Tanzania: BG exit rumours resurface

The near-perennial rumours that BG may sell its 60% stake share in Tanzania’s Offshore Block 3 have resurfaced this week. The Sunday Times reports that BG is quietly searching for a buyer and a sale is likely, echoing rumours that have been circulating for some months. 

BG operates and holds 60% stakes in Blocks 1, 3 and 4 with Ophir holding the remaining 40% in each. The Tanzania fields are incredibly large, but their size is equalled by the cost of bringing the fields to production. Tens of billions of dollars will need to be invested, partly because the country is bereft of even the most basic infrastructure, including a port, roads, and power that would be required for a gas liquefaction plant.

This comes at a time when BG is looking to downsize its global empire, which includes the North Sea, Brazil, East Africa and Australia, following a series of profit warnings that led to the resignation of its chief executive, Chris Finlayson.

Although it is currently understood that BG is looking to sell its entire 60% stake in Tanzania’s Block 3 exploration area, BG also owns 60% of Blocks 1 and 4. This means that BG has the option of selling a minority stake, bringing in cash, reducing its share of future spending, while enabling it to keep operational control of the development.

One industry source has told Menas Associates that ExxonMobil, which is the minority partner in Block 2, may also consider buying out its partner Statoil. A pull out by BG would affect the management of the proposed LNG project because the project manager is currently a BG position based in the UK. This would be mitigated by ExxonMobil’s presence in the project already. However, no move is likely until there is agreement on outstanding issues, including gas pricing, domestic market obligations and the finalisation of the project site.

For more news and expert analysis about East Africa, please see East Africa Politics & Security.

© 2014 Menas Associates

Caspian: Bishkek looks to duty-free Kazakh oil

On 25 July, the Kyrgyz and Kazakh authorities conducted a new round of consultations in Bishkek about Kyrgyzstan’s forthcoming membership in the Eurasian Economic Union of Kazakhstan, Russia and Belarus. The meeting’s agenda covered agriculture, water resource management, the joint control of the border and energy trade. The Kyrgyz delegation was headed by economy minister Temir Sariev while Kazakhstan was represented by Deputy Prime Minister Bakytzhan Sagintayev.

As the two states’ media reported, the key result of last month’s consultations has been Kazakhstan’s promise to consider the possibility of duty-free exports of oil products to its southern neighbour, at the level of 100,000 tons in 2014 and a further 300,000 tons in 2015. Astana has also pledged to examine the Kyrgyz government’s request for a “special customs regime”, to be applied to certain categories of goods that Bishkek considers “strategic” for the domestic market, by the end of August.

This positive demonstration of neighbourly relations comes at a time when Kyrgyzstan is taking pains to resolve a major customs dispute with Kazakhstan. As we reported in our previous issue of Caspian Focus, some 480 road tankers full of Russian fuel have been blocked at the Kazakh-Kyrgyz border since April because of the lack of necessary paperwork. Kazakhstan’s customs officials have repeatedly insisted that the fuel was seized from “smugglers”. In fact, the tankers were shipped to Kyrgyzstan by Russia’s Rosneft whose CEO, Igor Sechin, recently wrote to Kazakhstan’s prime minister Karim Massimov with a plea for help.

While the merchandise has not yet been cleared, despite the direct involvement of Sechin who famously belongs to Vladimir Putin’s inner circle, fuel prices in Kyrgyzstan continue to rise incrementally. This is largely due to seasonal shifts in supply and demand, as well as June’s fire at the Achinsk oil refinery owned by Rosneft in Russia’s Krasnoyarsk region. 

In the present conditions, the seized Russian fuel would be more than welcome in the Kyrgyz market to ease the speculative pressure. As for Rosneft, it will have to pay hefty demurrage charges until the cisterns are allowed to cross the border.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2014 Menas Associates

Mozambican parliament approves new Hydrocarbon Law

Mozambique’s long awaited petroleum law has been approved by the parliament with substantial amendments by MPs who argued that the changes will strengthen the role of the Mozambican state in oil and gas exploration and production.

The bill, which will come into effect by the end of the year, was approved with votes from Frelimo and MDM. Renamo voted against the bill on the grounds the High Authority of the Extractive Industry – the body that oversees oil and gas operations - must be composed by elected members from all political parties.

The most important point in the new law is perhaps the fact that the state, through the National Hydrocarbon Company (ENH), controls the production, transport, marketing and transformation of all LNG and their derivatives.

It also states that the government must create the conditions for the involvement of Mozambican business people in the oil and gas industry. This is in response to local businesses who have been demanding a better share in the oil and gas business.

The sector is currently dominated by giant multinationals such as Anadarko and ENI and their own international service suppliers. It is very unlikely that any local company will venture into bidding for concessions of oil and gas exploration areas because they neither have the necessary expertise, nor the funds. They have, however, asked the government to introduce a special regiment that forces multinationals to contract local companies for service and products supply.

For a comprehensive analysis of Mozambique’s petroleum law, the Renamo amnesty deal - otherwise unavailable in the international press - and the political, business and security issues affecting Mozambique, please see our latest issue of Mozambique Politics and Security.

© 2014 Menas Associates

Kazakhstan: Kashagan restart unlikely until 2016

Kazakhstan’s new deputy energy minister, Uzakbay Karabalin, has told the media that the restart of commercial production at Kashagan is planned for 2016. In his view, this optimistic scenario foresees the re-launch of oil production in the first half of the year. 

However, he warned that should the North Caspian Operating Company (NCOC) consortium fail to repair the damaged pipes by the end of next year, the re-launch should not be expected before the latter half of 2016. The Kazakh authorities had previously speculated that Kashagan’s oil could come online as early as the end of 2015.

Karabalin continued that, were it to be delayed, the NCOC will be fined US$30million for each half-year. The company is also expected to cover the costs related to the repair of the oil and gas pipelines between the island’s deposits and the mainland, and the commissioning of associated infrastructure. Earlier in July, Karabalin was quoted as saying that the specific technological conditions of Kashagan were the main cause of the current production disruption. 

“In our sector of the Caspian Sea, ice is very movable… We know that many world-class oil companies work close to the Polar circle but they have a major warm current near there, the Gulfstream. They have no such ice as here. Moreover, Kashagan’s situation is complicated by high concentrations of sour gas and high reservoir pressures. As you can see, all these difficulties are inherent in one project”, elaborated the former oil and gas minister.

Karabalin also highlighted serious environmental risks that need to be taken into account by the NCOC: “One should remember that Kashagan is located within a protected area where there are over 75% of Kazakhstan’s sturgeons. Swimming birds build their nests in the vicinity of the oilfield. Thus, under the existing law, oil companies that participate in the project can work on it only after the birth of chicks. On the other hand, they cannot physically work beyond the formation of an ice cover. This said, we have serious schedule constraints in a single place”, he added.

The Kazakh authorities’ headache at Kashagan adds to the growing fears about the country’s macroeconomic stability. According to the official data, Kazakhstan’s GDP grew by 3.9% in January-June 2014, down from 5.1% last year. The IMF estimates that its economic growth would accelerate in the second half of the year to reach 4.8% at year end. 

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2014 Menas Associates

Libya: Oil exports resume from Ras Lanuf and Es-Sider

Oil exports finally resumed this week from the eastern port of Ras Lanuf following one year of closure. On 12 August, a 670,000 barrel cargo left the port for Italy. The shipment was chartered by Austria’s OMV who told a press conference this week that the cargo was on its way to Trieste to supply its refinery in Burghausen.

OMV also announced that output at its Libya operations was rising with a third quarter average of around 12,000 b/d. Although this is still some way off the much higher levels that the company was producing before the revolution, it is still a positive step given the challenges of the past year.

In other good news, the NOC spokesman, Mohamed Al-Harari, announced on 17 August that the port of Es-Sider was also set to resume exports. Al-Harari told the media that a tanker was due to arrive at the port and that it would be loading a cargo comprising 600,000 barrels of oil “within the coming days”.

Although both ports were handed over to the government in early July, following the implementation of the April 2014 deal agreed between the head of the politburo of the Cyrenaican Transitional Council Ibrahim Jedhran and the acting government, it has taken until now for Libya to find buyers.

Given Libya’s deteriorating security situation, few buyers were willing to take on the additional risk. However, the NOC reportedly dropped prices in order to attract buyers and to offset the risk and this strategy appears to have worked. This is good news for Libya and its energy sector, which has been hit with crisis after crisis over this past year.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2014 Menas Associates

Developments in US$1.2 billion Chad-CNPC arbitration court hearing

The China National Petroleum Corporation (CNPC) has denied breaking environmental rules in Chad’s oil sector and demanded the Chadian government drops its US$1.2 billion claim at an arbitration court in Paris.

The dispute began in July 2013 after Chad said it discovered large quantities of crude had been dumped into pits dug in the Koudalwa region, where CNPC has held licenses to several oil blocks since 2009.

The CNPC was forced to suspend operations in Chad this May after refusing to pay the US$1.2 billion fine for "unacceptable practices" which led to "noxious spills" around drilling sites.

Secretary-general of the Chadian government, Abdoulaye Sabre Fadoul, at a news conference at the beginning of August, stated that "Amicable negotiations are no longer possible. All efforts have been in vain… That is why we have decided to take a complaint to the arbitration tribunal in Paris, as agreed under the terms of our contract with CNPC." 

As well as taking the case to the International Arbitration Chamber of Paris, the minister said the government had lodged a complaint against CNPC at a court in N'Djamena for ‘environmental destruction and endangering lives’ and had cancelled five exploration licences held by CNPC.

A spokesman for the Chinese oil company could not be reached for a response to the minister’s statement. Speaking this week at the arbitration hearing, however, a CNPC spokesperson said that the leaked oil consisted of a "small amount" and its own analysis had not shown penetration into the ground water.

The firm added that it was hoping for the "cancellation of this decision and an ongoing effort to resolve this negotiation amicably," adding that the government has declined to provide the firm with a breakdown of damage to justify the large claim.

Chad, which began exploiting its oil deposits in 2003, has a history of difficult relations with Chinese companies operating on its soil.  In March, Chadians working for Great Wall Drilling Corporation and China National Logging Corporation went on strike to denounce their working conditions and demand salary increases.

For more news and expert analysis about the Sahara region, please see Sahara Focus.

© 2014 Menas Associates

Egypt to reveal new "vision" for Ethiopia's Grand Renaissance Dam project at tripartite talks on 24 August

Tripartite discussions between Egypt, Ethiopia and Sudan over the future of Ethiopia’s planned Grand Renaissance Dam project are due to be held in Khartoum on 24 August.

The project has been a source of concern for the Egyptian government since May 2013, when images of the dam’s construction stirred public anxiety about the possible effect on Egypt’s potable water supply.

Ethiopia, however, maintains that Egypt’s water share will not be negatively affected by the successful completion of the project, set to be Africa’s largest hydroelectric dam.

In what has been viewed as a demanding and interfering move within Ethiopia, Egypt’s Irrigation Minister, Hossam El-Moghazi, told Mehwar TV that Egypt has a new “vision” regarding Ethiopia’s planned Grand Renaissance Dam project, which it hopes to reach terms on at the 24 August talks in the Sudanese capital.

In a telephone interview, El-Moghazi said the Egyptian delegation will head to Khartoum for two days of discussions on the Grand Renaissance Dam project, regional water security and defense.

“Egypt has a new vision, that will not affect Egypt’s water share, and we are expecting that the other party responds to it,” said El-Moghazi.

The talks are expected to develop the seven main points that Egypt’s President, Abdel-Fattah El-Sisi, and Ethiopian Prime Minister, Hailemariam Desalegn, previously discussed during a meeting in late June – among them fostering dialogue and cooperation between the two countries as well as regional projects to meet the growing demand for water. 

Resuming the work of the tripartite technical committee and respecting international legal principles were also among the points on which both sides had reached common ground. The committee's discussions were originally halted last December when Sudanese President, Omar Al-Bashir, announced his support for the dam during a meeting with Ethiopian Prime Minister, Hailemariam Desalegn.

Meanwhile, El-Moghazi said that Egyptian satellite images have revealed that construction has not yet begun on the part of the dam which will reserve the Nile’s water. Regardless, Egypt has demanded that Ethiopia submits the dam’s construction plans for assessment by international experts, prompting anger from within Ethiopia at Egypt’s perceived interference in Ethiopian domestic affairs.

Ethiopian Irrigation Minister, Alamayo Tegno, responded that his country was already committed to the recommendations of an international committee of experts and stressed that Egypt’s water share would not be negatively affected by the completion of the Grand Renaissance Dam.

For expert analysis of Egypt's security, politics, economy, and business environment see Egypt Politics & Security or contact info@menas.co.uk

© 2014 Menas Associates