Rosneft’s Middle East Strategy Explained
Where some see hardship, others see opportunity. Russia’s most valuable export products are oil and gas of which the top producers are Rosneft and Gazprom, respectively. The latter’s dominant position on the European gas market has put it in the spotlight as a foreign policy tool of Moscow after the crisis in Ukraine and the annexation of Crimea. Rosneft, on the other hand, has had fewer setbacks while propping up its engagement in multiple countries on several continents. The impact of these deals could have a far-reaching effect on the global energy market and domestic politics. One of the regions of attention is Iraq’s northern Kurdistan area where Rosneft CEO Igor Sechin has made several important deals, cementing the company’s position. With preparations underway to start extracting oil, Bagdad has voiced its discontent concerning Rosneft’s activities. Rosneft’s balancing act As Russia’s largest oil producer, Rosneft is a highly valuable company. The Russian state owns 50.00000001% of its shares while Sechin also maintains close personal relations with President Putin. The Kremlin has not been shy to exert control over the energy company. While this doesn’t mean that Rosneft isn’t a commercial organization, Moscow’s foreign policy objectives have been taken into consideration. The energy company has to walk a fine line between the Russian state’s interests and its commercial opportunities. For a regular company, this would be a hard task. However, the backing of the Russian government gives Rosneft some advantages over its competitors. The company has lent $6 billion to Venezuela where it could end up owning Texan refineries currently in the possession of Venezuelan PDVSA because the assets are collateral against the debt. In India, Rosneft has invested $13 billion in a refinery which was above the market price but the company was required to outbid Saudi Aramco in order to cement Russian, Indian ties. Arguably Rosneft’s deal with the Kurdish Regional Government or KRG in Northern Iraq has the most potential in terms of political and financial dividend. The KRG’s independence referendum in the fall of 2017 was a fiasco. During the crisis, Bagdad regained control over the significant oil fields near Kirkuk and nullified hopes for Kurdish independence. At the height of the crisis, when Secretary of State Rex Tillerson was trying to defuse tensions, CEO Igor Sechin was busy negotiating the acquisition of the Kirkuk-Ceyhan pipeline. Instead of easing tensions, Sechin doubled down in a letter to Bagdad in which he stated his support for the Kurds which showed “a higher interest in expanding strategic cooperation”. The deal to transfer control over the pipeline and several oil fields was struck on October 20th, 2017 at the height of the post-election chaos. Iraq’s weakness and opportunities Bagdad opposes any deal the KRG strikes without the consent of its parliament. Rosneft, however, maintains the right to engage with the Kurds according to the existing power-sharing agreement between the central government and Erbil. The meeting between Iraqi oil minister Jabar al-Luaibi with Sechin’s right-hand man Didier Casimiro in Bagdad in April was a sign of acquiescence by the central government. Despite its discontent, Bagdad prefers to maintain good relations with Russia for several reasons. First, Moscow in recent years has acquired a formidable position in the Middle East by maintaining good diplomatic relations with all regional actors. Second, the Coordination and Information Centre set up in September 2015 by Russia, Iran, Iraq, and Syria in Bagdad to coordinate the fight against ISIS, has also functioned as a trust sharing platform. Furthermore, Iraq is the second largest importer of Russian arms after India. From a strategic point of view, Bagdad’s relations with Moscow provide it with a highly needed balance against the two other important foreign actors in Iraqi politics: Iran and the U.S. Although Russia cannot provide financial and political support on the same level as Washington or doesn’t share the same cultural and religious background as neighboring Iran, Moscow is able to provide strategic balancing if required. Moscow’s green light Besides oil, natural gas is also a topic the KRG and Rosneft are discussing. A pipeline could provide Turkey and Europe with an additional source of energy. Gazprom in Russia has a monopoly concerning the export of gas through pipelines. The opening of the Iraqi gas market could go at the expense of Gazprom’s market share in Turkey and Europe. Moscow has on several occasions intervened to confirm the Russian gas giants monopoly vis-à-vis pipeline exports. The Kremlin, however, has remained silent concerning Kurdish gas. Its muted acquiescence is based on maximizing financial dividends and increasing or at least maintaining, political influence in Europe. The opening of a second ‘Russian controlled gas corridor’ from Iraq could possibly go at the expense of Gazprom’s market share. However, relatively expensive LNG imports could be hit even harder. Furthermore, the KRG could prefer Rosneft constructing and exploiting the pipeline as the company has supported the regional government during the past year while other governments and companies have kept their distance.
The BOC Group offers to delist Linde India, take full ownership of firm
The BOC Group Ltd, promoter of Linde India Ltd, has offered to take full ownership of the company and delist the firm from the country’s bourses. This follows as a result of the global merger between Linde AG and Praxair Inc, whereby Linde Plc has acquired control and voting rights of Linde AG. The BOC Group is part of the Linde Group and owns 75 per cent equity in Linde India. In a notice to the BSE, Linde India said that the primary objective of making the delisting offer is to obtain full ownership of equity shares of this company by the promoters. This will provide the promoter group with operational flexibility to support the business and future financing needs. Moreover, ongoing expenses with the maintenance of listing on BSE and NSE will be reduced, including investor relations expenses, and the management can dedicate its full time and energy to focus solely on the business. Moreover, for a non-listed entity, time dedicated to compliance with listing requirements gets reduced. About delisting from the bourses, a letter written by Andrew Brackfield, director at The BOC Group, reasoned that according to Securities and Exchange Board of India (Sebi) regulations, 25 per cent of the equity share capital of a company is required to be held by public shareholders. “In the event any public shareholder subscribes to the open offer, the promoter group’s direct and indirect (as applicable) shareholding in the company post the completion of the aforementioned open offer will exceed 75 per cent of the equity share capital of the company and could be as much as 100 per cent in case the open offer is fully subscribed,” the letter read. According to this letter, the promoter group, thus, will have to consider divesting the excess shareholding in the secondary market in a time-bound manner within 12 months of the completion of the open offer. “Therefore, the promoter group believes that a delisting proposal is a quicker and more cost-effective way for the promoter group to comply with SCRR, Sebi LODR,” Brackfield said. Linde India’s board has already appointed ICICI Securities as the merchant banker for carrying out the due diligence process. According to The BOC Group, the delisting price will be determined in accordance with the reverse book building process in the manner specified in the delisting regulations after the fixing of the floor price. “The floor price is not a ceiling for the purpose of the reverse book building process and the public shareholders may offer their respective shares at any price higher than floor price,” the letter added. Linde India shares closed at Rs 582.65 apiece, surging by 20 per cent, on the BSE.
Shale cash gusher sees EOG join oil’s $1 billion-a-quarter club
The well-heeled, buttoned-down world of international oil now has competition from cowboy boots and jeans. EOG Resources Inc.’s $1.1 billion in third-quarter adjusted net income vaulted the biggest American shale driller into the same league as Italian oil giant Eni SpA, ConocoPhillips and Occidental Petroleum Corp. and ahead of Spain’s Repsol SA. But there’s one major difference: EOG is growing production at more than 20 percent a year. Those veteran operators build multibillion-dollar engineering marvels around the world, have government ministers on speed dial, and operate myriad assets on several continents. It’s not a club typically associated with scrappy shale wildcatters, better known for burning through investors’ cash as quickly as they can drill a well in a Texas dust bowl. “The period of systematic outspend might be over,” said Irene Haas, a Houston-based analyst at Imperial Capital Group LLC. “EOG is there already but in 2019 a lot of companies are going to be hitting a point where they’re generating pretty substantial cash flow.” EOG, which hasn’t topped the billion-dollar profit mark in a decade, appears to have reached a sweet spot of surging production and free cash flow. Dividends are up 31 percent this year. At a time when West Texas Intermediate currently trades at about $60 a barrel, EOG says its new wells provide 30 percent after-tax returns with oil as low as $40. EOG, which once stood for Enron Oil & Gas, is not alone. Continental Resources Inc., Pioneer Natural Resources Co. and Devon Energy Co. also generated considerable free cash flow in the third quarter. Conoco and Occidental have also made shale one of their key investment targets. Permian legend Mark Papa, who was a pioneer of U.S. shale as EOG’s CEO from 1999 to 2013, said in an interview last month that he never expected the country’s production to grow as fast as it has: “Not in our wildest dreams did we think it was going to turn out to be numbers like it turned out to be.”
Major oil producers to consider cuts after price slide
Major oil producers meet in Abu Dhabi on Sunday to consider reverting to output cuts after a sharp slide in crude prices revived fears of a 2014-style crash. Oil prices shed a fifth of their value in just one month after surging to a four-year high in early October, driven by a combination of factors centred on higher supply and fears of sluggish demand. Brent crude dropped below $70 a barrel on Friday for the first time since April while the New York’s West Texas Intermediate (WTI) sank below $60 a barrel, a nine-month low. The United States has upped production of shale oil, while Saudi Arabia, Russia and others have raised supplies of crude amid signs of slowing demand. The slide also comes during signs of a softer-than-expected impact from US sanctions on Iran oil exports. “Prices have been falling amid a continued rise in crude supplies from big producers, such as Saudi Arabia, Russia and the US, more than compensating for lost Iranian barrels,” Forex.com analyst Fawad Razaqzada told AFP. “With the Iranian sanctions not being as severe as initially feared, officials from the OPEC and non-OPEC producers may discuss at the weekend the need to bring compliance back down towards the 100-percent level or risk another 2014-style slide in prices,” he said. Energy ministers of top producers Russia and Saudi Arabia will join other OPEC and non-OPEC officials for the meeting of the Joint Ministerial Monitoring Committee, which oversees production levels. The world’s second and third crude producers — after they were overtaken by the United States thanks to shale oil — Russia and Saudi Arabia are the core of an alliance of producer nations that succeeded in solidifying oil prices after the 2014 crash. Through large production cuts starting at the beginning of 2017, they managed to push up oil prices from below $30 a barrel to over $85 a barrel in October, strongly improving their revenues. But the producer nations eased the output cuts in June after signs of a tight market and higher prices, allowing hundreds of thousands of extra barrels into the market. Saudi Arabia raised its production from around 9.9 million barrels per day in May to around 10.7 million bpd in October, according to Energy Minister Khalid al-Falih. Kuwait, Iraq, Russia and the United Arab Emirates also boosted their output. Cailin Birch, analyst at the Economist Intelligence Unit, said a slowing oil demand is beginning to appear in China, the world’s largest importer of crude oil. “The recent drop in oil prices reflects a combination of factors. For one, signs of slowing oil demand are beginning to appear; the rate of GDP growth in China is beginning to ease,” Birch told AFP. The meeting, which will also be attended by the oil ministers of Kuwait, Venezuela and host nation the UAE, is not due to make decisions but will most likely send signals. The JMMC, a technical committee, is expected to make important recommendations on production cuts to a key ministerial meeting in Vienna next month for the OPEC and non-OPEC producers. Commerzbank, Germany’s second-largest lender, said Friday oil producers must act to prevent a free fall of prices. “If they fail to signal any intention to reverse the latest increase in production, oil prices threaten to slide further,” the bank said in a note.
Poland signs deal for long-term deliveries of US gas
Poland’s main gas company has signed a long-term contract to receive deliveries of liquefied natural gas from the United States as part of a larger effort to reduce its energy dependence on Russia. The state company PGNiG signed the 24-year deal with American supplier Cheniere Thursday in Warsaw, in the presence of US Energy Secretary Rick Perry and Polish President Andrzej Duda. The value of the deal was not released, in line with secrecy of such sensitive energy deals. However, Piotr Wozniak, the president of PGNiG’s management board, said the price is 20-30 percent lower than what Poland pays its current supplier “in the East,” a reference to Russia. Polish ruling party leader Jaroslaw Kaczynski said he was “happy that the deal will increase Poland’s energy security.”
Oil set for longest losing run since 2014 as supply fears ease
Oil rose as Opec and its allies were said to plan discussions about fresh production cuts next year, responding to recent increases in oil inventories amid surging US supply. Futures in New York gained 1 per cent. Ministers from the Organization of Petroleum Exporting Countries gathering in Abu Dhabi this weekend will discuss options for 2019 including the scenario of fresh supply cuts, said delegates. That would mark an abrupt end to six months of supply increases, reflecting the prospect that US sanctions on Iran won’t be deep enough to prevent another surge of American shale oil creating a new surplus. Supply concerns that drove crude to a four year high last month faded on speculation the US would soften the blow of its sanctions on Iran to lower pump prices at home. Opec also pledged to offset any supply gaps. The group led by Saudi Arabia will gather in Abu Dhabi this weekend as they face a fresh surge of US shale oil threatening to unleash a new surplus in 2019. The market has “more bearish overtones in terms of supply, with American crude output seen rising this year by the most ever,” said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda. West Texas Intermediate crude for December delivery advanced 60 cents to $62.81 a barrel on the New York Mercantile Exchange at 6:05 am local time. Total volume traded was 77 per cent above the 100-day average.
GAIL contracts pipes for Barauni-Guwahati gas pipeline
State-owned gas utility GAIL (India) Ltd on Thursday said it has purchased steel pipes worth Rs 1,100 crore for laying the Barauni-Guwahati gas pipeline, putting on fast track the implementation of the project that will connect the north-east with the national gas grid. Work on the 729-km pipeline, which will act as a branch line from the prestigious Pradhan Mantri Urja Ganga pipeline project, will commence from December, the company said in a statement here. GAIL said it has awarded “contract for the purchase of 616 km of line pipe worth Rs 1,100 crore for the Barauni-Guwahati pipeline, putting on fast-track project execution of the crucial 729 km feeder line linking North East India with the Pradhan Mantri Urja Ganga pipeline network.” Work across India’s single largest pipeline spanning 3,400 km under Jagadishpur-Haldia-Bokaro-Dhamra project – also known as Pradhan Mantri Urja Ganga, is in full swing and progressing as per schedule, it said. GAIL Chairman and Managing Director B C Tripathi said the award of the tenders supports ‘Make in India’ efforts of steel pipe manufacturers and suppliers in the country and marks the completion of mainline ordering for the entire 729 km section. The Barauni-Guwahati pipeline will connect to the ‘Indradhanush’ gas grid network, which is being developed by GAIL along with joint venture partners Indian Oil Corp (IOC), Oil India Ltd, Numaligarh Refineries Ltd (NRL) and Oil and Natural Gas Corp (ONGC) to provide uninterrupted supply of natural gas across all the North Eastern states. “The Pradhan Mantri Urja Ganga project endeavours to connect East and the North East States of India with the existing gas pipeline grid to ensure access of clean energy solutions for household, transport, industrial and commercial applications in the energy deprived region,” the statement said. GAIL said work on the pipeline originating from Jagadishpur in Uttar Pradesh to Haldia in West Bengal and branch lines to Bokaro in Jharkhand and Dhamra in Odisha is in full swing. “Physical progress under phase-1 of the flagship project is 92 per cent complete and it is expected to be completed within next two months, whereas the balance phases including the additional section under Barauni-Guwahati spur lines are lined up for sequential completion by December 2021,” it said. Tripathi said, GAIL is concurrently executing over 5,500 kilometers of gas transmission network at an estimated outlay of Rs 25,000 crore. “In spite of recent impact to on-going project work due to calamitous floods, construction of natural gas pipelines in Kerala and Karnataka are fast-tracked for completion by the end of current fiscal year as more than 85 per cent physical progress has been achieved under the Kochi to Mangalore pipeline project,” he said. The pipelines will not just supply CNG to automobiles and cooking gas to household kitchens in cities along the route, but also to industries to meet their feedstock or fuel requirement. “City gas distribution at Varanasi, Bhubaneshwar, and Cuttack have commenced operations. Given the steady progress achieved so far, the city gas projects could soon be rolled-out at Patna, Ranchi, Jamshedpur, and Kolkata,” he added.
Toshiba to pay $800 million to exit US LNG business
Japan’s Toshiba said on Thursday it is exiting its US liquefied natural gas (LNG) business and paying an overseas “buyer” it did not identify $800 million to assume its commitment to purchase 2.2 million tonnes per year of the fuel from Freeport LNG in Texas. The Nikkei business daily reported on Thursday, without citing a source for the information, that the buyer is a unit of Chinese gas company ENN Group. However, Toshiba said in its statement that it would only identify the buyer when the final sales contract is signed. An ENN Group spokesman said he was not aware of the deal when contacted by Reuters. The sale would remove a roughly $7 billion commitment to process US shale gas into LNG that the industrial conglomerate signed in 2013 as an incentive for sales of turbines for power plants, one of its major businesses. The company has spent years trying to either sell the gas to power customers or offload the business after signing the 20-year contract to buy LNG from Freeport.
Govt okays EIA of Motihari-Amlekhgunj pipeline
The construction of the Motihari-Amlekhgunj fuel project is expected to go on in full swing following the approval of the project’s Environmental Impact Assessment (EIA) by the government. The Ministry of Forests and Environment recently gave a nod to the EIA of the cross-border pipeline project allowing Nepal Oil Corporation (NOC) to cut down almost 6,000 trees of the conserved areas along the project’s route, informed Sushil Bhattarai, acting deputy managing director of NOC. “This will now ensure that the construction of the project will move ahead uninterruptedly,” said Bhattarai. The project has witnessed 50 per cent progress so far as the pipe laying process along a majority of the routes has been completed. However, the construction works along the project route that falls inside the Parsa Wildlife Reserve and a few community forests (approximately 10km) were delayed following the delay in approval of the EIA. Of the 37.35 km length of the oil project, pipe laying process has been completed across more than 20km of the route, as per NOC. Bhattarai informed that NOC will soon begin the process to mark trees to be cut in the wildlife reserve and community forests and seek approval from the Cabinet to start cutting them down. Once the pipe laying process is completed, works regarding development of fuel pumping stations and injecting fuel tanks, among others will be carried out as per NOC. The construction works of the project began in April. As provisioned in the agreement of the project that Nepal and India inked in 2015, NOC plans to complete the project within 30 months from April. The project involves laying pipeline of 10.75-inch diameter and will have the capacity to supply 200,000 litres of fuel per hour, with fuel pumping facilities in Motihari on Indian side. “Both NOC and Indian Oil Corporation are committed to completing project before the deadline with support from related Nepali government agencies and other related firms in the project,” said Bhattarai. The INR 2.75-billion petroleum pipeline project will be crucial to ensure smooth supply of petroleum products in Nepal and reduce fuel transportation costs. While the Indian government is injecting INR two billion for the project, Nepal will be contributing INR 750 million.
Australia’s APA slumps as govt opposes HK gas pipeline buyout
Shares in Australia’s biggest gas pipeline company APA Group fell 11 percent on Thursday after Australia’s treasurer said he intended to block a A$13 billion ($9.5 billion) buyout by Hong Kong’s CK Group. Treasurer Josh Frydenberg said after market hours on Wednesday that his preliminary view was that the takeover was against the national interest because it would create a concentration of foreign ownership in the sector. Frydenbeg said the move was not a reflection on CK Infrastructure Holdings Ltd, part of the empire founded by Hong Kong tycoon Li Ka-shing. Analysts said the move appeared to be partly aimed at preventing Chinese ownership of a strategic asset. “I don’t think its just the China element, but a combination of important assets, concentration of ownership and China,” said Morningstar analyst Adrian Atkins. “I think the Chinese element maybe had a bit more of an impact than the treasurer’s letting on … it’d probably be unpopular with the electorate to have a major asset go to a Chinese firm,” he said. The rebuff is likely to test an already strained relationship between Australia and its largest trading partner, just as Australia’s foreign minister makes a delayed visit to Beijing. Earlier this year, Australia banned China’s Huawei Technologies Co Ltd from supplying equipment for a 5G mobile network citing national security risks, while Canberra last year accused Beijing of meddling in domestic affairs. APA Group shares, which had never traded at the A$11 offer price, fell back to pre-bid levels at A$8.48, an almost five-month low, wiping A$1.2 billion off its market value. The broader market opened higher. APA said it noted the treasurer’s decision and would update shareholders in due course. CK Infrastructure said in a statement on Wednesday that it had noted the treasurer’s comments.