Oil market volatility has reached near-record levels in the first half of this year, as the first chart shows. It has averaged nearly 10 per cent a week, and over the past quarter-century its three-month average has only been higher during the Gulf War and the subprime crash. Yet there have been no major supply disruptions or financial shocks to justify such a dramatic increase. Instead, July’s report from the International Energy Agency reminds us that:
“OECD commercial inventories built by 13.5 mb in May to end the month at a record 3 074 mb. Preliminary information for June suggests that OECD stocks added a further 0.9 mb while floating storage has continued to build, reaching its highest level since 2009.” Read more
Iran’s new approach to building energy allies is being revealed as the former powerhouse staggers back onto the global stage. The lifting of sanctions in January has given the country a new lease of life. Tehran’s ability to adapt will prove vital, as today’s market is more competitive than the one it reluctantly stepped back from more than a decade ago.
Tehran remains confident that it can continue to build on its current 3.7m barrels a day (b/d) of oil production, which already represents a rise of half a million b/d since February. This means the country is already close to its target of 4m b/d and Tehran has said it aims to export 2.2m b/d by the end of the summer. The country’s strategy to regain superiority has started well, although some of this spike in volume may be a case of Iran emptying its full storage capacity. Read more
Back in 2012, the news of Kenya’s oil discovery spread fast. Stock markets roared, politicians gushed and the Twitterati tweeted. Fast forward to today: with $70 off oil prices and at least another four to five years to go until the first commercial production, one cannot help but ask, has Kenyan oil been overrated?
With a tip of the hat to Clint Eastwood, the prospects for Kenya’s oil wealth can be characterised as the Good, the Bad and the Ugly. Read more
Markets used to cheer when China’s exports rose, believing this showed the global economy was in good shape. They are still hopeful today, despite the 25 per cent fall in February’s exports. But closer analysis of China’s important refining and petrochemical sector shows that a paradigm shift is under way.
No more is China’s economy based on importing raw materials and exporting low-cost manufactured goods. Instead, the focus is on using the new capacity built during the 2009–13 stimulus period to maintain employment and boost China’s self-sufficiency. Read more
President Hassan Rouhani’s attempts to reform the oil sector in Iran are essential for the Iranian economy but are facing steadfast opposition.
On January 30, hardline students gathered outside the oil ministry in Tehran to protest against a proposed new legal framework for the industry. At the end of November, Rouhani’s government had proposed extensive changes to the regulation of oil production, seeking to make investment in Iran more attractive to international companies. Read more
For both liberals and conservatives in the Russian government, western sanctions and oil price volatility present new challenges and opportunities. Both camps hold the key to Russia’s economic and political stability.
The conservatives, led by Igor Sechin, dominate the oil industry through the state-controlled national champion Rosneft, where Sechin is chief executive. The liberals, represented by prime minister Dmitry Medvedev, finance minister Anton Siluanov, deputy prime minister Arkady Dvorkovich and central bank governor Elvira Nabiullina, steer the country’s fiscal and monetary policies. Read more
A $300m loan to help Ukraine fill its gas storage facilities before winter has today been approved by the EBRD’s board of directors.
The loan will enable Naftogaz, the state-owned oil and gas company, to purchase over 1bn cubic metres of gas (bcm) and so support Ukraine in reaching its target of having 19 bcm of gas in storage. It will also help the country diversify its sources of gas supply by financing purchases from its interconnections with Europe through the so-called reverse flow.
What is more, it is crucial for the wider Europe: a stronger energy security situation in Ukraine, which is still a key transit country, especially for south-eastern Europe, helps to ease a number of European energy security concerns. Read more
Nigeria’s new government must use its mandate to implement much-needed reforms in the oil and gas sector, which continues to be the driving force behind the economy. The country has achieved what initially looked to be an unlikely result – democratic elections and a peaceful transition of power. This is an important step towards the country’s full transformation into a developed economy and should be used as a platform for real change.
For a country so rich in oil and with almost ideal geological characteristics, Nigeria suffers from poorly developed infrastructure and sub-par living standards for the majority of the population. Since Shell discovered its first commercial oilfield in the Niger delta, Nigeria has grown to become Africa’s largest oil producer. The oil industry quickly crowded out investment in other sectors of the economy and the country’s oil and gas sector continues to be the most important contributor to the budget. Read more
On Wednesday July 15, Juan Carlos Zepeda, the president of Mexico’s National Hydrocarbons Commission (CNH), announced the results of bidding for exploration contracts in 14 shallow water blocks in the Gulf of Mexico, the first time in over 75 years that production-sharing contracts have been awarded in the country. The results were eagerly awaited by energy industry analysts the world over. As the envelopes began to be opened, the president’s office and the CNH tweeted an inforgraphic stating that the process would be deemed a success if four to seven contracts were successfully awarded. Read more
The 2014 Ukraine crisis reinforced the EU’s quest for security of gas supply. The European Commission released an Energy Union Communication in February, calling for intensified work on the Southern Gas Corridor (SGC) and for the establishment of a new strategic energy partnership with Turkey.
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Germany – and its chancellor Angela Merkel – deserve credit for the continuation of the EU’s sanctions regime against Russia. But Germany happens also to be home to the energy giant E.ON, which recently signed a (non-binding) memorandum, together with Russia’s Gazprom, Austria’s OMV, and Shell from the UK and the Netherlands, agreeing to the extension of the Nord Stream pipeline, which brings Russian gas into the European Union (EU).
The extension, to be completed by 2020, would double the transit capacity of the pipeline, currently at 55bn cubic meters per year. Together with Turkish Stream, another project Gazprom is toying with, it would make gas transit through Ukraine redundant by the time the country’s current contract with Gazprom expires in 2019. Read more
Even prior to Russia’s invasion of Crimea, energy security was a hot buzzword in Europe. But while many of the continent’s leaders frequently called for reduced dependence on Russia and greater diversification of energy supplies, practical progress on the issue was slow. The Ukraine crisis, however, has brought new momentum for a concerted push towards energy security. Talk of an “energy union” now surfaces high on the political agenda in Brussels, along with proposals for several infrastructure projects to connect Europe’s disjointed energy networks and build away bottlenecks. Read more
On June 7, Mexican voters will go to the ballot box in mid-term elections that will be viewed as a test of the Enrique Pena Nieto presidency and of the ruling PRI party. Despite the many challenges facing the government, it is likely that the president and his party will pass that test by winning a majority in the national Chamber of Deputies, as well as a number of gubernatorial races across the country.
However, a few weeks after the electorate takes to the polls, the government faces another, more demanding examination of its most important achievement thus far: the opening of the nation´s hydrocarbons industry to private and foreign investment, when companies submit bids on the first batch of contracts under Round One. The outcome of that test is far from certain, and there endure substantial concerns in the oil industry over the contract terms that have been issued by the government to date. In fact, there is a growing sense that, unless the government makes major changes to the contract terms, few foreign companies will choose to participate on this occasion. Read more
A long awaited plan by the European Union to import Caspian gas moved forward this week as construction work began on the Trans Anatolian Natural Gas Pipeline (Tanap) in Turkey.
Tanap is the central link in the EU-backed Southern Gas Corridor, a jigsaw of existing and planned pipelines designed to diversify Caspian energy export routes and reduce European dependence on Russian gas. Initially, the 3,500km SGC network will transport gas from the giant, BP-led Shah Deniz field in offshore Azerbaijan, but could in future draw supplies from other Caspian and central Asian countries and even the Middle East, changing the energy map of the whole region. Read more
By Riccardo Puliti of the European Bank for Reconstruction and Development
With energy security once again a paramount geopolitical concern, the rich energy resources of the Caspian are coming into focus.
In its newly published Energy Union Package, outlining the industry’s biggest shake-up in half a century, the European Union is looking hard at the Caspian region as a diversified source to meet the bloc’s energy requirements. Read more
By David Clark of the Russia Foundation
For all the attention given to the fighting in Donetsk and Luhansk, it is clear that Ukraine cannot solve its problems by military means alone. If there is a route to national salvation it lies in the field of domestic reform and the quest to find a new model of internal development. It is only by emulating the achievement of neighbouring Poland and becoming a well-governed country with a strong, dynamic economy that Ukraine can hope to escape from its current predicament. As a ‘Slavic tiger’ it could provide a source of attraction strong enough to regain eventual control over the territories it has lost and perhaps even become a catalyst for change in Russia itself. Stuck in a post-Soviet rut of dysfunctional institutions and economic stagnation, it will remain weak and vulnerable to Putin’s policy of divide and rule. Read more
You’ve sunk your wells, started drilling; have extracted tens of millions of barrels of oil for export. But a year down the line, you still haven’t been paid.
This is the predicament faced by several leading European oil companies – including the Genel Energy, run by ex-BP boss Tony Hayward, Norway’s DNO and the UK’s Gulf Keystone – caught in the stand-off between the Iraq’s central administration in Baghdad and the semi-autonomous Kurdish Regional Government (KRG) over how the spoils of Kurdistan’s oil reserves should be shared. Read more
By John Sfakianakis, Ashmore Group
The Gulf economies are in a position of strength to weather the recent plunge in oil prices. Many are better cushioned than at previous times in their economic history despite growing domestic populations. Oil prices are a principal revenue source for most Gulf economies and they serve as an essential litmus test for business confidence in the region.
At US$60 per barrel, the region is still fiscally sound even if more than US$280bn in oil export losses will be incurred in 2015. The move in oil prices has been excessive on the way down but it seems to be bottoming out. Read more
Oil is popularly known as black gold. Now the world’s biggest miner of another shiny precious metal is jumping on Mexico’s ambitious energy reforms to get in on the dirty black stuff.
Alberto Baillères, head of Grupo Bal, which counts silver producer Peñoles y Fresnillo among its companies (as well as upscale department store the Palacio de Hierro), has launched a new oil company, called Petrobal. Read more
Emerging market currencies may have received a boost against the dollar last week after the European Central Bank announced its programme of quantitative easing, with those of South Africa, Russia, Turkey and Brazil all strengthened by the news. But the more important stories for investors over the mid term are the effects of cheaper oil and the state of countries’ current accounts.
On the face of it, whether a country exports oil seems to matter more to investors right now than the state of its current account. Read more