That Missing Oil Tanker, And Iran’s Game of Leverage

We said the cat-and-mouse game over security in global oil shipping lanes would get worse; and it has. On Sunday, a UAE-based oil tanker (a Panamanian ship, MT Riah) was traveling through the Strait of Hormuz when it suddenly stopped transmitting. It was last seen in the Persian Gulf, off Iran’s Queshm Island. It hasn’t been heard from since. It disappeared from radar near a base of Iran’s Revolutionary Guards.


But what happens next depends entirely on interpretation. According to our sources, this is a tiny vessel. Tankers trackers will confirm that. That’s why it took from Sunday until Tuesday for this story to really become interesting to the media. The US wants it to be interesting. So does Iran. It’s bait for leverage to see how we’ll end this conflict by bringing Iran back to the nuclear table.

But the reality is that it’s a small tanker, that is only nominally UAE-based, with no UAE crew. And it’s really no mystery. The Iranian foreign minister has already said that they pulled the tanker into Iranian waters to provide it with assistance when it was having trouble–ostensibly. If they ‘hijacked’ it, it was just to ratchet up tensions and hope that it was big enough for anyone to care. In this atmosphere of fear around the Strait of Hormuz and all the pathways to it, anything works to that end.

The likelihood is that this cat-and-mouse game will sooner or later end up with the US and Iran back at the negotiating table after an awful lot of wasted time and misguided strategy that doesn’t work.

But short of conflict, it may prompt other major changes in oil trading. The UAE is now said to be considering a major overhaul of state-run ADNOC’s trading operations, and the creation of its own regional benchmark as soon as this year. Why? It’s about influence, and the UAE has export alternatives to the Strait of Hormuz, and can store oil elsewhere–that means a Murban benchmark would have the potential to lure in foreign buyers. And at a time when fear is at an all-time high in the Strait, this is a solid pitch. Even beyond this, the UAE idea takes things further than the preparations for an Aramco IPO in terms of restructuring. They want it to trade freely on the market, according to Reuters. Over the next couple of weeks, we’ll be using our sources on the ground in the region to flesh out the potential for this to happen.

Libya’s 15,000bpd Trick to Boost Exports

The conflict between Libya’s GNA and General Haftar has brought any prospect of Libya increasing oil output to a standstill–until one or the other sides fully control it. But the Tripoli-based NOC has a new trick up its sleeve: It’s going boost what’s available for export by converting a large power station to natural gas, freeing up 15,000 bpd for export.

In the meantime, prepare for yet another phase in this conflict, as rumors mount that the UAE is setting up a military base in neighboring Niger to more readily aid Haftar in his push to take over Tripoli. This conflict went external noticeably earlier this month with Turkey’s direct involvement in helping the GNA retake a key base from Haftar, south of Tripoli, and then Haftar responded by shooting down a Turkish drone and detaining a handful of Turkish sailors, while promising to target Turkish assets in the country.

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The natural response is for someone on the other side of this game to reach out in kind–to Haftar–to rebalance. Thus, we enter the next phase.

Why almost no-one wants Ghana’s offshore riches

Why is it that only Italy’s Eni–among the supergiants–is interested in offshore Ghana’s oil riches? Exxon is out of the game, and BP, too. In the Jubilee field alone, we’re talking about a potential 3 billion barrels.

Part of the reason is the oil price crash, which made operating in Sub-Saharan Africa’s corrupt and unstable environment hardly worth it. In May, Exxon and BP abruptly withdrew from the bidding process for six oil blocks. They said they just weren’t interested anymore.

That leaves Ghana with the bottom of the barrel to pick from, outside of Eni, which has the stomach for Sub-Saharan Africa more than anyone else does. French Total SA will creep in the backdoor here by acquiring Anakarko’s assets in the area.

That means that aside from Eni, Ghana is left with Nigeria’s First E&P, which isn’t exactly a boost of confidence for attracting additional foreign investors–even when it’s the lucrative Jubilee and TEN mega oilfields up for grabs.

Back in 2010, Exxon was interested. It tried to buy Kosmos Energy’s operating stake in Jubilee, but the government blocked it. Corruption is the price to pay to operate in Sub-Saharan Africa, and whether foreign companies fall to its temptation or not, makes no difference. They’ll fall anyway. That’s what happened to Kosmos, and why the Exxon deal didn’t go through. The supermajors can’t afford this unless oil is at $100 a barrel.

Jubilee was discovered in 2007, putting Ghana on the oil map. The first oil was pumped in 2010, when oil was at a stunning $100/barrel. Then the other shoe dropped. Ghanaians weren’t seeing any prosperity from this massively lucrative oil. The government responded by charging Kosmos with corruption, and its local partner with money-laundering. But the even bigger issue was how the field was licensed to Kosmos and local EO Group. In other words, bribery. This is unfolding across Sub-Saharan Africa right now. From Ghana to Guyana, and with Brent at $64, offshore Africa isn’t nearly as attractive. Offshore is extremely expensive to develop, without lucrative deals that amount to bribery, and Sub-Saharan Africa has been all too zealous in that department. Now it’s time to pay the piper, and that means far fewer takers for some of the world’s richest oil fields.

Why Gazprom Is, and Isn’t A Good Buy

Gazprom has a market-share problem in Europe, and that problem starts with LNG. And it’s not just about foreign LNG competitors, it also has a home-grown problem in the form of Novatek. Novatek managed to supply more LNG to Europe than anyone else did earlier this year, and while Novatek will admit that the two companies are rivals as much as they are partners, the numbers are clear. Gazprom, on the other hand, sees where this wind is blowing. But this is a tricky rivalry because both are Kremlin-backed.

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How to resolve this? A shakeup at Gazprom. And no one’s really been paying attention. And despite (or because of) that shake-up, Gazprom’s shares have been rallying–even though EU natural gas prices have been ticking lower and lower and that will negatively affect Gazprom’s valuation and outlook.

But the share price boost was artificial: It came from a Russian Finance Ministry directive for Gazprom (and all other state-owned companies) to pay a minimum of 50% of their profits as dividends to shareholders.

This week, Gazprom released data showing that its natural gas exports outside the FSU (former Soviet Union) dropped by 5.6% since the beginning of this year, and compared to a year ago. Part of the reason has been the fact that companies are saddled with US LNG offtake agreements while the global LNG market is weakening (in terms of price). They’re dumping it off on Europe, even at a loss–so it’s not just Novatek that Gazprom has to worry about. But Gazprom can’t attack the market as a whole. It’s not a tangible being. Instead, it’s executives have been going after Novatek; they’ve even accused Novatek of cheating the government on taxes. That’s a dangerous accusation to make to a Kremlin-backed company. But it was all Gazprom had left after a forced shakeup in its board of directors earlier this year.

Novatek is on a roll. Since 2013, it’s been a growing threat to Gazprom. That was the year that Putin put an end to the Gazprom monopoly and created a little competition in this field, allowing Novatek to increase LNG capacity by three times to this day. Gazprom has failed to predict the global LNG market here–and Novatek has stepped in rather smartly. Sooner than later, it won’t be Gazprom that’s the Kremlin’s biggest political weapon in Europe–it will be Novatek.

An American-Israeli business now stands accused of facilitating the sale of oil from the Kuridsh-controlled area of Syria to the Israelis. But while denying the facilitation of those sales, he also noted that he was trying to keep this oil from getting into Iranian hands, while also decrying that he’s not on any side in this conflict. Each of these three things contradict the other. The middleman here, Moti Kahana, says he’s an American who does not serve Israel. If the Syrian Kurds can’t sell their oil to Iran, there aren’t many options because their only outlet is through Turkey, which is closed off to Kurds of any brand at this point. So, the only pathway is through the Iraqi Kurds and then on to Iran. In question are 11 oil wells that the Syrian Kurds control, which also represents the lion’s share of Syria’s oil production. This is how a middleman launches another phase of warfare–by selling that oil to the Israelis, which rather changes Israel’s role in this game.

Global Oil & Gas Playbook

– Russian authorities have arrested Dmitry Mazurov, former owner of the Antipinsky refinery, Russia’s largest independent oil refinery, in a case that is potentially about embezzlement. While prosecutors have not released specific charges, Russian media say Mazurov is accused of embezzling $600 million that had been allocated for refinery construction. In May, the refinery filed for bankruptcy–some $5.5 billion in debt–and a Sberbank JV acquired an 80% stake in the refinery.

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– US shale player Carrizo Oil & Gas is selling over to Callon Petroleum for a total of $3.2 billion, which includes $1.2 billion in stock and the rest in debt. This is a merger deal for Texas shale, specifically for the Permian Basin and Eagle Ford. The deal is expected to close in Q4. The merger will produce a company with around 200,000 net acres in both basins, with average production of around 100,000 boepd in Q1 2019.

– It’s not Ghana, but it’s garnering even less interest from the world’s supermajors: Israel’s offshore Mediterranean bidding saw only two groups throw their hat in the ring for exploration. One group includes British Cairn Energy, SOCO International and Israeli Ratio Oil. The second group is Energean and Israel Opportunity. There are 19 blocks available, and these two groups bid on 16 of those.

– The European Union is still not moving decisively against Turkey for drilling off the coast of Cyprus. The European Commission will continue to work on possible financial sanctions over two Turkish drilling vessels in Cyprus’ EEZ. So far, the only real measure the EU has taken is to cut $165 million in EU from Turkey’s pre-accession aid, and to freeze the investment activity of the European Investment Bank in Turkey. They’ve also cancelled high-level talks with Turkey planned for the economy, energy, transport and agriculture, but that, too, is symbolic at best since these talks had been put on hold as far back as 2016 over other political issues. The EU isn’t going to meddle seriously in this issue right now, much to Cyprus’ dismay. That’s largely because the bloc still needs Turkey for energy transit. Brussels is also concerned that Ankara may play dirty here with migrants, allowing them to illegally travel into Europe in an act of retribution for any real sanctions.

– Keep an eye on the Lake Albert play in Uganda. Before any FDI can be made on this, we need to know what the outcome will be of Tullow’s sale to Total SA and China’s CNOOC. That’s where we’ll get to the real development of the estimated billions of barrels of oil at Lake Albert. But we’re not convinced that Ugandan President Yoweri Museveni is going to sign off on this sale. Museveni has given this deal preliminary approval and it was supposed to be done in April. It’s still not, and the president keeps dragging his feet. In the meantime, Tullow appears to be contemplating an exit from Uganda altogether. First production here was supposed to be in 2020, and that is now highly unlikely. Tullow has a knack for putting new African oil venues on the map–but after that, keeping them there is a challenge.