Monthly Archives: June 2017

Seaborne Gas

One day in March 2017, he Rioja Knutsen tanker, filled with liquefied natural gas, was traveling from the U.S. to Portugal. Suddenly, Mexico’s power company lobbed in a higher bid for its cargo. At the Bahamas, the ship abruptly made a starboard turn and headed south.  How natural gas is bought and sold in the world’s scattered regional markets for the fuel is changing rapidly. Ships such as the Rioja Knutsen are stitching those regions together and a single global market is emerging.  This is already how nearly every other hydrocarbon, from crude oil to obscure petrochemicals, is sold. As gas joins the club, the effects will ripple through energy prices, company profits, the environment and geopolitics.

Behind the evolution is improving technology for moving gas as a liquid, which means it can go to many more places rather than simply where a pipeline runs. …The share of gas moving by sea reached 40% of total trades in 2015, and the International Energy Agency forecasts that seaborne gas will account for a bigger share of trading than pipelines by 2040.

Thirty-nine countries now import LNG, up from 17 a decade ago, according to data and analytics firm IHS Markit. Several more, among them Uruguay, Bahrain and Bangladesh, are expected to lift the total to 46 in the next couple of years.

In one sign of how gas is going global, the U.S. and China are working on a trade deal that could send vast quantities of gas pumped in Texas and Pennsylvania to factories in Shanghai and Guangdong. Improved access for U.S. exporters to China’s giant energy markets could boost overall global shipments…

As LNG import terminals open in more locations, gas pricing and trading mechanisms are developing as well. Some investors are increasingly using the gas price at a pipeline intersection in Louisiana, called the Henry Hub, as a global benchmark.  Trading in the New York Mercantile Exchange’s Henry Hub gas futures contract is becoming more global, said Peter Keavey, global head of energy at Nymex owner CME Group . In May, Standard & Poor’s and the Intercontinental Exchange launched the first futures contract based on LNG produced in the U.S.

Seaborne gas is reducing some countries’ historic dependence on pipelines that run through potentially unfriendly territory. Poland, for instance, opened its first import terminal a year ago, lessening its reliance on gas piped from Russia.

When global trade in LNG began in the 1960s, the cost of liquefying gas was so high it was a niche product, affordable only by developed countries such as Japan.  As the technology proved reliable, trade in LNG became more common, but contracts to deliver the fuel by ship were decades long and had ironclad destination clauses. Gas contracted for Tokyo couldn’t be rerouted to Seoul. Traders called gas tankers “pipelines at sea.Now, contracts are getting shorter and starting to allow gas to be diverted to where demand is greatest. Earlier this year, three large LNG buyers in Japan, China and South Korea agreed to work together to push sellers for more contract flexibility and fewer onerous restrictions.

At any given time, there are about 170 tankers filled with LNG on the world’s oceans,… At the heart of the changes is supply. Huge new discoveries in the U.S., Middle East, East Africa and Australia, along with recovery techniques such as fracking, have expanded the amount of gas available for export….One pioneer is Houston-based Cheniere Energy Inc. FBy next year, Sabine Pass and other LNG terminals are expected to turn the U.S. into a net gas exporter….In a quest for customers, Cheniere has invested in a Chilean project to build a power plant, LNG terminal, storage facility and pipeline.   Oil titans Total SA and Royal Dutch Shell PLC also are offering to build facilities to burn gas. The two and their partners are building an import terminal and pipeline for an estimated $200 million in Ivory Coast, which will feed a power plant in the West African country’s economic hub of Abidjan. Qatar, the longtime LNG leader, recently lifted a self-imposed moratorium on the development of its North Field, the single largest gas reservoir in the world. So far there is little indication Qatar’s diplomatic spat with Arab neighbors will affect the gas market.

Helping make gas more accessible is a relatively new technology—floating LNG facilities. ..The first floating terminal was christened in 2005. Today there are 25….Excelerate Energy, a Houston company that developed this technology, is working on new floating terminals in Namibia, Bangladesh, Pakistan and elsewhere. The equipment to liquefy gas can also now be put on a large vessel that can be anchored offshore.

Excerpts from Long Promised, the Global Market for Natural Gas Has Finally Arrived, Wall Street Journal, June 7, 2017

The Power of Giving Love

Russia’s sale of one-fifth of its state-owned oil company to Qatar and commodities giant Glencore PLC last year had an unusual provision: Moscow and Doha agreed Russia would buy a stake back, people familiar with the matter said.  Russian President Vladimir Putin hailed the $11.5 billion sale of the Rosneft stake in December 2016 as a sign of investor confidence in his country. But the people with knowledge of the deal say it functioned as an emergency loan to help Moscow through a budget squeeze.

Moscow agreed with Qatar that Russia would buy back at least a portion of the stake from the rich Persian Gulf emirate, the people said. The Qatar Investment Authority and Glencore, the Swiss-based commodities giant, formed a partnership to buy the 19.5% stake in Russia’s energy jewel at a time when Mr. Putin’s government needed cash. The people with knowledge of the deal say the buyback arrangement was negotiated with involvement from Mr. Putin and the emir of Qatar, Sheikh Tamim bin Hamad Al Thani. Russia and Qatar saw it as an opportunity to build a bridge between countries that had taken up opposite sides in the Syrian civil war, the people said. One of the people said the buyback would happen in the next 10 years…

Rosneft, the world’s largest listed oil producer, is traded publicly in Moscow, but it isn’t easy to buy and sell large pieces of the company because it remains majority-owned by the Russian state and is an instrument of economic power for Mr. Putin.  The people familiar with the deal said a time-limited structure and a buyback agreement for the deal worked for both Qatar and Russia.

Qatar wanted its Rosneft stake to be temporary, the people said. The emirate believes it will profit from selling the shares back to Russia at a later date, the people said, betting that oil prices will rise and push up Rosneft’s share price. Qatar saw the political benefits of giving Russia access to quick cash as a sort of loan to address a budget deficit that had widened due to lower oil prices, the people said.  After the deal, a range of talks opened between Russian and Qatari businesses on a scale not seen before, Russian news agencies have reported….The deal was called the largest-ever foreign investment in a Russian company.

In an unusual arrangement, the rest of the financing was provided by Russian banks, which contributed EUR2.2 billion, and Italian bank Intesa Sanpaolo SpA, which lent EUR5.2 billion to the Glencore-Qatar consortium, according to a Dec. 10, 2016 new release issued by Glencore. The financing is “non-recourse,” Glencore said in the release, meaning the lenders couldn’t pursue Glencore and the Qatar Investment Authority if they weren’t repaid….Under the deal, the Rosneft shares aren’t held directly by Glencore and Qatar but by a U.K. limited liability partnership, according to British corporate records….

After the deal was announced, Mr. Putin awarded one of Russia’s top honors for foreigners — the Order of Friendship — to Qatar Investment Authority’s chief executive, Sheikh Abdullah bin Mohammed bin Saud Al-Thani, Intesa’s chief executive, Carlo Messina, and Glencore’s chief executive, Ivan Glasenberg.

Excepts from Russia’s Rosneft Stake Sale Had a Twist , Wall Street Journal, June 8, 2017

 

 

 

The World of Ones and Onlys

Burundi Currency

Fuel shortages have paralysed the small central African nation of Burundi, threatening further damage to an economy already moribund after years of political violence and raising questions about the role of the country’s only oil importer….

The shortages, which forced government to introduce rationing on May 16, have paralysed commerce and caused food prices to jump, raising the prospect of economic migration. More than 400,000 people have already fled Burundi into the volatile central African region.  Anti-corruption campaigners said fuel shortages became severe after Burundian company Interpetrol Trading Ltd. received the lions’ share of dollars allocated by the central bank to import fuel.

“The oil sector is undermined by favouritism and lack of transparency, because the rare hard currency available in the central bank reserves is given to one oil importer,”   The central bank declined to answer Reuters’ questions….

Interpetrol is now the sole oil importer and runs all fuel storage tanks in the country, said an industry source.  Banzubaze said there was “no link” between Interpetrol’s shareholders and any member of government.

A 2011 US State Department report described attempts by senior government officials to pressurise judges into dropping a corruption case against the company, owned by brothers Munir and Tariq Bashir. …Government officials blame dollar shortages on aid cuts donors imposed after President Pierre Nkurunziza ran for a third term in 2015, triggering a wave of political violence.

“These days, fuel importers don’t get enough dollars to bring in petroleum products,” said Daniel Mpitabakana, government’s director of fuel management….The street exchange rate is 2,600 francs to the dollar, although it is just over 1,700 to the dollar at the central bank. Only the central bank can receive dollar deposits and allocate dollars to businesses…

Burundi has also been battered by drought and almost two years of political instability. Hundreds of people were killed and hundreds of thousands were forced to flee during political violence, which sometimes still erupts in low-level clashes.

Burundi paralysed by fuel shortages, Reuters, Wednesday, 31 May 2017

At Least Preserve Something

Pendjari National Park

Benin is hiring scores of extra park rangers and bringing in conservation scientists to rehabilitate part of West Africa’s largest wildlife reserve, which contains big cats and thousands of elephants that have largely died out elsewhere in the region. The W-Arli-Pendjari (WAP) complex is the region’s biggest remaining expanse of savannah, covering more than 30,000 sq km of Benin, Niger and Burkina Faso.

The tiny nation has partnered with NGO African Parks for the 10-year project centred on the 4,800 sq km Pendjari National Park, part of WAP and seen as the most viable tourist hub for the area, officials involved told Reuters.

“Pendjari is an opportunity for Benin and the region,” Jose Pliya, director of Benin’s national tourism agency, told Reuters. “This partnership will help us make it a sustainable tourism destination and a lever for development and employment for Beninoise.”

Boosting ecotourism faces challenges, not least because jihadists are thought to have infiltrated parts of the wider reserve. France, former colonial master of the three nations straddling the park advised it citizens against all travel to the Burkina Faso side of the expanse.

To better police the park, the project will recruit 10 officers or specialists, train 90 guards, set up a satellite communications network and put a 190 km fence around it, a joint statement from African Parks and Benin said.

Excerpts from Moves to save part of west Africa’s last big wildlife refuge, Reuters, June 2, 2017

The Costs of Barbed Wire

image from wikipedia

People smugglers make about $35 billion a year worldwide and are driving the tragedy of migrants who die trying to cross the Mediterranean to reach Europe, the head of the International Organisation for Migration (IOM) told Reuters.  Increasing numbers of desperate migrants fleeing from Africa and elsewhere due to conflicts and humanitarian crises are dying as they attempt to reach Europe via Libya, coaxed to do so by smugglers as they wait in detention centres.

The death toll of people crossing the Mediterranean has reached 1,700 so far this year before the summer when many more make the journey, compared to 3,700 for all of 2015 and 5,000 last year, said IOM head William Lacy Swing.

“Let’s be careful because those are the people we know died, how many other bodies are submerged in the Mediterranean or buried in the sands of the Sahara?” he said in an interview on the sidelines of a conference on migration.

People smuggling now represents the third-largest business for international criminals, after gun and drug trafficking, he said.Libya is a major point of departure for migrants from Africa, where lawlessness is spreading six years after the fall of strongman Muammar Gaddafi and migrants say conditions at government-run migrant centres are terrible…

Lacy Swing stressed that…”We know historically migration has always been overwhelmingly positive.”

Excerpts from Migrant crisis worth $35 billion a year to people smugglers. Reuters, June 2, 2017