The Turkish Gambit
It's official: Syrian Kurdistan has ceased to exist. Turkey and Russia have cut a deal that will allow Turkey to occupy a buffer zone in northern Syria, and that's where the Turkish gambit ends. That buffer zone accomplished two things: It removed the Syrian Kurdish threat to Turkey's border and created a space for Turkey to relocate Syrian refugees.
Syria's oil will now go to Assad, keeping in mind that Russia has exclusive E&P rights. The largest oilfield, Al Omar, was nominally under the control of the US and the Syrian Kurds until last week. While the Pentagon has said it is possible that some US troops will stay behind to protect this oilfield, that seems increasingly unlikely and unfeasible.
Now, assuming the remaining players on this field can fight back an ISIS re-emergence, the oil and gas will be Assad's - and Europe will want it.
This is the point where we get to see that geopolitical and military alliances such as NATO have lost their relevance to natural resources.
What will emerge out of this rubble is a new Syria, thanks to NATO-member Turkey, that - after a couple of hundred billion dollars in reconstruction - will emerge as a supplier of oil and gas to the European Union, and everyone will pretend that this isn't Gazprom, again. But it will be. Not only will Assad get his oil back, but Iran, Iraq and Syria will get a new Russian-backed pipeline that will further undermine Europe's attempt to get out from under…
The Turkish Gambit
It's official: Syrian Kurdistan has ceased to exist. Turkey and Russia have cut a deal that will allow Turkey to occupy a buffer zone in northern Syria, and that's where the Turkish gambit ends. That buffer zone accomplished two things: It removed the Syrian Kurdish threat to Turkey's border and created a space for Turkey to relocate Syrian refugees.
Syria's oil will now go to Assad, keeping in mind that Russia has exclusive E&P rights. The largest oilfield, Al Omar, was nominally under the control of the US and the Syrian Kurds until last week. While the Pentagon has said it is possible that some US troops will stay behind to protect this oilfield, that seems increasingly unlikely and unfeasible.
Now, assuming the remaining players on this field can fight back an ISIS re-emergence, the oil and gas will be Assad's - and Europe will want it.
This is the point where we get to see that geopolitical and military alliances such as NATO have lost their relevance to natural resources.
What will emerge out of this rubble is a new Syria, thanks to NATO-member Turkey, that - after a couple of hundred billion dollars in reconstruction - will emerge as a supplier of oil and gas to the European Union, and everyone will pretend that this isn't Gazprom, again. But it will be. Not only will Assad get his oil back, but Iran, Iraq and Syria will get a new Russian-backed pipeline that will further undermine Europe's attempt to get out from under the Russian energy thumb.
From a domestic political perspective, the move to abruptly step aside in Syria won't go down well with the American far right (if it fully catches on here) because it gives Iran a victory and re-establishes Assad's power over almost all of Syria, which is viewed as a threat to the Israeli holy land. That is even more cause for concern now that Israeli strongman Netanyahu has been sidelined in Tel Aviv.
Turkey's Other Gambit … Libya
Turkey is spreading itself rather thin these days. In Libya, it's throwing its support (militarily) behind the Tripoli-based Government of National Accord (GNA) against General Haftar's Libyan National Army (LNA), which is trying to overtake the capital. Turkish aid has emboldened the GNA, which has succeeded in pushing Haftar's forces back to the outskirts of Tripoli. Now, an arrest warrant has been issued for the general and his top commanders. Haftar has had more than a few setbacks recently, both militarily and in terms of reputation. He's not winning hearts and minds at this point. He's also having trouble in the south in a separate conflict with Tebu militias. That has sparked the so-far failed intervention of one of his key allies, the UAE. The fallout with this militia came about over an LNA drone strike that killed Tebu civilians and displaced large numbers of people. It does not mean this conflict is even close to a conclusion, though. Haftar still has plenty of oil cards to play, and control over oil is the key. He's also still got plenty of loyal militias signing on to his brand of thinking, including moderate Islamists (Salafists), who are seen as a bastion against radical Islamic fighters that have been propping up the GNA.
And, again, there's the oil. Haftar still controls major oil installations in the country's oil-rich south, and in the east, his stronghold. He also has important back channels in Washington, as well as the loyalty of some key Libyan oil magnates with relationships to both French and American oil giants who do not want to see the GNA try to take control of all the oil.
ISIS Makes Another Move Against Iraqi Oil
ISIS attacked checkpoints in Iraq's Allas oilfields in the northern province of Salahuddin Monday, killing four security force members and wounding five others. This isn't Basra; this is northern oil and is near previous ISIS strongholds. But it is an indication that ISIS thinks it can take back oil that it once controlled in this new atmosphere of chaos in both Iraq and Syria. ISIS controlled the Allas oilfields between 2014 and late 2017 when they were pushed out by a combination of Kurdish Peshmerga and Iraqi security forces. This is not yet a resurgence of ISIS. That will take some time. While it regroups, we expect an uptick in insurgent-style attacks, such as the one on the Allas oilfields. Currently, Allas produces some 20,000 barrels per day of crude oil.
Egypt's $30B In Foreign Oil & Gas Investment
Massive oil and gas discoveries and major infrastructure have transformed Egypt from an importer to an exporter. Those tension-raising power cuts shouldn't cause any more problems, and debt to foreign oil companies is due to be zeroed out sometime next year. Egypt is also set to boost its global power as a key energy hub, exporting to Europe (to beat dependence on Russian gas), Lebanon and Jordan. And while technically it has a rival in Israel when it comes to gas, all of Israel's gas will make its way to Europe via Egypt. (The only kink in this chain is the potential for another Arab Spring as protesters launch an unprecedented move against the Al-Sisi leadership for corruption and the regime fights back with an iron fist).
Foreign investors are swooning over Egypt, thanks to reforms and declining prices of oil and gas production. Nowhere has investment been higher: In five years, oil and gas companies have dropped $30 billion in Egypt.
So how should we view Shell's move now to get rid of its onshore assets in the Western Desert? Positively: This is a move to focus on what appears to be the much more lucrative offshore gas prospects. It's already won three offshore concessions and will start operating in Q2 2020.
Angola Is Desperate for Cash and Wooing Oil Investors
Angola is hoping to sell stakes in state-run Sonangol oil company and a string of other energy companies. To do that, it's banking on major economic reforms to attract investors and bring in much-needed cash. No one's forgotten the gross mismanagement of Sonangol under its previous leadership, though, so the Angolan government is going to have to pull out all the stops on this one. Sonangol is a wreck. The goal is an IPO for Sonangol in 2022. Beyond that, the government is also hoping to lure investors into stakes in Puma Energy, the China-Sonangol oil venture, and the Ivory Coast SIR refinery. But it's only been two years since we saw a change of regime in Angola, and investors don't seem thoroughly convinced just yet. In 2017, Joao Lourenco took power, ending the four-decade power play of Jose Eduardo dos Santos, along with his daughter's destructive leadership of Sonangol. Corruption had become entrenched to say the least, and two years isn't enough to undo the damage. Still, the reforms go a long way to making things seem attractive, even if they are done out of sheer desperation. The government has made it easier for investors to repatriate money via commercial banks; it's made it possible to invest in the sector without a local partner; and it cut taxes on some oilfields by 50%, creating an independent body for managing oil and gas concessions. The first litmus test will likely come later this year with the attempted sale of stakes in the SIR refinery.
Global Oil & Gas Playbook
- Rumors have surfaced from anonymous OPEC members that a December meeting will consider deeper production cuts due to anticipation that oil demand growth for 2020 will be a disappointing drag on prices. Deeper cuts for OPEC+ will also eat further into its market share, and the US, will be happy to fill that gap because it's now producing 12.6 million bpd, and climbing.
- US-based Chevron enjoyed a bit of a reprieve this week, with the US granting the oil major another 3-month sanction waiver for Venezuela. Chevron is also scheduled to receive a crude oil cargo from PDVSA, which would be the first such shipment this year as the US sanctions on Venezuela and state-run PDVSA have successfully curtailed the majority of crude oil shipments to anyone except for China, Russia, and Cuba. While the buyer of the 2-million barrels is Chevron, the destination port is unknown.
- Yemeni state oil company Safer has resumed pumping oil from Safer fields to the Arabian terminal at a rate of 5,000 bpd, and hopes to ramp up the production to 15,000 bpd. It will seek to avoid the Houthi-controlled Ras Issa terminal on the Red Sea. Yemen's oil production has fallen since 2014 from well over 100,000 bpd then to just 50,000 bpd last year. And the proxy war in Yemen is far from over: More border clashes with the Saudis this week, and Saudi airstrikes mean that Saudi oil is still vulnerable to attack.
- Royal Dutch Shell has quit two oil projects offshore Kazakhstan after high costs rendered them unprofitable. The Khazar field, of which Shell held a controlling stake, is set to be returned to the Kazakh state. Another abandoned project is the Kalamkas-Sea project, which is a joint venture with Eni, Total, Exxon and CNPC. Recently, the Kazakhstan government said it expected international oil companies to invest more than $5 billion by 2025 in new developments, mostly in those two projects. Media reported that Shell and the authorities could not agree on revenue, taxes and cost-sharing.
- Sweden-based refiner Nynas AB, owned by Venezuela's PDVSA and Finland's Neste Oil, will no longer accept imports of Venezuela's crude oil due to US sanctions. The company operates specialty refineries in Sweden, Germany, and England. The US Treasury earlier this year issued a license allowing limited transactions with Nynas, but that measure is set to expire on October 25.
- Dubai's Dragon Oil has acquired BP's stake in The Gulf of Suez Oil Company (GUPCO Egypt). Under the terms and conditions of the acquisition, Dragon Oil has become the contractor with Egyptian General Petroleum Corporation (EGPC) instead of BP. Dragon oil said it will invest $1 billion over five years to boost and extend their production. GUPCO's target had been to increase the concessions' combined production to 75,000 barrels per day (bpd) of oil by 2021--up from the current 60,000 bpd.
- Ecopetrol has entered into an agreement with Shell Brasil Petróleo to acquire 30% of the interests in the Gato do Mato discovery, located offshore in the Santos pre salt basin. Shell will reduce its interest 50% with this agreement and will continue as an operator, while France's Total will retain the remaining 20%. The companies did not disclose the commercial terms of the farm-out agreement.
- The United States is suing California for its cap and trade agreement on GHG with Quebec, arguing that it exceeded the scope afforded to it under the constitution when it entered into an international agreement over emissions. The suit argues that that is the exclusive role of the federal government.