Posts Tagged ‘lng’

Libya : now a white sheep for IOC’s

LNGLibya has become an attractive investment destination for UK and US companies, which are returning to the North African oil exporter to secure a share of the country’s largely under-explored gas and oil reserves.

BP (NYSE : BP) recently announced it would begin exploration activities in Libya by the end of the year. “We’ll start seismic acquisition in the third quarter of this year. Seismic will take about a year for the offshore and two and a half to three years for the onshore,” Peter Manoogian, president of the company’s exploration division in Libya, recently reported. He said he was “very optimistic” about prospects in the Ghadame and Sirt basins, two of Libya’s five major basins, where BP secured exploration rights to over 54,000 sq km last year.

Sirt onshore has been the country’s most productive basin to date, having given up over 20bn barrels of oil equivalent, while offshore deepwater Sirt is presently unexplored. The formation is described by the company as “a buried rift with multiple play opportunities similar to those found in the North Sea” – and hopes it will mark a continuation of the onshore Sirt basin.

BP’s other new well will be located in the Ghadame Basin, an onshore field split into two concessions, North and South. The North concession alone is the size of Kuwait, and is a geological extension of Algeria’s lucrative Alrar gas field. Manoogian reported the company is targeting natural gas accumulations and said that, if exploration is successful, production could begin as early as 2018.

BP’s investment in Libya marks a return to the country following a hiatus of more than 30 years. BP withdrew from Libya when the country’s oil industry began being nationalised by Colonel Qadhafi in 1971, and the state-run National Oil Company (NOC) was established to manage the industry. The BP/Bunker Hunt Sarir field was the first to be nationalised, although it was not until 1974 that an agreement was finally reached between BP and the government regarding the settlement of assets.

Not all international oil corporations ceased operations in Libya though. For instance, Spain’s Repsol and Italy’s Eni maintained assets held in conjunction with NOC. The majors were, however, further kept away by Anglo-American sanctions, following the 1988 bombing of Pan Am flight 103 over Lockerbie. The US lifted those sanctions in 2004, and two visits by British Prime Minister Tony Blair in 2004 and 2007 have seen deals signed not only with BP, but also Shell, BG Group and ConocoPhillips.

The BP deal itself was signed in May 2007, and will see the company invest a minimum of $2bn in Libya in coming years. BP will be working with government partner Libyan Investment Corporation (LIC) and NOC. The latter hopes to expand Libya’s oil production to 3.5m barrels per day by 2020, from current figures of 1.835m (2006), and also to aggressively expand gas production. It is already having some success, with Libya’s 2005-06 annual increase in gas production (the last year for which figures are available) showing a 31% rise – the highest in the world.

For its part, BP also hopes to correct a slide in oil production. Output fell 3% last year to 3.82m barrels per day. Capital expenditure by the company has not increased in real terms for a number of years now, and will be pressured further by the company’s efficiency plans, which are expected to cost $1bn this year. In this respect Libya represents an excellent opportunity for the company. The Sirt basin is Africa’s largest, containing an estimated 22% of the continent’s 300bn barrels of reserves, while Ghadame is already of proven viability.

Libya’s position as an energy supplier is likely to see its strategic importance to Europe increase in coming years. Given the growing risk associated with supplies from Russia, it may well join neighbouring Algeria as a perceived safe haven, particularly with regard to natural gas.

Royal Dutch Shell (NYSE : RDS.A)  also decided to return to Libya and signed a contract in 2005 to invest between $105m and $450m in the Marsa Al Brega LNG plant. Shell hopes to increase LNG output at the plant from the current level of 0.7m tonnes a year to 3.2m. Depending on its success in discovering new gas fields in its Sirt concession, Shell may construct another LNG plant at Marsa Al Brega.

LNG offers Libya the opportunity to exports its energy products further afield than is currently possible through traditional pipeline technology. By switching production to tanker-based transport, Libya will be hoping it can open up new markets in northern Europe. In furtherance of this policy, a Joint Announcement of Cooperation was signed between BG Group and NOC in May 2007. The British gas specialists will work with NOC to study optimum methods of supplying natural gas to domestic and export markets.

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Qatar to continue double digit growth as LNG buoys economy

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As the financial crisis continues to reach around the globe leaving most economies reeling in its wake, the Gulf state of Qatar is hoping that its substantial natural gas reserves will cushion it from the worst of the fallout. While other gulf economies face slowing growth rates, Qatar hopes that its vast gas reserves will allow it to weather the storm more easily than its regional neighbours.

“Selling gas gives a much better outlook for Qatar than the rest of the GCC countries,” says Philippe Dauba-Pantanacce, a senior economist at Standard Chartered Bank. “They have been doing a lot of heavy investments in terms of gas production, and they are yielding the benefits now.”

Qatar boasts the third largest gas reserves in the world after Russia and Iran, and is the world’s largest exporter of liquified natural gas (LNG). Experts predict that Qatar’s economy could grow by more than 10% in 2009, bolstered by projected strong expansion of gas exports and assisted by a potential drop in inflation. Such growth seems particularly remarkable when one considers that GDP growth in the United Arab Emirates,  is projected to dip under 3%.

“Qatar’s economic growth will be the strongest in the region by some margin,” insists Simon Williams, HSBC’s chief Middle East economist. “The industrialisation process in Qatar is advanced, the infrastructure build-out programme has momentum, and financing is secured for many of the key projects.”

This growth is expected to help Qatar push forward with in excess of $222bn worth of projects, as it strives to move away from its dependency on energy and become a ‘knowledge’ economy.

While the oil price collapse has weighed heavily on other Gulf states partially dependant on oil exports for their revenues, economists say the slide will have no impact on Qatar’s gas exports, which are based on long-term, locked-in price contracts. Most of its growing LNG exports are sold on long-term contracts, many linked to a lower reference oil price than currently projected for 2009, and are thus not expected to be adversely affected by the current slump in oil prices, according to analysts. With new LNG facilities scheduled to come on stream from producers RasGas and QatarGas, Qatar’s aim is to more than double its production capacity of 77 million tonnes per year by 2010.

Qatar is expected to print the strongest GCC current account surplus in 2009, above 30% of GDP. The recently completed $5Bn Dolphin Project, a good example of a “cash cow” project for the island nation, has now started pumping gas from Qatar to the UAE via an undersea pipeline.  The UAE has the fastest growing gas demand in the Middle East due to a rapid expansion in power and industrial projects and its gradual switch to gas as a cleaner source of energy. From around 21.2 billion cubic metres in 2000, the UAE’s gas demand surged to 34.1 billion cubic metres in 2005 and is projected to soar to 42.9 billion cubic metres in 2010, to 51.9 billion cubic metres in 2015 and nearly 63.2 billion cubic metres in 2020, according to the Ministry of Energy. Qatar’s North Field is the centrepiece of this project, with the pipeline carrying up to 30 million cubic metres of natural gas per day from Qatar to the UAE for a period of 25 years.

“In terms of top-line economic performance, Qatar is going to be one of the most strongly performing economies around the world next year,” says Robin Bew, editorial director and chief economist at the Economist Intelligence Unit. “But it’s important to point out that doesn’t mean it has dodged the economic bullet.”

“In terms of revenues coming into the economy, they are going to see a relatively more stable revenue base and that should help them going forward,” says Robert McKinnon, managing director of research at Al Mal Capital. “So they should be able to continue a lot of their infrastructure spend, and in terms of the GCC it would be probably the safest place to invest in the coming year.”

While global oil producers are contemplating ways to prop up crude prices, it would seem that gas producers don’t share the same agenda, for now. Gas and LNG are globally traded on 25-year, long-term take-or-pay contracts driven by a formula, wheras oil is traded on spot contracts. Major gas exporters have met informally for several years at the annual Gas Exporting Countries Forum, a group which includes Russia, Iran, Qatar, Venezuela, Nigeria, Algeria, Egypt, Indonesia and Libya, as reported by Graham Stack in his East of Europe blog.  However Iran is pressing for a formation of an OPEC-like gas cartel to set global prices, whereas Qatar & Russia seem to be more concerned with “reaching strategic understandings” on export volumes, schedules of deliveries, and the construction of new pipelines. They also plan to jointly explore and develop gas fields and coordinate start-ups and production schedules.

Indonesia – the long road back

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The Asian financial crisis in 1997 pushed Indonesia to economic collapse a decade ago. Its overextended banking system imploded, spurring high unemployment, severe rioting and, eventually, the fall of the Suharto government. Weathering an even more calamitous global storm now, Indonesia has managed relatively well.

 

Now, to help it endure the global recession, Indonesia, Asia’s third-most populous nation after China and India, is planning an aggressive economic stimulus, the governor of Indonesia’s central bank said Monday in an interview.

“One of the key actions has to be fiscal stimulus for getting us through this crisis,” Boediono, the governor of Indonesia’s central bank, said

2008 has been a boom year for Indonesia, The energy and mining sector was forecast to book Rp 346 trillion (about 31.2 billion U.S. dollars) in revenue for the state by the end of 2008, up from Rp 225 trillion  in 2007. The sector contributes 36 percent to total state revenues, the biggest slice coming from oil and gas companies, which contributed Rp 303 trillion this year.

Despite these soaring revenues, the Energy and Mineral Resources Ministry has decided to put limits on lower revenue targets for next year. According to the ministry’s secretary general Waryono Karno, the government was looking at about Rp 271 trillion in revenue from the energy and mining sectors for next year. Of the total expected revenue, Rp 227 trillion would be from oil and gas, Rp 43 trillion from mining, and Rp 1.5 trillion from other sources. The ministry said Indonesia had received $28.60 billion in investment commitments for the energy and mining sectors in 2009.

Indonesia, the world’s largest coal exporter, is expected to produce 183 million tons of coal this year, about 134 million tons of which will be exported, China being the largest customer. Production in 2009 is projected to increase to 198 million tons, 145 million of which will be exported.

Indonesia is also theworld’s second largest LNG (Liquid Natural Gas) exporter & should by rights be able to take advantage of growing LNG demand from overseas, which is projected to increase in line with the rise in demand from China. China imports about 5 million tons of LNG every year, and this figure is expected to further increase in the coming years. China has signed a 25-year contract to buy 2.6 million tons of LNG annually from BP‘s LNG terminal project in Tangguh, Papua. The first delivery will be shipped in early 2009.

As the government tries to spur growth, spending will rise nearly twice as fast as the projected inflation rate of 6 percent next year, Mr. Boediono said. Indonesia expects to save $1.5 billion next year from lower spending on fuel subsidies with the decline in oil prices and plans to use the money as a down payment on the stimulus program, he said, but most of the money will be borrowed overseas. Boediono predicted that the Indonesian economy could still manage 5 percent growth next year, which probably would make it one of the better performers in the region. As part of this fundraising, Jakarta plans to issue global bonds next year despite the global slowdown, it would seem that Indonesia is banking  on the US stimulus planto spur the  appetite of  investors in  emerging market assets, including Indonesia.

President Susilo Bambang Yudhoyono called in a speech on Sunday for greater government spending to help maintain consumers’ buying power at a time of stress for the Indonesian economy. The finance ministry plans to increase government spending on road construction and other investment projects by a third next year, to $9.1 billion. Mr. Boediono said that the focus would be on small and medium-size projects that would create jobs quickly. He said education spending would also have to rise because the Indonesian Constitution requires that 20 percent of the government’s budget go to education.

As part of this government sponsored plan & in an effort to move aweay from reliance on mining & energy, 30 state owned companies are slated to be privatised next year via IPO on the Indonesian (IDX) & Jakarta Stock Exchanges (JXE).

“Most of the firms will be privatized via an IPO, except those companies in which the government has only a small proportion of shares,” the Jakarta Post  quoted Muhammad Yasin, Deputy Indonesian State Minister for State Enterprises, as saying.

The program will also include IPOs of flag carrier Garuda Indonesia and Bank Tabungan Negara, construction firms PT Pembangunan Perumahan and PT Waskita Karya are currently waiting for House of Representatives approval for their IPOs, according to Yasin.

 The Indonesian government expects to generate about Rp 10 trillion  ($906 million) from floating 30percent of the shares in each of these companies. Indonesia has 139 state-owned companies that deal with businesses, covering energy, mining, utilities, telecom, banks, services and commodities, which means that there is plenty of opportunity for foreign investors to enter the market & help buoy the economy.