week’s Market Movers: carbon traders eye the German government’s plans to cancel allowances from its coal phase-out; the spotlight will be on a new government in Russia; and will the container shipping market enjoy a happy Chinese New Year?

What Will the End of Oil Dependence Mean for Geopolitics?: James Landale, BBC News, Jan. 3, 2020 – Here, in the dusty plains of Andalusia, they have worked out how to generate solar power 24 hours a day.