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Friday, 23 October 2015 14:00

Producing countries suffering losses Featured

Producing countries suffering losses

Countries exporting energy resources are suffering from decline of oil prices. Caspian states, producing resources, also suffered from the impact of the global oil market. According to preliminary data, the losses, fixed in the first half of the year alone, reach tens and even hundreds of billions of dollars. At the same time, the Caspian countries are developing export infrastructure and underline the necessity of development of the domestic energy market.

 

Financial flows

The US Department of Treasury has published losses of states from oil price decline on its official website. According to the report, lower oil prices have resulted in a meaningful shift in income from oil exporters to oil importers.

Oil exporters have experienced large losses in income from the lower oil prices. In total, currency inflow in the oil producing countries fell from $295 billion in 2014 to $40 billion in the first quarter of 2015.

Saudi Arabia was affected the most, with its oil revenues decreasing by $150 billion in the first half of 2015. Other Gulf Cooperation Council (GCC) countries saw oil revenues decline by about $130.

Russia lost $100 billion in oil revenue in the first half of 2015. Norway’s oil earnings declined by $30 billion, Iraq $40 billion, Venezuela $30 billion, Canada $30 billion, Kazakhstan $25 billion, Nigeria $25 billion, Mexico $12 billion, Columbia $12 billion.

Losses of Kazakhstan are estimated at $25 bln. Losses of Azerbaijan from oil export totaled over $7.5 bln in the first half of 2015.

However, Asia’s gain in the first half of the year was nearly $340 billion in savings from oil imports. China’s savings amounted to nearly $120 billion, Japan saved $76 billion, India $44 billion, and Korea $36 billion.

According to the report, the United States’s oil import bill was nearly $110 billion lower in the first half of the year.

Euro area economies saved nearly $142 billion. Germany benefited the most, as oil expenditures were roughly $50 billion lower in the first half of 2015. Spain saved $20 billion, the Netherlands $18 billion, Italy $16 billion, and France $12 billion.

In its latest commodity update, the World Bank has lowered its 2015 forecast for crude oil prices from $57 per barrel in its July report to $52 per barrel. The revised forecast reflects a further slowing in global economic performance, high current oil inventories, and expectations that Iranian oil exports will rise after the lifting of international sanctions.

The Bank’s Energy Price Index tumbled 17 percent in the third quarter of 2015 from the previous three-month period, led by a renewed plunge in oil prices prompted by expectations of slower global growth, particularly in China and other emerging markets, abundant supplies, and prospects of higher Iranian exports next year. Energy prices are expected to average 43 percent lower in 2015 than in 2014. For commodities excluding energy, the World Bank reports a 5 percent decline in prices in Q3, and forecasts that non-energy prices will register a 14 percent decline in 2015 from the previous year’s levels.

“We see a five-year-long slide in most commodity prices continuing in the third quarter of 2015. There are sufficient inventories of oil and other commodities and demand is weak, especially for industrial commodities, which is why prices may stay persistently low,” said John Baffes, Senior Economist and lead author of Commodity Markets Outlook.

The Outlook provides detailed market analysis for major commodities groups, including energy, metals, agriculture, precious metals, and fertilizers.

 

Forecast

The IMF’s Regional Economic Outlook for the Middle East and Central Asia, released on October 21, projects that growth this year will be modest, at 2½ percent. Economic activity could pick up to 4 percent next year, however, if regional conflicts ease and sanctions on Iran are alleviated.

The region’s current circumstances make economic diversification away from oil all the more urgent, as low oil prices are likely to persist, the report emphasizes.

“Achieving fiscal sustainability over the medium term will be especially challenging given the need to create jobs for the more than 10 million people anticipated to be looking for work by 2020 in the region’s oil-exporting countries,” IMF Middle East and Central Asia Department Director Masood Ahmed said at the report’s unveiling in Dubai.

One of the key factors shaping the region’s outlook is the slump in oil prices, which many experts now believe will remain in place for the foreseeable future.

“For the region’s oil exporters, the fall in prices has led to large export revenue losses, amounting to a staggering $360 billion this year alone,” Ahmed told reporters. While many countries are drawing on their fiscal cushions and are starting to consolidate their budget positions, fiscal deficits are still expected to average nearly 13 percent of GDP in oil-exporting countries this year.

Over the medium term, putting fiscal positions on a stronger footing will require efforts to streamline spending, reform energy pricing, and broaden non-oil revenue sources.

“The key to resolving the challenge of absorbing millions of new job-market entrants expected over the next few years lies in accelerating economic diversification by creating incentives for private firms to expand activities that do not depend on government spending or oil,” Ahmed emphasized.

The region’s oil-importing countries should experience a pickup in growth averaging about 4 percent in 2015-16, the report said. Finally, regarding developments surrounding the Islamic Republic of Iran, Ahmed said that “With the easing of international sanctions, the country’s economic prospects have improved substantially and, through increased trade and investment, benefits are expected to flow to its economic partners as well. The country’s growth could reach 4 percent in the medium term, or even higher if the easing of sanctions is accompanied by domestic economic reforms to ensure macroeconomic stability and promote inclusive growth.”

 

Azerbaijan

Implementation of radical reforms starts in Azerbaijan. The limit of duty free import of goods into Azerbaijan was increased first. President of Azerbaijan signed an Order about simplification of customs inspection. According to the order, no custom duties will be levied from goods (with a customs value no over $10,000) brought by physical individuals into the customs area of Azerbaijan and not designed for production or commercial purposes. An exception will be made in case of excise goods, motor transport facilities and items that physical individuals need for personal use when travelling.

The cabinet of ministers has been ordered to bring normative and legal acts of the government and central bodies of executive power to conformity with the mentioned order within 3 and 5 months respectively. The cabinet has also been assigned to address other issues arising from this order.

Apart from this the procedure of licensing has been changed in Azerbaijan. According to the decree on reducing the number of licenses necessary for entrepreneurship, simplifying the licensing procedures and transparency in this area, provision of licenses for entrepreneurship has been assigned to the Ministry of Economy and Industry of Azerbaijan (except for cases associated with the state security). The decree also envisages rendering of services for issuing business licenses by ASAN service.

The Coordinating Council on transit cargo was established in Azerbaijan. President Ilham Aliyev signed a decree on the establishment of the council and approved its staff. According to the decree, a "single window" principle will be applied while transporting the transit goods through the territory of Azerbaijan by railways, ships, marine ports and terminals. The authority is transferred to the Azerbaijani Coordinating Council on Transit Cargo to control using the single window principle while transporting transit goods through the territory of Azerbaijan by railways, ships, marine ports and terminals.

This work on facilitation of business doing is continued through the line of ministries and government agencies of Azerbaijan.

Meanwhile, a transit infrastructure for export of big volumes of Azerbaijani gas to Europe is underway. Trans Adriatic Pipeline AG (TAP) has awarded three contracts for the engineering, manufacturing and delivery of 48” and 36” fittings, isolating joints and scraper traps. This equipment will perform various key functions, and will be installed along the TAP route, in line with the project technical specification.

Industria Meccanica Bassi S.p.A has been awarded two contracts: first, for engineering, manufacturing and delivery of 48” and 36” piggable T-pieces and welded elbows of different characteristics and, second, scraper traps units for intelligent pigging. Piggable T-pieces will enable the connection with the block valve and compressor stations while scraper traps will facilitate the cleaning and control of the pipeline.

Nuova Giungas s.r.l. is the successful tenderer for engineering, manufacturing and delivery of 48” and 36” isolating joints. These will isolate different cathodic protection systems that avoid corrosion.

 “In line with our procurement schedule, TAP will award several large contracts by the end of the year, including line pipes as well as onshore and offshore engineering, procurement and construction. This will enable pipeline construction to begin in Greece, Albania and Italy in 2016 as planned,” Ian Bradshaw, Managing Director at TAP.

The award of contracts for engineering, manufacturing and delivery of fittings, isolating joints and scraper traps concludes TAP’s pre-qualification process (launched in May 2015), followed by bid assessments from the shortlisted companies that met TAP’s rigorous pre-qualification criteria.

This year TAP has awarded several contracts: construction and rehabilitation of access roads and bridges in Albania (April 2015), large diameter ball valves and actuators (July 2015), and turbo compressors (September 2015).  

TAP will transport natural gas from the giant Shah Deniz II field in Azerbaijan to Europe. The 878 km long pipeline will connect with the Trans Anatolian Pipeline (TANAP) at the Turkish-Greek border at Kipoi, cross Greece and Albania and the Adriatic Sea, before coming ashore in Southern Italy.

TAP’s routing can facilitate gas supply to several South Eastern European countries, including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and others. TAP’s landfall in Italy provides multiple opportunities for further transport of Caspian natural gas to some of the largest European markets such as Germany, France, the UK, Switzerland and Austria.

TAP will promote the economic development and job creation along the pipeline route; it will be a major source of foreign direct investment and it is not dependent on grants or subsidies. With first gas sales to Georgia and Turkey targeted for late 2018, first deliveries to Europe will follow approx-imately in early 2020.

TAP’s shareholding is comprised of BP (20%), SOCAR (20%), Statoil (20%), Fluxys (19%), Enagás (16%) and Axpo (5%).

 

Kazakhstan

Prices for energy resources lowered budget revenues of Kazakhstan as well. Prime Minister of RK Karim Massimov reported President of Kazakhstan Nursultan Nazarbayev about social-economic development of the country and implementation of major state program. Nursultan Nazarbayev noted that today the republic's economy operates in the heavy mode.

“Due to the decline in energy prices budget revenues decreased by 40%. In addition, prices are decreased for other basic types of export products, including ferrous and nonferrous metals, coal. Thus agriculture provides a small increase, and industrial enterprises, including in engineering, have reduced their production,” the president said.

The head of state of Kazakhstan pointed out that the conclusions regarding the difficult situation on the world markets are formed on the basis of the talks held in China, the United States, with the Russian leadership.

“Taking into account the state of the economy in the world, including Europe and Asia, fast improvement of the situation is impossible to predict. Our people must know the current situation, which means a reduction in profits of our enterprises, reduction in income and possible job cuts. There comes a real crisis – stronger than in 2007-2009. In this regard, I charge the Government to analyze, to plan the anti-crisis work, to determine the necessary measures and to bring to the population,” Nursultan Nazarbayev said.

Following the meeting the President gave a number of specific instructions.

The development of projects on development of big fields in Kazakhstan is also ongoing. Samruk-Kazyna JSC announced Thursday the completion of acquisition of 50% stake in Kashagan B.V. for $4.7 billion.

On October 16, 2015 Samruk-Kazyna JSC and KazMunaiGas JSC NC completed the deal to acquire 50% stake in Kashagan B.V. (a subsidiary of NC KazMunaiGas JSC, is one of the members of the consortium to develop the Kashagan field) in favor of Samruk-Kazyna. The deal amounted to 4.7 billion US dollars.

It is noted that Samruk-Kazyna JSC plans to pay for the acquired stake before the end of 2015.

This week Minister of Energy of the Republic of Kazakhstan has visited the oil and gas deposit Tengiz where he met with acting Director General of "Tengizchevroil" LLP Ted Etchison and familiarized with the current situation in terms of implementation of the plan on future expansion of the project.

Besides, the minister visited Kashagan field and familiarized with the situation on building of the oil and gas pipelines at the field and with the schedule on renewal of the works at Kashagan in 2016.

International rating agency Standard & Poors (S&P) has excluded the giant oilfield Kashagan located in the Caspian offshore out of the factors influencing Kazakhstan’s economic prospects due to repeatedly delayed commercial production at the oilfield, S&P said.

 Commercial production at Kashagan started September 11, 2013. However, it was suspended 2 weeks later due to a gas leakage. The production process was resumed shortly. However, another leakage was detected in October. The analysis revealed numerous micro cracks on the pipeline, occurred because of the impact of associated gas, containing high amount of sulphur, on the pipeline. In April 2014 the North Caspian Operating Co (NCOC), the project operator, confirmed the necessity of full replacement of the gas pipeline and the oil pipeline on the field, which total length makes about 200km. The government expects the resuming of production late in 2016.

“We are no longer upbeat when it comes to this project (…) as it has been repeatedly delayed. The project is likely to be regarded as ad addition to the current economic growth model that has been recently shaped. We are no longer taking this oilfield into account in the rating procedures”, S&P  notes.
 “Given the repeated delays, we believe the oilfield if beyond the rating horizon, that is two years away (…) However, should the situation develop more positively, we might consider the underlying factors for the rating process”, Standard & Poors added.
S&P believes the oilfield will resume commercial production not earlier than in 2018. (…) this the year when Kashagan is expected to reach its full production capacities, adding another 20-25% to the crude produced in Kazakhstan.
The parties to the project are KMG, Eni, ExxonMobil, Royal Dutch Shell, Total, Inpex and CNPC. Geological reserves of Kashagan are estimated at 4.8 bln tonnes of oil. Total oil reserves make 38 bln barrels. About 10 bln barrels of them are recoverable resources. Natural gas reserves make over 1 trillion cubic meters. The total volume of investments made into the project so far reaches about $50 bln.

 

Turkmenistan

Turkmenistan is developing its large gas fields – a framework agreement for Galkynysh field facilities construction has seen signed with a consortium of several leading Japanese companies about with an eye to secure necessary volumes of natural gas for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, TDH notes.

During the meeting of experts of the Turkmengaz State Concern with representatives of Japanese corporations Mitsubishi, Chiyoda, Sojits, Itochu and JGC the discussions focused on gas production and processing at the largest gas field in Turkmenistan Galkynysh. The field stocks will be the main resource base for TAPI. 

Not only parties to the project, but also many foreign companies show interest in the construction of the TAPI gas pipeline.

Construction of the Turkmen section of the interstate pipeline Turkmenistan-Afghanistan-Pakistan-India (TAPI) with a capacity of 33 bcm of commercial gas per year and 1800km long (1,420mm in diameter) will be carried out at the expense of Turkmen FEC.

Parties of the project on construction of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) are very close to the launch of the practical implementation of the project – laying of the linear pipeline portion.

 

Russia

59% of global reserves lie in Eurasia. Rosneft Chairman of the Management Board Igor Sechin gave a keynote speech at the opening of the Fourth Eurasian Forum "Innovations and International Integration" in Verona (Italy). He stated that despite the negative marco-environment and the pressure of sanctions on Russia, the economy of the country has been stable, and the power sector has demonstrated certain growth: both in terms of hydrocarbon production, and export supplies.

In contrast, European power industry is experiencing difficulties, according to Igor Sechin. “Presently, the European refining margin has grown due to feedstock cost decrease. But, generally, this industry has long been facing hard times». The issue of ensuring economic viability is becoming critical, and in this context, potential expansion of cooperation with Russia is fundamental, Igor Sechin believes. «With long-term contracts for supply of crude of certain quality, refineries will be able to define their strategies for demand-based modernization in a more accurate and efficient way", the Leader of Rosneft said. - The refineries that have stable supplies of crude of the quality which best fits their refining capacities, will get competitive advantages”.

According to Igor Sechin, the energy dialog is one of the most promising mechanisms for building Europe - Russia - Asia inter-civilization bridge . «Eurasia remains the world's largest producer and consumer of oil. 59% of the world's oil reserves (142 bln. t) and 60% of world's refining capacities are located there, the Head of Rosneft noted. World's two largest oil producers - Russia and Saudi Arabia – are also situated in the Eurasian continent. Even though, production in the region does not cover the demand of Eurasia which accounts for 65% of the world's oil consumption. The shortage is about 100 mm t of oil per year. This gap will be increasing to reach 500 mm t by 2030. Thus, oil producers of Eurasia have certain competitive advantage due to their geographic positions in respect to the most receptive oil markets».

Sechin stressed that significant re-distribution of energy consumption in favor of the Asian part of the continent is currently going on. «The share of Europe in global primary energy consumption declined from 34% in 1990 tо 19% in 2015, pointed out the Head of Rosneft». - At the same time the share of Asia increased from 31% tо 50%».

Consequently, the geography of activity of Rosneft and Russia, as a whole, changes in the direction of the APR countries: «I would like to stress that European companies started to lose their historical advantage in respect of import deliveries for the needs of Rosneft. In particular, following the 2015 procurement procedures, the volume of European contracts is 9 times less than the volume of deliveries over the same period under the past contracts», stated the Chairman of Rosneft Management Board».

Nevertheless, in the opinion of Igor Sechin, the natural historical synergy of the European and Russian civilizations offers hope for resumption of the full-scale dialog in the near future. In our view, Rosneft alone can offer European partners to participate in the projects for the amount of about $100 bln., the Head of Rosneft said.

«The scale of Rosneft investment program assumes one of the world's largest anchor orders for engineering industry and chemical industry products, in the first place – about 4.6 bln. euro annually, pointed out Igor Sechin. – Аnd Rosneft aggregate demand for materials in 2016-2018 will amount to € 15.9 bln.».

Sechin named the partnership between Rosneft, Pirelli and ChemChina as one of the examples of integral cooperation in Eurasian space, «Italian Pirelli demonstrated a model approach to risk minimization and the use of synergy potential of Eurasian cooperation. What happened is actually a large-scale launch of European tire technologies at the largest APR markets with the use of resource potential of Russia and financial capability of China».

In conclusion Igor Sechin said that «energy as well as food production, due to their strategic importance for any economy, and for the quality of life of mankind, basically should not be subject to made-up interference, pressure and manipulations of any type. We all should seek to ensure that flows of energy resources and respective flows of capital and technologies do not become bargaining chips».

 

Iran

The World Bank has analyzed possible effects of the Iran Nuclear Agreement on global energy markets in its new Commodity Markets Outlook released on October 20.

According to the Outlook, within several months, Iran could increase crude oil production by 0.5-0.7 million barrels per day (mb/d), potentially reaching a 2011 pre-sanctions level of 3.6 mb/d. In addition, Iran could immediately begin exporting from its 40 million barrels of floating storage of oil.

Given that Iran has the largest known gas global reserves (18 percent of the world total), it has the potential to produce and export a significant volume of natural gas over the long term.

“The potential impact of Iranian oil and gas exports on global and regional markets could be large over the long term if Iran can attract the necessary foreign investment and technology to leverage its substantial reserves,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group.

Uncertainty about Iran’s capacity to ramp up exports adds to risks to the energy-price forecast. Downside risks include higher-than-expected OPEC production and continuing falling costs along with improved productivity of the U.S. shale oil industry. Slowing demand and high stocks could further weigh on oil prices. Upside risks include: an accelerating decline in U.S. shale oil output, and reduced supply because of geopolitical events.

Iran has the potential to increase its daily gas exports from existing 80 million cubic meters daily to 300 mcm, Managing Director of the National Iranian Gas Company (NIGC) Hamid-Reza Araqi said on the sidelines of the Iranian Petroleum and Energy Club 2015 Congress and Exhibition (IPEC 2015), which opened in Tehran, news agency of the Islamic Republic of Iran notes.

The three-day IPEC 2015 conference started one day after formal end to anti-Iran sanctions and discussions focused on the theme Post-Sanctions Iran: An Open Door to Oil and Gas Investment Opportunities. Chief executives and policy makers in the field of energy and delegates from OPEC, GECF and IEA attended the conference.

The NIGC chief executive also said that with the removal of sanctions, a fresh economic atmosphere will prevail the country in which Iran can enter into new oil and energy contracts with foreign companies.

“After sanctions are lifted, it will be possible to lay the TAPI gas pipeline from Iran,” Araqi said, adding that Pakistan is ready to start the Iran gas line which has been completed on the Iran’s side after sanctions are removed.

Iran will introduce its new oil contracts in November and December in Tehran and London respectively.

In the wake of nuclear deal, Iran has hosted high-ranking officials and corporate executives of major companies from Germany, Spain, Austria, Italy, and France to discuss new cooperation ventures.

 

Jeyhun Bayramov

Editor

Caspian Energy journal

 

 

 

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