Greek Shippers Threatened With Sanctions, Forced to Hand Over Iranian Oil Cargo to US, Report Says

 

Source: Sputnik

By Aleksandra Serebriakova

August 15 2020

Last year, the White House pledged to sanction any actor involved in purchase or transaction of Iranian oil, citing Tehran’s alleged support for militant groups in the region and its ballistic missile programme. Despite the threats, a number of countries still continued their oil business with Iran.

Washington has forced Greece-based shipowners to surrender their cargo of Iranian fuel to the US government or face sanctions from the Trump administration, The Wall Street Journal reported, citing people familiar with the confiscation.

The ships in question, reportedly owned by Greek Vienna LTD and Palermo SA, were said to be loaded with Iranian oil, despite the sanctions imposed on Tehran. According to the report, their owners “grew frightened” due to the threat of US sanctions that could target the shippers and their crews, potentially depriving them from access to US banks and dollar depositions.

After a US federal prosecutor filed a suit to seize the tankers, the shippers agreed to transfer the oil cargo to Greece’s Eurotankers and Denmark’s Maersk vessels. They were subsequently expected to arrive in Houston, and according to US President Donald Trump’s comments to the press, might have already come to the US port. If the oil cargo will be recovered from the court, the money from its sale will go to the US Victims of State-Sponsored Terrorism Fund, the Department of Justice said in a press release. According to sources familiar with the transaction, the cargo has already been paid for by Venezuela.

The operation was confirmed by the US Justice Department, which said that oil cargo was confiscated from four Greek vessels: the Luna, the Bella, the Bering and the Pandi, which were heading to Venezuela. The development took place in international waters, with no physical presence of US authorities, insiders revealed, including one unnamed American governmental official. There was no personal communication between the owners of the ships and the US officials, the sources said.

© AP PHOTO / ERNESTO VARGAS
Iranian oil tanker Fortune is anchored at the dock of the El Palito refinery near Puerto Cabello, Venezuela, Monday, May 25, 2020

The DoJ thanked US Special Representative for Iran Brian Hook for assisting the department and the Homeland Security office in the cargo’s confiscation. From his part, Hook argued that Iran was using “oil revenues to fund terrorism”.
“We have collapsed Iran’s oil sector through a significant sanctions regime, and we enforce our sanctions. We have warned the maritime community for two years of the dangers of moving Iranian oil,” the official alleged.

Following reports about the seizure of the four ships, which were initially alleged to be Iranian, the country’s Ambassador to Venezuela Hojat Soltani denied the claims, calling them “psychological warfare by the US propaganda machine”.

The US is set to target any actors, companies or countries which purchase Iranian oil or take parts in the transaction, accusing Tehran of supporting terrorist groups operating within the country. The Trump administration is also attempting to halt the Iranian nuclear programme and the development of ballistic missiles by Tehran. Recently, the US also introduced a proposed UN Security Council resolution that will call for an extension of the arms embargo on the country, which is set to expire in October.

Reshuffling: Oil price crash alters priorities, greases skids to new world order

Source: The Washington Times

May 29 2020

By Ben Wolfgang and Guy Taylor

The sustained plunge in global oil prices has brought deep, unexpected shifts on the geopolitical landscape, with impacts felt in the Arctic and the Middle East, and in the fortunes of the American heartland and the future of the Russian-Chinese strategic alliance.

A U.S.-engineered market truce has helped energy prices rebound slightly this month after flatlining in April, but analysts say reverberations will likely be felt for years to come as they chip away at the foundational international partnerships in the post-World War II era and create new alliances and rivalries.

Analysts say there is no way the U.S. and its international position will avoid alterations from the oil markets, no matter who sits in the White House the next four years.

The Trump administration’s public pressure on Saudi Arabia this spring to slash oil production sparked tensions with Riyadh that reportedly led to the White House’s decision this month to pull American Patriot missile systems from the kingdom.

The health of the U.S.-Saudi alliance looms large in national security circles. In recent years, U.S. officials sought Saudi support for the administration’s Israeli-Palestinian peace plan and help with the mutual goal of containing Iran.


But America’s own ambitions to be a global energy player, built on a fracking production revolution that all but ended Washington’s dependence on foreign suppliers, could take a major hit if oil prices stay below $50 a barrel indefinitely.

The U.S. could well find itself on the outside looking in as green energy gains momentum and depresses demand for American shale oil. Such an outcome could further strain the relationship between the U.S. and key European allies such as Germany and France, which have largely stuck by an Obama-era emissions reduction deal that President Trump abandoned long before the oil price plummet and COVID-19 pandemic took hold.

Arctic freeze-out

For Russia, meanwhile, a yearslong strategy to deepen its footprint and exploit vast energy resources in the Arctic could fall flat if prices remain low. A frustrated Moscow could respond to the energy crisis in a number of ways, specialists say, perhaps by seeking to expand its influence in Eastern Europe or retreating from conflicts in Libya and Syria.

At the same time, the growing alliance between Russia and China has shown signs of more strength as Russia this week overtook Saudi Arabia as the No. 1 supplier of foreign fuel to China.

Specialists warn of more immediate, deadly consequences.

Incidents such as last year’s attack on Saudi oil facilities, which the Trump administration blames on Iran and its proxies, could become more frequent as oil-rich nations turn to violence to cripple competitors and preserve their place in the remade energy landscape.

“The ongoing struggles for revenue in oil-dependent economies could lead to more regional unrest with incentives to damage one another’s oil-producing capacity,” Marie N. Fagan, chief economist with London Economics International LLC, told reporters on a conference call this week.

More broadly, specialists say, the relative stability of oil markets and the subsequent ties that helped keep the global economy together for decades are facing new pressures.

“As nations come under unprecedented economic and political strains in light of the pandemic, important bilateral relationships that underpinned oil market stability are now realigning,” Amy M. Jaffe, a senior fellow for energy and the environment at the Council on Foreign Relations, wrote in a recent blog post.

“This realignment is creating new geopolitical uncertainties at a time when stronger bilateral and multilateral relations are required.”


The Russia question

Oil prices have crept up in recent weeks after dipping below $20 per barrel last month as economies shut down to contain the COVID-19 outbreak and global travel ground to a near halt. At one point, demand was so low and supply so glutted that oil future prices briefly dipped below zero.

But prices remain at historically low levels. The international benchmark Brent Crude price stuck at roughly $35 a barrel Thursday, and the key U.S. WTI Crude price failed to crest at $34.

Coupled with COVID-19 social distancing shutdowns of factories and airlines, the dramatic price fall has crippled economies around the world but has hit major oil producers such as Russia especially hard. Given the uncertainty of world oil markets, specialists say, the crisis could fundamentally reshape President Vladimir Putin’s foreign policy.

The International Monetary Fund estimates that Russia loses money on oil exports any time global crude dips below $40 a barrel. With current prices hovering barely above $30, many are questioning how Mr. Putin will continue to underwrite his provocative military adventurism in Ukraine, the Middle East and beyond.

William Taylor, a longtime U.S. diplomat and former ambassador to Ukraine, told The Washington Times in a recent interview that Mr. Putin “may have no choice but to rein in some of Russia’s malign activities around the world.”

“It is possible that all these storms combined — the economic, political, financial and health crises — mean he may need to pull back from the adventures in Ukraine, Syria, Libya and Venezuela,” said Mr. Taylor, now with the U.S. Institute of Peace.

Others say Mr. Putin’s grand plan to dominate the Arctic in an age of rising global temperatures could crumble. The Russian leader has said he intends to transform the icy waters of the Arctic into a key commercial corridor with portions largely under Russian control.

Moscow also has undertaken massive energy exploration efforts in the region in the hopes of using the money generated there to keep its economy afloat and fund its foreign policy adventures.

A sustained oil price drop could scramble that strategy.

“We are in a sustained period of economic recession. I am almost worried about Russia’s policy in the Arctic failing and what that means,” Heather Conley, senior vice president for Europe, Eurasia and the Arctic at the Center for Strategic and International Studies, said in a recent interview.

“You have to have the energy prices and global commodity prices to sustain” Russia’s Arctic strategy, she said. “If you don’t, no matter how much you can push it, it’s not going to develop.”

Others have argued that the uncertainty surrounding Russia could ultimately give Washington and its allies a rare strategic window to undercut Moscow’s vexing meddling in certain theaters.

Reshuffling the deck

For all of the negative impacts on Russia, the COVID-19 pandemic and subsequent oil crisis seem to be deepening Moscow’s willingness to align with China rhetorically and strategically.

Russian Foreign Minister Sergey Lavrov, in sharp contrast to Washington and U.S. allies, has heaped praise on China over its response to the pandemic.

Although Russia has viewed China as a potential threat more than a partner in recent decades, U.S. officials say, it has recently coordinated at unprecedented levels with Beijing’s attempts to spread disinformation pinning blame for the pandemic that first emerged in Wuhan, China, on the United States.

Beyond rhetoric and propaganda, there is oil, and Russian exports to China in April were roughly 18% higher than a year earlier. That means Russia has surpassed Saudi Arabia as China’s top crude oil supplier.

Contrary to any hope of getting Russia to “turn to the West to face the threat of China, we’re seeing the opposite dynamic unfolding at the moment,” said Anna Borshchevskaya, a Washington Institute fellow focused on Russia.

Ms. Borshchevskaya said in an interview that “the pandemic has shown Russia and China moving closer together, not just in terms of countering the disease but in terms of strategic rhetoric against Washington.”

But other analysts say that banking on China to be a top customer could prove foolish in a post-COVID world.

“For oil producers, especially the Arab OPEC producers and Russia, relying on China to consume a majority of their future production is a dangerous game,” longtime oil analyst Cyril Widdershoven wrote in a recent piece for OilPrice.com.

“Just as U.S. shale is far too heavily reliant on Cushing storage and paid the price when WTI prices crashed into negative territory as Cushing hit capacity, Arab producers have been hit hard by Chinese demand destruction,” he said.

The Trump administration faces a major decision on whether to loosen U.S. ties with producers such as the Saudis or help them navigate the new market landscape.

Longtime Saudi Arabia expert F. Gregory Gause said the relationship was never based on Saudi oil flowing to the United States in exchange for American security for Riyadh.

“I think the American view of this was always that Saudi Arabian oil was important for the world economy,” Mr. Gause, who teaches at Texas A&M University, said this week during a webinar hosted by the Quincy Institute for Responsible Statecraft.

“Because it was important for the world economy — it was important for our allies in Europe and Asia,” he said, “the U.S.-Saudi relationship had its foundations before the United States imported a single drop of oil from anywhere.”

Asked whether U.S. and Saudi interests still align the way they did in the post-World War II era, Mr. Gause said the answer depends on whether Washington still views oil as a “strategic commodity.”

“If it is, then does the United States want to have some influence in an area that exports more oil than any others?” he said. “I think that that’s an open question and worth debating.”

US sends oil to Belarus, seeking to diversify from Russia

Source: abcNEWS

May 15 2020

By AP

The Belarusian government says the United States has dispatched a shipment of oil to Belarus as the country seeks to diversify its supplies after a price dispute with Russia.

MINSK, Belarus -- The United States has dispatched a shipment of oil to Belarus, which is seeking to diversify its supplies after a price dispute with Russia, the Belarusian government said Friday.

The 80,000-ton shipment is expected to arrive at the Lithuanian port of Klaipeda in June and from there will sent by rail to Belarus.

Foreign Minister Vladimir Makei said cooperation with the U.S. on oil is "an element of energy security.”

Tensions between Belarus and Russia have been heightened in recent months by stalled negotiations over deeper integration of their economies. Belarusian President Alexander Lukashenko accused the Kremlin of using oil supplies as leverage to push for an eventual merger of the two countries.

Belarus had long relied on discounted oil from Russia, but most shipments from there halted in January after disagreement over prices. Belarus subsequently received oil shipments from Norway, Azerbaijan and Saudi Arabia.

Russia and Belarus later reached a compromise agreement and Russian state oil company Rosneft said Friday it expected to ship about 9 million tons to Belarus this year — about half the amount Belarus had bought in previous years.

FBI probes Mexican, European firms over Venezuela oil trading - sources

Source: Reuters

May 13 2020

MEXICO CITY/WASHINGTON (Reuters) - The FBI is probing several Mexican and European companies allegedly involved in trading Venezuelan oil as it gathers information for a U.S. Treasury Department inquiry into possible sanctions busting, according to four people familiar with the matter.

U.S. Secretary of State Mike Pompeo and special envoy for Venezuela Elliott Abrams told reporters late last month the State and Treasury departments were investigating whether several firms were violating sanctions imposed on Venezuela’s state oil company PDVSA since January 2019.

The sanctions are part of a campaign by Washington to strangle the revenues of President Nicolas Maduro, which has failed to break his grip on power. U.S. officials say privately that is a source of frustration for President Donald Trump, whose administration has tightened the implementation of sanctions in recent months.

Three of the people who provided information to the FBI - who asked for anonymity to discuss the matter - said the agency was investigating three Mexican companies: Libre Abordo, Schlager Business Group, and Grupo Jomadi Logistics & Cargo.

Reuters could find no record of Venezuelan oil purchases by those companies prior to sanctions.

The people also said the FBI was gathering information on two Europe-based oil trading companies that do have a track record of dealing in Venezuelan oil or selling fuel to PDVSA: Elemento Ltd and Swissoil Trading SA.

One of the sources familiar with the matter in Washington said any action against the Mexican and European companies could be postponed or cancelled if the firms halted trade with Venezuela. The three others said the probe by the Treasury and the State departments could potentially lead to action in the coming weeks.

A spokesman for the U.S. Department of Justice, which handles media enquiries for the FBI, declined to comment, as did a State Department spokesperson. The Treasury Department did not reply to a request for comment.

Emails and phone calls seeking comment from Elemento and Swissoil went unanswered, and a lawyer for Elemento did not respond to a request for comment. Emails sent to an address on Jomadi’s website bounced back.

Libre Abordo and its affiliate Schlager said in a statement to Reuters, citing legal experts they hired, that two contracts they signed in June 2019 with Venezuela’s Corporation for Foreign Trade (Corpovex) to provide food and water trucks in exchange for Venezuelan crude - known as an oil-for-food agreement - were permitted under the sanctions as long as no cash payment reached Maduro’s government.

“Neither Libre Abordo nor shipping companies hired to move PDVSA’s hydrocarbons are the subject of sanctions,” read the statement.

The firms declined to identify the legal experts but provided Reuters with their interpretation of Venezuela sanctions, which the companies said they sent to several shipping firms and other partners.

The undated memorandum said the oil-for-food deal did not contravene U.S. measures because Corpovex was not specifically named on the Treasury Department’s list of sanctioned people and entities, unlike PDVSA, and because there were exceptions under the sanctions for humanitarian goods.

Neither Corpovex, PDVSA nor Venezuela’s trade ministry responded to requests for comment.

VENEZUELA RELIANT ON SWAP DEALS

The two small Mexican companies have emerged as the largest middlemen for Venezuelan oil in recent months, according to internal PDVSA export documents, reviewed by Reuters.

OPEC member Venezuela has come to rely on trading oil and gold to pay for essential imports using complicated swap agreements because Washington’s sanctions bar Maduro’s government from using the U.S. financial system.

The PDVSA export documents show that Libre Abordo and Schlager have quickly ramped up trading of Venezuelan oil since receiving a first cargo in December, after a second wave of U.S. sanctions in August 2019 barred non-U.S. oil companies from doing business with PDVSA.

These secondary sanctions blocked the U.S. property of anyone worldwide “materially assisting” Venezuela’s government, including PDVSA and other governmental bodies - though it did not specifically name Corpovex. While the measures permitted shipments of food, clothing and medicines, none of the Venezuela-related executive orders issued by Trump specifically allowed oil-for-food agreements.

Whether that ambiguity potentially has created a loophole for companies is a matter of disagreement, some experts said.

Richard Nephew, a senior researcher at Columbia University’s Center on Global Energy Policy and a former State Department official dealing with sanctions policy toward Iran, said that while food deals were permitted under sanctions there was no special dispensation for them to be paid for in oil and the involvement of PDVSA could still prompt Treasury to take action.

However, Peter Harrell, an expert on sanctions at the Center for a New American Security (CNAS), said that in oil-for-food swaps the companies ultimately supplying the food could be protected from sanctions provided they had no role in physically receiving, transporting or selling the oil.

Harrell added that some U.S. policymakers might be reluctant to impose sanctions on companies involved in a deal to supply basic goods to a nation suffering a humanitarian crisis.

“Policymakers will be concerned that sanctioning an oil for food barter would play into a...narrative that U.S. sanctions are causing humanitarian challenges in Venezuela,” Harrell said.

DECISIONS ON SANCTIONS

While the FBI’s principal focus is on domestic intelligence and security, its agents also carry out overseas investigations to aid decisions on sanctions by the Treasury Department’s Office of Foreign Assets Control, which often also seeks input from the State and Commerce departments, U.S. embassies and the intelligence community.

Libre Abordo and Schlager’s oil-for-food deals with Venezuela obliged them to deliver 1,000 water trucks and 210,000 tonnes of corn to the country, the companies said. While some of the trucks have been delivered, the firms said they have not so far supplied any of the food as low oil prices have affected the original delivery schedule.

In exchange, they have so far received more than 26 million barrels of Venezuelan oil for resale, according to PDVSA’s export documents.

In just four months, Libre Abordo and Schlager increased their intake of PDVSA’s oil from less than 3% to 39% of the Venezuelan company’s total exports, which averaged 850,000 barrels per day in April.

The agreements threw a lifeline to Maduro, whose administration is struggling to afford imports of everything from food to medicine and industrial equipment.

Reporting by Marianna Parraga, Adriana Barrera and Ana Isabel Martinez in Mexico City, and Matt Spetalnick in Washington; Additional reporting by Sarah Lynch, Daphne Psaledakis, Gary McWilliams and Deisy Buitrago; Editing by Daniel Flynn and Daniel Wallis.

Russia’s Gazprom Moves Forward With New Mega Pipeline

Source: Oil Price
May 3 2020
By Viktor Katona

The Russian gas export monopoly Gazprom has hit the wall with new European projects – Nord Stream 2 will be finished at some point in the second half of 2021, the exact route of TurkStream’s second line remains veiled in ambiguity and no other major gas importer voiced their interest in carrying out a new project. Thus, the only remaining prospect for growth lies in Eastern Asia and primarily China. Apart from a tangible gas market saturation in Europe, there are two main premises for a second-phase Gazprom expansion into China: its largely untapped Eastern Siberian gas reserves that would be very costly to move all across Russia onto European markets and the competitiveness of Russian pipeline gas on the Chinese market.

Gazprom’s current China-bound project, the 38 BCm per year Power of Siberia (PoS) pipeline, started up in December 2019. Surprisingly, the Russian firm halted gas exports via PoS mid-March for a (previously non-indicated) two-week maintenance which turned out to be an elegant way of circumventing the massive demand drop in China. Even with another round of maintenance announced for autumn, Gazprom should be able to meet its export target for 2020 – 5 BCm, rising steadily to 10 BCm per year in 2021 and 15 BCm in 2022. By 2025 Power of Siberia should reach its nominal capacity and it is the next step after that currently exercises the minds of Russian policy makers and gas traders alike.

The contours of the next major project have been emerging for some time already – the idea to construct Power of Siberia-2 (PoS-2) was flaunted already in the early 2010s, its purpose being of meeting the gas requirements of Western Chinese provinces via Mongolia. This late March Gazprom’s request of conducting a feasibility study for PoS-2 has found President Putin’s approval. The projected pipeline would have a throughput capacity of 50 BCm per year and would be traversing Russia’s Altay region before crossing over to Mongolia and Western China. The first thing that struck market observers was that at some point in early 2020 the capacity of Power of Siberia-2 was upgraded from a preliminary estimate of 30 BCm per year to an officially presented volume of 50 BCm per year.

The framework for Power of Siberia-2 (also known as the Altai pipeline) was laid down in 2015 when Gazprom and the Chinese state-owned company CNPC signed a preliminary gas supply deal, without specifying the technicalities of pricing. Given that Pos-1 pricing talks took a decade to conclude, the tardiness of PoS-2 negotiations is hardly surprising. Yet at the same time Russian authorities are betting heavily on it happening – the recently issued Energy strategy-2035 sees pipeline gas exports reaching 300 BCm per year by 2035, of which 80 BCm per year will go to China, with European pipeline exports effectively stalling for the next decade and half. It has to be noted that the Energy Strategy also surmises a “pessimistic scenario”, whereby Gazprom’s gas exports increase from 220 BCm in the base year of 2018 to 255 BCm per year in 2035, meaning a slight decline in European demand and Power of Siberia-1 remaining the only China-bound gas conduit, with no Pos-2 construction taking place.

Graph 1. Russia’s 2035 Gas Strategy.

(Click to enlarge)

Source: Author’s data. 

Gazprom needs Power of Siberia-2 for many reasons. First of all, its immense 2P reserve base of 24.3 TCm (which keeps on increasing with time by 0.1-0.2 TCm in the last couple of years) compels it to act upon it whilst Eurasian economies still perceive natural gas as a bridging energy source and do not penalize its utilization. Second, China is the only easy-to-access market outlet whose demand for natural gas has still not peaked – once China reaches that stage, there remain only more adventurous and technologically complex variants (eg.: constructing a pipeline to South Korea, subsea or transiting North Korea). Thirdly, Gazprom might dovetail Pos-2 with one of its long-time ambitions – linking the gas transmission system of Russia’s Far East to the ones in Western Siberia and Europe. Given that still only 69 percent are connected to the federal gas transmission system, this would be a politically very useful objective.

Graph 2. Map of Power of Siberia-2.

(Click to enlarge) 

There is one additional novelty in how Power of Siberia-2 would look like – namely, the inclusion of Mongolia as a transiting country. Heretofore Mongolia has neither produced nor imported natural gas, hence Gazprom could potentially enter a completely new market. This being said, as of today the main reason for including Mongolia lies in the possible bifurcation of the pipeline so that at least some part of it heads towards northeast China. In addition to the above listed commercial rationale, the agreement, as indicated during President Putin’s meeting with Mongolian Prime Minister Ukhnaagiin Khurelsukh in December 2019, might also turn out to be a stepping stone to something much more politically complex. Despite all the benefits that Russia might garner from Power of Siberia-2, Gazprom has to face an array of challenges that will seriously jeopardize its viability.

Above all others, there is the question of Chinese pipeline gas demand – the Western route (from the Chinese point of view) pits Gazprom against Central Asian producers, namely Kazakhstan and Turkmenistan, who already have a separate conduit to supply the Chinese market. The 55 BCm/year capacity Central Asia Gas Pipeline was utilized last year to the extent of 87 percent (47.9 BCm), with most of the delivered gas coming from Turkmenistan. China remains the main market outlet for Galkynysh production, therefore unwanted competition in the form of Gazprom vying for a place under the sun would be hardly welcome news for Ashgabat. Thus, it is not only competition against LNG that Gazprom ought to win but also deal with a China-dependent Turkmenistan, all this against the background of tough-as-usual Chinese price negotiations. At least things have started moving after a prolonged lull.

COVID-19 and the Geopolitics of Petroleum

Source: Military.con

April 1 2020

By Joseph Micallef

Of all the world's commodities, petroleum best epitomizes the geopolitical consequences of natural resources. Countries that were fortunate to possess large reserves of hydrocarbons found themselves with incredible wealth and in control of a powerful driver of economic development. Countries that were unable to produce enough oil and gas for their needs found themselves vulnerable to supply disruptions and at a major geopolitical disadvantage.

The oil and gas industry had a significant Achilles heel, however. Oil and gas development had significant up-front development costs but, in many cases, relatively low operating costs. Once a well was brought into production, the cost of keeping it operating was relatively low, even if the revenue was insufficient to amortize the development cost. The result was that, historically, the oil and gas industry has been subject to volatile swings in pricing.

In 1919, the Texas Railroad Commission (TRC) was charged with setting production levels among Texas oil producers in order to control the supply and stabilize prices. From 1930 through 1960, the TRC was largely responsible for setting the price of oil worldwide.

In 1960, a group of oil-producing countries, led by Saudi Arabia, adopted the TRC model and formed the Organization of Petroleum Exporting Countries (OPEC) to regulate oil production and stabilize prices. OPEC did not eliminate oil price volatility, but its willingness to regulate its production levels helped moderate some of the pricing instability. Between 2000 and 2020, average yearly oil prices varied from a low of $21.99 per barrel in 2001, to a high of $102.58 per barrel in 2011. The average price in 2019 was $57.92 per barrel. Currently, average oil prices are approximately $20 per barrel.

Canada, Russia, Norway, the United Kingdom and the United States, all significant oil producers, were among the oil-producing countries that did not join OPEC. The U.S., a major producer, began to import oil in 1959. Although the U.S. still imports oil, it has been a net exporter of both refined petroleum products and crude oil since November 2019.

OPEC's share of the global oil market peaked at slightly more than 50% in 1973. In 2019, it was approximately 30%. Energy conservation; new discoveries; improvements in drilling and production technology; and, most significantly, the development of horizontal drilling to open "tight" oil- and gas-bearing formations and the development of the Canadian tar sands, have all cut into OPEC's market share. In addition, Asia, principally China, India and Japan, have now become the main market for OPEC's exports.

In 2017, Russia, along with 10 other non-OPEC oil-producing countries, agreed to coordinate production cuts with the group in order to stabilize prices. The countries were referred to as the "Vienna Group" and the arrangement as OPEC+. The agreement represented a strategic alignment of Saudi Arabia and Russia to rationalize prices. It lasted through March 2020.

One of the immediate effects of the COVID-19 pandemic was a sharp drop of approximately one to two million barrels per day (BOPD) in world demand for petroleum. In early March, OPEC agreed to extend its current cutbacks of 2.1 million BOPD and to reduce production by an additional 1.5 BOPD to a total of 3.6 million BOPD.

OPEC requested that Russia and the other 10 oil-producing countries in the OPEC+ group decrease their production by an additional 500,000 BOPD. Russia refused to accept the additional production cuts, arguing that any production cutbacks would simply be made up by American shale oil producers.

In retaliation, Saudi Arabia declared that it would flood world oil markets in a quest to regain lost market share and indirectly punish Russia for its unwillingness to cooperate.

Within a matter of days, world oil prices cratered by approximately 60%. The collapse of oil prices, coupled with rising anxiety over the economic consequences of the growing COVID-19 pandemic, triggered widespread economic turmoil and a marked decline in financial markets.

U.S. Strategic Interests and OPEC

The governments of both Russia and Saudi Arabia are heavily dependent on petroleum exports to fund the bulk of their expenditures. In Riyadh's case, oil exports supply 70% of its revenues; in Moscow's case, the number is approximately 46%. Both countries have sovereign funds designed to cover shortfalls in government revenues from falling oil prices. Saudi Arabia's Sovereign Wealth Fund had $320 billion in assets, while Russia's National Wealth Fund had approximately $124 billion at the end of 2019.

The Trump administration was quick to characterize the Saudi and Russian decisions to increase oil production as a thinly veiled attack on American shale oil producers. The U.S. Energy Information Administration (EIA) estimates that 7.7 million BOPD, or about 2.81 billion barrels, of crude oil were produced from tight oil formations in the United States in 2019. This was equal to about 63% of total U.S. crude oil production last year.

This was not the first time that Saudi Arabia had tried to use low prices to force the producers of the more expensive shale oil out of the market. In response, President Donald Trump announced that the U.S. would buy up to 77 million barrels of oil from American producers for the Strategic Petroleum Reserve. Funding for these purchases was not, however, included in the recently passed 2020 Cares Act. In the meantime, the TRC announced that it would consider limiting Texas oil production to stabilize prices. Texas represents 40% of U.S. oil production.

Pundits were quick to take positions on which country, Saudi Arabia or Russia, would be able to hold out the longest in the ensuing price war. Meanwhile, television commentators pointed out that lower gasoline prices represented a boon for American consumers.

The more germane questions, however, are where does the U.S. interest lie? Is the U.S. better off from lower or higher petroleum prices? What are the consequences of lower oil prices on America's strategic interests around the world?

From the 1960s through 2013, the U.S. was the largest net importer of petroleum in the world. Lower petroleum prices were in America's interest as they decreased the balance of payments deficit created by oil imports and represented savings to American households. Today, gasoline costs represent around 2% of average household income. So even significant reductions in gasoline prices are not going to represent a major change in a family's income -- certainly not in respect to the current economic turmoil.

Moreover, given that the U.S. is now a net exporter of oil and natural gas, lower prices reduce its export earnings. Additionally, over the last two decades, the U.S. shale oil industry has emerged as an important driver of economic development and a source of high-paying blue-collar jobs. On balance, the U.S. economy would be better off if prices returned to their $50-to-$60 pre-crash levels than if they continue at their current depressed levels.

From Washington's standpoint, the strategic implications of low oil prices around the world are mixed. On the one hand, low oil prices are a significant constraint on the Russian government and on the Kremlin's ability to fund the expansion and modernization of Russian military forces. Russia needs oil prices at around $50 a barrel or higher to balance its budget, and closer to $75 to finance the more ambitious social and military programs that Russian President Vladimir Putin wants to implement.

On the other hand, low oil prices threaten to destabilize countries that are American allies and to create new areas of regional instability or aggravate existing ones. This is particularly true of the Gulf region, but also of countries such as Nigeria and Mexico. Roughly one-third of Mexico's federal budget comes from oil exports.

The average cost of producing a barrel of oil in the world is around $25. It's a difficult number to pin down because operating costs are typically in local currency and are affected by exchange rates, as well as each country's relative market share. Costs per country, however, can vary dramatically.

The U.K., whose North Sea oil fields are mature and declining, has a production cost of $52 per barrel. Norway, whose oil fields are in a similar position, has an operating cost of $36.10 per barrel. On average, the amortization of capital costs typically represents about 50% of operating costs. Direct production, overhead, taxes and transportation costs represent the other half.

The U.S., where oil shale production represents two-thirds of output, has an equally high cost at $36.20. Brazil and Canada, whose new oil production is particularly capital intensive, have costs of $48.80 per barrel and $41 per barrel, respectively. Russia's average production cost is around $19.20, although the cost of new production, especially in its Arctic oil fields, is much higher.

At the other extreme, Saudi Arabia has a production cost of $9.90 per barrel, while Kuwait has the lowest production cost at $8.50. Across OPEC, the average production cost is probably between $25 and $30 per barrel. That means, at current prices, most OPEC producers' costs exceed revenues after they factor in capital costs.

Only Iraq, Iran and the UAE have costs comparable to Kuwait or Saudi Arabia. In short, current oil prices are unsustainable long term. Even those countries that can produce oil profitably at these levels cannot produce enough to make up in volume the revenues they need to fund government expenditures. In the short term, prices may drop even lower but, in the long term, low prices are both unsustainable and extremely destabilizing politically.

The trends that produced the current instability in petroleum markets are not new. They have been in process for some time. The COVID-19 pandemic simply accelerated those trends and brought them to a culmination faster and more dramatically than would otherwise have been the case. Ironically, instead of dealing with the consequence of "peak oil" and skyrocketing prices, today we are dealing with too much production capacity and insufficient demand.

For much of its existence, OPEC has been an American nemesis, a position underscored in 1973 when the Arab members of OPEC (OAPEC) embargoed oil shipments to the U.S. in response to American aid to Israel. Historically, as a net consumer of oil, the U.S. wanted lower prices, while producers wanted higher prices. Today, however, it's a different world, one in which the interests of OPEC and the U.S. are more closely aligned.

Prices in the $50 to $60 range are sufficient to keep the U.S. shale oil industry economic and afford OPEC members a basis of financial stability. It's also in Russia's interest, as it stabilizes the Kremlin's finances, even if it falls short of Moscow's more ambitious goals. In the meantime, the U.S. petroleum industry will continue to innovate and to bring down its shale oil production costs, while continuing to expand its liquefied natural gas export capability. Moreover, the U.S. would likely get Canada, Brazil, the U.K. and Norway to participate, even if unofficially, in such an arrangement. The Alberta provincial government is already limiting oil production.

In light of the financial repercussions of the COVID-19 pandemic on the U.S. and the global economy, stabilizing the oil market and a key American industrial sector would be a first step in repairing the economic damage. It's time for Washington to make a deal with OPEC and Russia to stabilize the oil market, even if that means the U.S. must agree to some production cuts or export curtailment to ensure price stability.

Islamic State Secret Oil Lifeline Runs Through Turkey - Former CIA Officer

Πηγή: Sputniknews
30 Oct 2015

Most Islamic State illegal oil exports are probably conducted through Turkey and Kurdish areas, and are facilitated by corrupt regional officials, former Central Intelligence Agency (CIA) counterterrorism officer and US Senate Foreign Relations Committee senior investigator John Kiriakou told Sputnik.

WASHINGTON (Sputnik) — A US Treasury Department spokesperson told Sputnik this week that the Islamic State has made about $40 million in one month of oil sales, making close to $500 million a year.

"I’ve always assumed someone on the Turkish side of the border is making enough money out of it. There are too many vested interests involved for it to stop," Kiriakou said on Thursday. "They greased the right people. Someone’s making a lot of money out of this."

Kiriakou noted that the current Islamic State illegal oil trade followed the same basic pattern that longtime Iraqi dictator Saddam Hussein used to defy international economic sanctions.

"[Selling and transporting oil] thorough Turkey was the way Saddam Hussein for years beat the sanctions regime imposed on him," the expert said.

Turkey is an ally of the United States and has been a member of NATO for 60 years, but Kiriakou said the national government in Ankara could not prevent the corruption of local officials in outlying regions that enabled the secret oil trade.

"It’s not the official Turkish government. [It’s] probably corrupt elements of the Turkish military and officials in local and regional governments in southwest Turkey who are involved in this," he explained.

The US government has the resources to seriously reduce and interdict this lucrative oil traffic, but so far has failed to focus on doing so, Kiriakou argued.

"It’s a question of priorities. They have never allocated enough resources to do so. Other goals and missions have been rated as having more urgent calls on intelligence and tactical resources," he said.

However, Kiriakou told Sputnik that the Islamic State oil revenue lifeline could certainly be cut if Washington was determined to do so.

"I do believe that," he insisted.

The richest oil fields that the Islamic State can access are south of Irbil in Iraq and the most obvious direction for the Islamic State to move the oil is westwards through Kurdish territory, Kiriakou explained.

In Saddam Hussein’s time, most of the oil secretly exported from Iraq to defeat the international sanctions regime was moved west through Kurdish territory, and that pattern is probably continuing now, he suggested.

Washington, he added, should be cooperating closely with Russia in cutting the Islamic State’s oil revenue flow.

"We should be working with the Russians to achieve a settlement of the conflict in Syria. We have basically the same aims that they do. Both of us agree that the Islamic State is a bad idea and we both want to get rid of it. But we’re not working with them on this," Kiriakou said.

Iraq's Oil Ministry told Sputnik that the Islamic State continues to sell hundreds of thousands of barrels of oil per day on the black market.

One chart that shows which Middle Eastern countries could run out of money in less than five years

“All oil exporters will need to adjust to the new low oil price,” the IMF warned AFP

Πηγή: The Independent
By Hazel Sheffield
26 Oct 2015

Iraq, Saudi Arabia and Libya are among the Middle Eastern countries that could run out of money in less than five years because of the fall in the oil price, according to the International Monetary Fund.
The countries in the red bracket could run out of cash in five years or less.

Iraq, Iran, Oman, Algeria, Saudi Arabia, Bahrain, Libya and Yemen are most at risk

Some Middle Eastern countries, such as Kuwait, Qatar and the UAE, have shifted away from their reliance on oil, after prices fell by more than half in a year.

But large budget deficits in Iraq, Iran, Oman, Algeria, Saudi Arabia, Bahrain, Libya and Yemen means that if these countries do not seek to diversify their economies or borrow money, they will run out of cash in five years or less.

Yemenis stand amid the ruins of buildings destroyed in an air-strike by the Saudi-led coalition on the capital Sanaa. Yemen is classified as a fragile economy by the IMF. (AFP)

Of these Iran, which is less reliant on oil, is expected to fare better than countries that suffer from conflict, such as Libya and Yemen.

The IMF classifies Iraq, Libya and Yemen as fragile states because of regional conflict. This has led to sharp drops in GDP and higher inflation. The cost of conflicts in terms of people and infrastructure also makes it harder for these countries to recover.

“All oil exporters will need to adjust to the new low oil price,” the IMF warned. It said that even countries with higher buffers like Kuwait, Qatar and the UAE who can survive more than 20 years of low oil prices need to act now to adjust their reliance on oil, because prices are expected to remain low.

Saudi Arabia is the world’s largest oil producer but must sell oil at $106 a barrel to balance its books. It has started to look at other ways of raising cash, such as selling bonds. Earlier this year the country raised $4 billion by selling bonds.

Energy price reforms in countries such as Iran, Kuwait and the UAE reduced the gap between local prices and international benchmark prices however the IMF notes that savings being made as a result are still relatively modest.

EU decision to lift Syrian oil sanctions boosts jihadist groups

A makeshift oil refinery site in al-Mansoura village, al-Raqqa province.

Πηγή: The Guardian
By Julian Borger and Mona Mahmood
May 19 2013

The EU decision to lift Syrian oil sanctions to aid the opposition has accelerated a scramble for control over wells and pipelines in rebel-held areas and helped consolidate the grip of jihadist groups over the country's key resources.

Jabhat al-Nusra, affiliated with al-Qaida and other extreme Islamist groups, control the majority of the oil wells in Deir Ezzor province, displacing local Sunni tribes, sometimes by force. They have also seized control of other fields from Kurdish groups further to the north-east, in al-Hasakah governorate.

As opposition groups have turned their guns on each other in the battle over oil, water and agricultural land, military pressure on Bashar al-Assad's government from the north and east has eased off. In some areas, al-Nusra has struck deals with government forces to allow the transfer of crude across the front lines to the Mediterranean coast.

Syria oil fire map

As a result of the rush to make quick money, open-air refineries have been set up in Deir Ezzor and al-Raqqa provinces. Crude is stored in ditches and heated in metal tanks by wood fires, shrouding the region with plumes of black smoke, exposing the local population to the dangers of the thick smog and the frequent explosions at the improvised plants.

Heating oil, diesel and petrol is condensed in hoses running from the tanks through pools of water and sold across the north, as far as Aleppo. The remaining crude is shipped by road on tankers to Turkey.

One leading opposition figure said: "The northern front hasn't just gone dormant; the northern front has gone commercial."

The EU announced it was lifting its oil embargo in April to help the moderate opposition. The implementation regulations have yet to be issued so the decision has not taken effect, but regional experts say the announcement intensified the race for oil – a race the western-backed moderates lost.

Joshua Landis, an expert on the region at the University of Oklahoma who runs the Syria Comment blog, said the EU decision on oil "sent a message that oil could come back online faster than most thought possible".

"Whoever gets their hands on the oil, water and agriculture, holds Sunni Syria by the throat. At the moment, that's al-Nusra," Landis said. "Europeopening up the market for oil forced this issue. So the logical conclusion from this craziness is that Europe will be funding al-Qaida."

Abu Albara, an al-Nusra fighter who spoke to the Guardian by telephone from Deir Ezzor, said: "Now, we can say that most of the oil wells are in the hands of the rebels, only a single oil facility in Hasakah is still under the control of [Kurdish fighters]. There are two other oil wells close to the Iraqi borders in the desert. The Iraqi army have surrounded them with tanks but we do not know what they are doing with them."

The al-Nusra guerilla said the group was merely guarding the wells it captured, but the rival groups have accused the Islamists of asset-stripping them for quick money.

"Jabhat al-Nusra is investing in the Syrian economy to reinforce its position in Syria and Iraq. Al-Nusra fighters are selling everything that falls into their hands from wheat, archaeological relics, factory equipment, oil drilling and imaging machines, cars, spare parts and crude oil," Abu Saif, a fighter with the Ahrar Brigade, linked to the Muslim Brotherhood, told the Guardian by phone from the Deir Ezzor area.

"The Syrian regime itself is paying more than 150m Syrian lire [£1.4m] monthly to Jabhat al-Nusra to guarantee oil is kept pumping through two major oil pipelines in Banias and Latakia. Middlemen trusted by both sides are to facilitate the deal and transfer money to the organisation."

A western diplomat watching the situation said: "We understand that in Deir Ezzor, it's a bit of a mix. Al-Nusra is there and there is sometimes co-operation with the regime for practical reasons. In some areas oil products are being given to the local communities, but there are clear dangers in these kinds of open-air refineries."

The diplomat said the EU implementation regulation for the lifting of the oil embargo would include safeguard clauses that would give the western-backed opposition, the National Coalition, the power to authorise exports. But as things stand, the coalition and its allies hold very little of Syria's oil wealth in their hands.

A former Syrian oil executive in the rebel-held areas said: "In the last few months, they seem to have figured a way to sell the oil supply across the lines from the rebels to government forces, through intermediaries trusted on both sides."

The former executive said the oil trade had spawned a growing demand for oil tanker lorries, as a single shipment could earn a profit of up to $10,000 (£6,600). He added that al-Nusra and other jihadist groups were using much of the money to win hearts and minds in areas they have captured, such as al-Raqqa city, which fell in March.

"If you look at what the money does in these places," he said, asking for his name not to be used because of the sensitivity of the issue. "It doesn't take a rocket scientist. You bring in flour, you repair the bakeries, so there are big smiles in the local community. It's an incredible marketing machine."

In April, the head of the western-backed rebel Supreme Military Council, General Selim Idriss, pledged to create a force to secure the oilfields and other economic resources in Deir Ezzor, al-Hasakah and Raqqa provinces, but that force has yet to materialise and observers doubt Idriss has the money, manpower or weaponry to displace the jihadists.

"Idriss probably felt he had to say that, to reassure the Europeans," Landis said. "But nobody takes such claims seriously. Where is he going to get 30,000 men from?"

The only rivals to the power of the jihadists in the oil region are the Kurds in al-Hasakah, and the Sunni tribes around Deir Ezzor, who have found themselves increasingly marginalised by Islamic extremists.

In one well-documented case, fighting broke out in the village of al-Musareb, near Deir Ezzor, between al-Nusra fighters and local tribesmen over ownership of an oil tanker. The al-Nusra commander, a Saudi called Qasura al-Jazrawi, was killed. As a reprisal, the jihadist group levelled much of the village and executed 50 of its residents.

Apart from the latest round of conflict the oil rush has triggered, human rights campaigners have raised concerns about the health impact of the wildcat refining industry. Skin and breathing complaints have become common while there are reports of workers on the improvised oil fields, including children, being burned to death in accidents.

An opposition activist in Hasakah, Salman Kurdi, said: "They refine oil by boiling it to very high temperatures by using gas cans, and most of the time, they blow up. It's killed many of the people who work there.

"A month ago, an explosion happened in an oil well called Shadada, in the countryside south of here, and five people were killed. They dig a big hole and put lots of fire in it and gas to make it boiling. If you travel south to the countryside, you can spot the smoke rising every few kilometres."

SOCAR vs. Gazprom for Greece’s DEPA

Πηγή: New Europe
By KOSTIS GEROPOULOS
April 6 2013

BAKU – State Oil Company of Azerbaijan SOCAR is competing with Russian gas monopoly Gazprom for Greece’s public gas corporation, DEPA, which is being sold as part of the Greece's privatisation programme. But there is more at stake than just buying one more EU energy company.

SOCAR is likely to compete with Gazprom to control non-Russian transportation routes to Europe, Gulmira Rzayeva, Research Fellow at Azerbaijan's Centre for Strategic Studies, told New Europe in Baku on 5 April. This is a healthy competition in the tender bidding for the same stake although the companies' financial capacities are not equal, she added.

“The Azerbaijani company will also need the Greek gas transmission company to invest in the EU country’s downstream market, which is in line with SOCAR’s long-term strategy,” she said.

It seems that SOCAR does not want to let Gazprom take over the control of transportation of the gas via Greece, the only entry point to the South Europe, Rzayeva said.

Even if the Shah Deniz consortium picks Nabucco instead of the Trans Adriatic Pipeline (TAP) to carry 10 billion cubic metres of Azerbaijani gas to Europe, SOCAR wants to keep the Greek market in hand to use the infrastructure to export up to 1 billion cubic metres to the Mediterranean country via the Turkey-Greece Interconnector, she said.

Greece’s DEPA has 50% stake at the Greece-Bulgaria Interconnector (IGB). Another 50% belongs to Italian Edison. Edison is a close partner of Gazprom in the Russian-backed South Stream gas pipeline project as well as one of its biggest clients.

Considering the importance of IGB in the Southern Corridor, Gazprom, by influencing Edison, can freeze indefinitely the construction of the 168-kilometre pipeline, Rzayeva said, pointing out that during three years the construction of the pipeline has still not been completed.

A Memorandum for understanding has been signed between Bulgarian BEH EAD and the Greek gas distribution operator DESFA, which foresees natural gas supplies for the Bulgarian market through utilisation of the capacity of the Greek liquefied natural gas (LNG) terminal Revitusa, gas interconnection Greece-Turkey, as well as capacity in the Greek national gas network if required by the Bulgarian country in compliance with the national legislation.

Rzayeva said that by buying Greece’s DEPA/DESFA, SOCAR can also automatically get a share in IGB as DEPA has stakes in the project and push the project to finalise the construction.

Asked if Azerbaijan is interested in DEPA, Minister of Industry and Energy Natiq Aliyev told New Europe in Baku that this is a decision that concerns SOCAR. He added that it’s too early to say about interest in DEPA because it is not known which pipeline route will be selected.

Azerbaijan’s Shah Deniz consortium said on 1 April it started a final “detailed evaluation” on the Nabucco West and the Tran-Adriatic Pipeline (TAP) proposals. “At the end of June it will be clear,” Aliyev said, adding that Azerbaijan does not prefer one project over the other. “Both of them Nabucco West, TAP are a priority of the European Union. But I think for us there is no difference,” Aliyev said.

Rzayeva told New Europe that the final proposals submitted by Nabucco West and TAP as well as the sale and purchase agreements between gas buyers and the Shah Deniz consortium will play a key role in the decision.

“Both projects have their strengths and weaknesses. For example, to build TAP is cheaper than Nabucco. On the other hand, the Italian market can be oversupplied in the short-term and gas demand there will not grow,” Rzayeva said. “More or less both projects are now equal. It’s the final countdown. We have to wait two more months to see."

China to Overtake US as World's Largest Oil Importer - OPEC

"With the shale boom in the [U.S.] threatening to drastically reduce America's oil import needs, China is expected to take its place in the number one spot," OPEC said in a report posted on its website. 

Πηγή: Downstream Today
By Benoit Faucon, Dow Jones Newswires
April 3 2013

China could overtake the U.S. as the world's largest oil importer by 2014, the Organization of the Petroleum Exporting Countries said in a report this week, the latest evidence of how the American shale boom is reshaping global energy markets.

"With the shale boom in the [U.S.] threatening to drastically reduce America's oil import needs, China is expected to take its place in the number one spot," OPEC said in a report posted on its website.

OPEC, whose members supply more than one in three barrels of crude consumed worldwide, said rising Chinese imports were backed by increased throughput at the country's refineries.

The group quoted analysis saying China's oil imports could top 6 million barrels this year, while the Washington-based Energy Information Administration foresees net U.S. oil imports could fall below that level in 2014.

After initially downplaying the impact of the U.S. shale boom, OPEC, whose members include rival producers from Africa, the Middle East and Latin America--is gradually accepting its transformational role in markets.

In February, the group said demand for its members' oil in 2013 will be 100,000 barrels a day lower than previously forecast because growing output from non-member countries, particularly North American shale oil, will eat into their market share.

In a landmark report in November, the International Energy Agency, which advises developed oil-consuming nations, predicted the U.S. would become the largest global oil producer by 2020 while North America could turn into a net oil exporter 10 years later.

What Happens to Cyprus’s Natural Gas with the Current Bailout Plan?

Πηγή: Oilprice
By James Burgess
April 2 2013

Where does the Cyprus bailout deal leave its energy reserves?

It has been estimated over the years that the southeastern waters of Cyprus contain 50 to 60 trillion cubic feet of natural gas and 1.7 billion barrels of crude oil, worth around $400 billion.

The government in Nicosia has always based plans for the future on this projected income, so the idea of raising money based on future natural gas revenues as a means to alleviate some of the pressure caused by the immense debt that the island nation found itself in, was out of the question.

Natural gas production is not expected until around 2018 or 2019, and Cyprus refused to use any discounted future valuations to raise money in the present, not wishing to run the risk of selling their future for far less than it might be worth.

After the first bailout plan offered by the EU was rejected, however, a viable option that was considered was to accept direct financial assistance from Russia in return for the rights to explore and develop Cyprus’s natural gas.

This worried the EU who had, for a long time, been hoping that Cyprus’s natural gas would offer genuine relief from an almost complete reliance on Russian exports.

Luckily the deal with Russia never really materialised, and, possibly motivated by the fear that Russia could get hold of the gas reserves, Europe was able to agree a deal with Cyprus, leaving all natural gas reserves completely untouched.

Unfortunately analysts are predicting that this bailout plan will be just the first step on the road to recovery, and the security of the natural gas reserves may be threatened again in the future as Nicosia looks for other methods to raise capital.

Greece and Turkey Spar Over Aegean Energy

Πηγή: Oil Price
By Alex Jackson
Feb 28 2013

The relationship between Turkey and Greece has improved immeasurably over the past few years. Once locked in a miniature Cold War, Ankara and Athens have now realised that they need to cooperate on a host of issues – particularly gas transit. But as many other countries have come to realise, natural gas is just as often a source of division as cooperation. A new row over offshore drilling rights, along with the ongoing disputes over eastern Mediterranean gas, is posing new difficulties for their relationship.

In January news reports began to circulate that Greece was planning unilateral drilling in disputed areas, prompting a cautious warning from Turkey. Not much more was heard until, in mid-February, Greek Prime Minister Antonis Samaras insisted that Greece has the right to explore for oil and gas anywhere within its territory and that it could declare an Exclusive Economic Zone (EEZ) for that purpose.

The following day, Greece submitted a note to the United Nations raising the issue of “Turkey’s granting of exploration permits [for oil and gas drilling] for areas of the Greek continental shelf” which, Athens said, violated the UN Convention on the Law of the Sea.

Ankara promptly responded by vowing to submit its own note to the UN and take appropriate counter steps. Turkey said that “the licenses that Turkey has given to the TPAO since 2007 are within the borders of the Turkish continental shelf in the Eastern Mediterranean and Turkey has sovereign rights concerning exploration and drilling for natural sources in these fields.”

The dispute over maritime boundaries in the Aegean and eastern Mediterranean has been rumbling on for decades, complicated by the presence of Greek islands near the Turkish coast. Both sides have threatened to use force if the other drills in what they see as their own waters.

As Turkey noted, TPAO has been granted exploration licences in the Aegean and Mediterranean since 2007, although activity since then has been limited. In 2008 Turkey conducted some exploratory work in Turkish waters and in late 2009 TPAO reportedly discovered gas in the area but little has happened subsequently. International investors are cautious until absolute clarity on continental shelf and EEZ rights can be assured.

So why has the dispute flared up again, and what does it mean for the regional gas picture? The answer to the first question is clearer. Samaras was speaking shortly after French President Francois Hollande visited Greece and expressed interest in French firms helping to explore for oil and gas in the Aegean. Total is reportedly keen to drill in the Aegean, which is believed to be extremely prospective but remains under-explored due to the political tensions. Reportedly Hollande is already encouraging Athens to lease two French frigates for the exploration, though whether as escorts or to be fitted with seismic equipment is unclear.

Samaras’s statement also came just a few weeks before he visits Ankara with members of his Cabinet for high-level meetings. Announcing Greece’s right to declare an EEZ and drill in the Aegean was a clear statement of intent to the Turks in advance of that trip, even if he hasinsisted that a peaceful solution must be found.

Greece is evidently laying its cards on the table and trying to force some movement on the Aegean border issue. Turkey, however, is unlikely to compromise. It is already at loggerheads with (Greek) Cyprus over natural gas issues in the eastern Mediterranean and sees Greece as the endpoint of an axis running from Israel and through Cyprus. Ankara has already warned the three states that a subsea pipeline isn’t going to happen; the fact that Total has recently signeda deal with Cyprus to drill offshore (a decision which blackballs it from working in Turkey) underlines the connection.

Given Turkey’s sense of a confrontation stretching from the Aegean to the Levant, and its efforts to increase its own offshore drilling, don’t expect Ankara to compromise on Greek demands. Samaras almost certainly knows this. But Greece’s economic woes have raised the stakes. Developing a new source of revenue whilst also flying the flag for sovereignty might be a popular move.

Worsening Turkish-Greek relations may have an impact on wider gas export patterns. Most obviously it would exacerbate existing tensions in the eastern Mediterranean between Turkey and Cyprus, as both relationships tend to influence each other. The chances of a rapprochement between Ankara and Nicosia on energy, or of a subsea pipeline from Israel, would get even slimmer.

Indirectly it could also affect the chances of the Trans-Adriatic Pipeline being chosen by the Shah Deniz consortium in June. Formally of course the decision of the consortium, in which TPAO has a small stake, is not supposed to be at all political. But in practice a political crisis over the Aegean, or a Turkish decision to suspend energy cooperation with Greece on existing gas pipelines, would raise serious questions about the viability of another pipeline crossing between them.

For now both sides are committed to dialogue and finding a constructive solutions. Greece and Turkey have come a long way in the past few years: this is not 1987, when attempted hydrocarbon exploration by Turkey almost led to a military confrontation. But the energy stakes in the Aegean could be very high, and both sides will try and take things down to the wire.

Cheney-Linked Company to Drill in Occupied Golan Heights

Richard Cheney, K. Rupert Murdoch and Lord Jacob Rothschild are in the Genie's Board of Diectors.

Πηγή: Oilprice
By Daniel J. Graeber
Feb 24 2103

The Israeli government awarded a local subsidiary of U.S.-based Genie Energy the rights to explore for oil and natural gas in about 150 square miles of the southern section of the Golan Heights. The United Nations last year extended the mandate for the region's U.N. Disengagement Observer Force mission, one of the oldest peacekeeping missions, for another six months. U.N. Secretary-General Ban Ki-moon said keeping Blue Helmets stationed in the area was essential to peace given the potential for conflict spilling out of the Syrian civil war. Genie Energy said there may be a significant amount of oil and natural gas in the license area. When Israel set its sights on offshore natural gas, Hezbollah warned that Israel shouldn't encroach on Lebanese territory. If recent concerns about Hezbollah's influence are any indication, the Shiite resistance movement may focus its guns onshore amid expanding Israeli energy interests. With former U.S. Vice President Dick Cheney serving as an adviser to Genie, however, the implications may go beyond immediate worries over Hezbollah.

Genie Energy said there may be "significant quantities" of natural resources in the region. The license area encompasses about 150 square miles of the southern portion of the Golan Heights, considered territory occupied by the Israeli military.

"Genie Energy intends to conduct an exploration program to further investigate the size and quality of the resource in the new license area," the company explained in a statement.

Last year, Israeli Energy Minister Uzi Landau said the government was looking to open the territory up for oil and natural gas exploration. Israel claims the territory as its own after capturing the region in a 1967 war with Syria. In November, UNDOF peacekeepers monitoring the 1973 cease-fire between Israel and Syria came under fire near Damascus during a troop rotation. U.N Secretary-General Ban Ki-moon said he was concerned the Syrian civil war could spillover the borders given the latest escalation of violence. Last month, the United Nations expressed further concern amid reports that Israeli planes flew over the region to conduct an air strike on Hezbollah territory in southern Lebanon.

Landau's comments last year came amid optimism about natural gas reserves located off Israel's coast. The Tamar natural gas field is said to hold as much as 8.4 trillion cubic feet of natural gas. The Leviathan field may hold nearly twice that, with an estimated 16 trillion cubic feet of natural gas. Located more than 50 miles off the Israeli coast in the Mediterranean Sea, Lebanon contends some of that natural gas may lie in its territorial waters. Two years ago, Hezbollah warned that it wouldn’t tolerate any company working offshore where sovereignty is uncertain.

"The Israeli enemy cannot drill a single meter in these waters to search for gas and oil if the zone is disputed," it warned.

Hezbollah claimed victory in a 2006 war with Israel. Since then, Hezbollah has come under fire for ties to a terrorist attack on Israeli tourists in Bulgaria. Last week, former Lebanese Prime Minister Rafik Hariri saidhe was concerned the Lebanese government was ceding military control over the southern borders to the Shiite movement, which holds Cabinet-level positions in the Lebanese government.

Israel has faced increasing isolation for its settlement activity in the West Bank and for violating the border of its northern neighbors. A 1993 foreign policy doctrine from Israel's ally Washington, meanwhile, linked U.S. national security interests as they relate to oil and natural gas tacitly to Israel's security.

"The United States is committed to the security of Israel and to maintaining the qualitative edge that is critical to Israel's security," it read.

That document was drafted with the help of then Defense Secretary Dick Cheney. He's serving as an adviser to Genie as it plans work in an area encompassing about 30 percent of the Golan Heights. U.S. President Barack Obama, meanwhile, has plans to visit Israel next month. Cheney expressed recent concern that the Middle East was "as dangerous now as it has ever been" under Obama's leadership. With Cheney working the back channels, that "qualitative edge" may manifest itself in drilling operations in the occupied Golan Heights, a powder keg for potentially broad-based war in the Middle East.

Israel, Cyprus Sign Gas and Oil Deal

Πηγή: Israel National News
Feb 11 2013

Israeli firms Delek and Anver signed an agreement Monday to acquire a 30 percent of rights to explore for gas and oil off the Cyprus shore.

Israeli firms Delek Drilling and AnverOil and Gas Exploration signed an agreement Monday to acquire a 30 percent stake in exploration rights for gas and oil off the southern shore of Cyprus.

The drilling is to be carried out by U.S.-based Noble Energy. Both Delek and Anver own majority rights in Israel’s own mammoth gas discoveries, the Leviathan and Tamar fields off Israel’s northern coast.

Cypriot Commerce Minister Neoclis Sylikiotis acknowledged in making the announcement that the deal provided a “new era of Cyprus-Israeli strategic cooperation which includes economic and political dimensions,” AFP reported.

The deal comes less than a week after Cyprus signed an agreement with French energy giant Total, to conduct exploratory drilling for gas and oil in two blocks off its southern shore.

Noble Energy, Inc was the first to drill when awarded Block 12, after Cyprus launched its search for an underwater gas field in 2007.

In December 2011, Noble announced it had discovered natural gas reserves of up to 8 trillion cubic feet (226.5 billion cubic meters), at an estimated value of 100 billion euros.

Cypriot analysts estimated the field could satisfy domestic needs “for decades” and enable the country to become a regional player with the export of gas to Europe by 2019.

CEO of Sintez Group: 'Greece’s transformation into a natural gas transit hub for Europe'

Πηγή: Natural Gas Europe
Jan 29 2013

The CEO of Sintez Group, Andrey Korolev, provides us his views and comments regarding the participation of Sintez's subsidiary Company Negusneft in the privatization competition for the Greek natural gas companies DEPA & DESFA.

He answers on the key questions surrounding this privatization, especially competition issues, corporate challenges and considerations, along with Negusneft’s future intention regarding the Greek natural gas market.

"If we win the DEPA/DESFA auction we will be committed to comply in full with EU energy regulation"

What are the general intentions regarding Negusneft's participation in the DEPA-DESFA privatization process, and more specifically, how does your company view the prospects of the Greek natural gas market?
“We believe that DEPA and DESFA are high-quality assets that can play a meaningful role inGreece’s transformation into a natural gas transit hub for Europe. This development would clearly be of benefit to the Greek economy through diversifying Europe’s gas supply options and ultimately bringing gas prices to a more competitive level, with lower energy prices being a key element of any long term economic recovery. As a long-term player in the Balkan’s energy market, SINTEZ wants to play a role in that transformation.

DEPA and DESFA are a natural fit with SINTEZ Group’s existing business assets in the Balkans, namely our combined cycle heat and power project in Skopje, which we have already been in talks with Greece about connecting to DEPA via a Greece-Skopje interconnector project. There are a number of additional infrastructure-related opportunities that make DEPA and DESFA a strong platform for growth in the region.

The challenges that Greece is currently facing cannot last forever. Having operated for 25 years in the former Soviet Union and countries such as Namibia and Indonesia, our company is quite adept to working in such challenging and transitional environments.”

What is your opinion regarding any challenges you may have experienced as a company during the privatization process thus far and how do you assess your communication and cooperation with the Greek authorities?

“We are pleased that the HRADF (Privatization agency) recently has commenced the final round of the privatization of DEPA and DESFA, albeit later than was originally announced. Now, shortlisted companies, including SINTEZ subsidiary Negusneft, will have access to the data room and necessary documentation in order to put together a comprehensive binding offer for DEPA and DESFA.”

It would be of great interest to note from you, around the future projects or strategy by your company in relation to DEPA-DESFA. How do you see a potential partnership unfolding and what may be your investment plans for these companies?

“Clearly, the transformation of Greece into a gas transit hub for Europe will require a great deal of investment for new infrastructure. However, it goes without saying that the development of the Greek gas market will be beneficial for the country, as it can create new jobs and, more importantly, diversify natural gas supplies into the country, thereby spurring competition and having a positive effect on gas prices in the region.”

With regards to another issue that has recently gained prominence in the EU and Greece, that is the competition rules as implemented by Brussels and the compliance of natural gas companies with the Thrid Energy Package. In your view, does this affect your company in relation with its intentions to bid for both DEPA & DESFA?
“SINTEZ Group is an independent company and we do not have the conflicts of interests as with some other bidders, who are state-owned gas producers. If we win the DEPA/DESFA auction we will be committed to comply in full with EU energy regulation, while at the same time diversifying gas supplies and investing in infrastructure to transform Greece into a natural gas transit hub. We remain confident that given our strategic focus on the Balkans and relevant sector expertise, SINTEZ Group is the right fit to further develop DEPA and DESFA.”

Editor's note: According to Al Jazeera "The waters off the Greek island of Crete could hold up to 3.5 trillion cubic metres of natural gas

".