Politics, Geopolitics & Conflict
In an unexpected move this week, Albania severed diplomatic ties with Iran over a cyberattack and then searched the empty Iranian embassy, where exiting diplomats had burned documents in a rush to vacate within the 24 hours demanded by Tirana. The severing of diplomatic ties was prompted by a cyberattack that took place in late July, exposing the names, addresses, and other personal information of Albanian opposition politicians, and attempting to paralyze public services and create chaos and insecurity. Iran has called the allegations that it was behind the cyberattack "baseless".
The Iran nuclear deal has lost further momentum following an IAEA report that says it is not possible to "provide assurance that Iran's nuclear program is exclusively peaceful", noting the past presence of nuclear material at undeclared sites. Israeli media is now suggesting that the Iran nuclear deal is "off the table", with unconfirmed reports saying that US officials have indicated such to Israeli officials in recent conversations. Again, this cannot be confirmed.
We continue to monitor the unstable situation in Iraq, which as we noted in previous briefings, has spread to the oil-producing governorate of Basra. This instability has the potential to take a serious amount of oil production offline. The Islamic State is also taking advantage of that instability to regroup and stage new attacks in northern Iraq. Whether today or next year, the implications…
Politics, Geopolitics & Conflict
In an unexpected move this week, Albania severed diplomatic ties with Iran over a cyberattack and then searched the empty Iranian embassy, where exiting diplomats had burned documents in a rush to vacate within the 24 hours demanded by Tirana. The severing of diplomatic ties was prompted by a cyberattack that took place in late July, exposing the names, addresses, and other personal information of Albanian opposition politicians, and attempting to paralyze public services and create chaos and insecurity. Iran has called the allegations that it was behind the cyberattack "baseless".
The Iran nuclear deal has lost further momentum following an IAEA report that says it is not possible to "provide assurance that Iran's nuclear program is exclusively peaceful", noting the past presence of nuclear material at undeclared sites. Israeli media is now suggesting that the Iran nuclear deal is "off the table", with unconfirmed reports saying that US officials have indicated such to Israeli officials in recent conversations. Again, this cannot be confirmed.
We continue to monitor the unstable situation in Iraq, which as we noted in previous briefings, has spread to the oil-producing governorate of Basra. This instability has the potential to take a serious amount of oil production offline. The Islamic State is also taking advantage of that instability to regroup and stage new attacks in northern Iraq. Whether today or next year, the implications of such a production loss would be felt around the globe in the tight market-particularly as Europe flounders around in the energy crisis ahead of this winter and next, with gas to oil switching exacerbating any potential supply outages from a prolific producer such as Iraq.
Europe's Energy Crisis
While largely already priced in by the market, the European Central Bank raised key interest rates by 75 basis points this week, in the face of record inflation. Eurozone inflation hit a record 9.1% in August.
In the UK, the death of Queen Elizabeth, the country's longest reigning Monarch, means her son Charles will now become King Charles III. Meanwhile, new Prime Minister Liz Truss has officially announced she will reverse the ban on fracking, approve more North Sea drilling and implement a 2-year energy price guarantee to cap heating and electric bills for households.
More money will soon be flowing into Germany - possibly funded by the windfall profit tax from energy companies. The $65 billion plan unveiled this week was designed to get Germany through the upcoming winter. It is the third set of relief measures for Germany as energy costs spiral for consumers, sending inflation rising to 7.9% in August. Germany will push the EU to adopt similar measures before going it alone.
European energy ministers met in a special meeting on Friday, called by the Czechs, to discuss looming winter fuel shortages. Solutions under discussion were to decouple nat gas prices from the price power plants charge, setting max prices for electricity production (except that derived from nat gas). We won't see anything concrete until next week when the EC is set to present member states with an actual proposal-even then it will just be a proposal and wrangling among member states with different needs and different agendas will ensue as winter fast approaches.
Deals, Mergers & Acquisitions
Shell and Petronas have reached FID for the Rosmari-Marjoram gas project offshore Malaysia in block SK318. Shell's subsidiary Sarawak Shell Berhad is the operator with an 80% stake. The project is expected to be commissioned in 2026 with a production capacity of 800 million cf/d.
Petronas is looking to sell Engen Ltd-South Africa's largest gas station chain. The Malaysian company is soliciting bids for a controlling stake in Engen in hopes of raking in $2 billion from the sale. Interested parties include Trafigura and Vitol. Petronas holds a 74% stake in Engen, which it has been trying to offload for years.
A new deal between Sitio and Brigham will create the largest publicly traded oil and gas mineral and royalty rights company in the U.S. Earlier this summer, Falcon Minerals and Desert Peak Minerals merged to form Sitio Royalties. The newly formed entity held 139,000 net royalty acres. Now, Sitio is snapping up more acres as it merges with Brigham Minerals, creating a $4.8 billion company.
The United States' largest nat gas producer, EQT Corp, has agreed to acquire THQ Appalachia I LLC, along with its associated pipeline infrastructure Tug Hill's XcL Midstream, for $5.2 billion, including debt. THQ Appalachia producers 760 mcf/d. The deal is expected to close in Q4, with a July 1 effective date. Also on Friday, EQT was cleared of any wrongdoing over the disclosure of trading activity that saw its partners sell $2.2 billion in stock a year early.
Another deal has been struck between China and Russia, with CNPC agreeing to pay Gazprom for its nat gas half in rubles and half in yuan-instead of USD-in a deal that Russia referred to as "mutually beneficial". Indeed, the deal gives China a 50% discount on Russian gas through the end of this year. While touting the simplifications of the calculations, another benefit Gazprom mentioned was that it would serve as an "excellent example for other companies" to follow China's lead.
Discovery & Development
Iran has increased its oil storage capacity by another 500,000 barrels (a 10% rise) from its Tank No. 4 project. Iran has claimed it has plans to construct Tanks 5, 6, and 8 as well in the Bahregan with a total nominal capacity of 1.3 million barrels.
Chevron again is lobbying the US govt for more latitude for its Venezuela operations. This week, Chevron asked the government for a broader license for its Venezuela projects. Its current license, which allows it only to maintain its wells (not to drill or process crude) runs out in November. Sources have suggested it is hoping for the ability to have more control over its JVs with PDVSA, and be able to increase production and resume its sale of crude oil from Venezuela, including swapping crude for diluents.
Guyana is expecting to bring in $1.1 billion in profits from its share of the oil industry, along with $147 million in royalties, after the government raked in $307 million from oil profits in H1. Its Natural Resource Fund balance is now $753 million.
Argentina is on track to reach record production from the Vaca Muerta this year, after already hitting record nat gas production. Vaca Muerta's nat gas production now produces 3.2 bcf/d, with anticipated oil output by the end of the year reaching 308,000 bpd.
The United States has denied Cheniere's request to exempt turbines at its Gulf Coast terminals from a hazardous pollution rule, which Cheniere says will cause it to reduce LNG exports in order to install new pollution control equipment while Europe continues to thirst for gas supplies ahead of winter. The deadline for US gas turbine owners and operators to comply with the NESHAP guidelines was Sept 6.