Drake has challenged NewsBase’s editorial team to pick out the significant developments that took place in the energy world this year. The team has also taken on the challenge of crystal-ball gazing in an attempt to divine what 2013 may hold and which factors to watch.
This is the first instalment; the second will come later in the week.
Edit: The second instalment is now available here.
Good: The discovery of oil onshore Kenya, by Tullow Oil and Africa Oil, gives an indication that the onshore East African trend based on successes in Uganda’s Lake Albert is not an isolated incident. The first well drilled by Tullow in Kenya, the Ngamia-1, was particularly encouraging, with better results than those obtained from its work in Uganda.
Bad: South Sudan stopped production in mid-January as a result of a dispute over transit fees with Sudan, marking the most serious non-OPEC reduction in production in the world. The move left both states in dire economic straits and relations soured to the point where conflict broke out in April. A deal was eventually reached on pipeline fees, which should have allowed oil to begin flowing once more, but Khartoum has proved obstinate on border issues. Runner-up in this category has been the disappointing exploration wells for Chariot Oil & Gas offshore Namibia, which has undercut confidence in prospects for this new West African frontier. However, the country remains under-explored and more drilling is planned for 2013.
Future: Hopes are high for Mauritania and Morocco’s offshore and a number of companies have signed up acreage in the region this year. Much of the interest has been driven by the hope of finding stratigraphic traps, like Ghana’s Jubilee field, but other play types have also been mentioned. Tullow intends to begin drilling in Mauritania early in 2013, while the company’s partner in Ghana, Kosmos Energy, is set to test Moroccan acreage.
Good: Fresh discoveries offshore Malaysia, coupled with the country’s continued rollout of risk service contracts geared towards enhanced oil recovery (EOR) projects, suggest Kuala Lumpur may be on track to stabilise declining oil production levels.
Bad: Tensions over territorial disputes in the South China Sea have escalated rapidly this year, with much sabre-rattling and threats of military intervention. The region is thought to hold vast reserves of oil and gas, but with countries increasingly engaged in gunboat diplomacy, the prospect of large-development operations looks ever more distant.
Future: Myanmar’s efforts at political reform have seen an easing of Western trade restrictions. Moreover, a growing number of Western energy companies are beginning to invest in the country. However, some investors are awaiting greater reform of the country’s national oil company MOGE, which has been accused of lacking transparency and accountability. With large swathes of unexplored acreage, greater reform of Myanmar’s political environment should bring higher levels of foreign direct investment.
Good: In September, Coal India Limited (CIL) finally managed to agree on a new coal-pricing formula through amended Fuel Supply Agreements. This is a small but significant step for power plants that need to secure enough coal to meet growing demand
Bad: Japan has failed to formulate any coherent energy policy after the Fukushima disaster amid anti-nuclear protests and intense lobbying from pro-nuclear heavy industry. This has created confusion and uncertainty about the country’s future power policy, while domestic power bills are rising.
Future: Russia will hold a tender next year for mining rights in the Amur region, across the border from China. Beijing is keen to invest in coal projects in Russia, increasing cross-border trading in both coal and electricity.
Good: China’s first domestically designed and constructed deepwater platform started operations in the South China Sea in May, marking CNOOC’s initial foray into solo deepwater projects.
Bad: China’s development of a comprehensive shale gas policy has been a slow affair, highlighted by the fact the country finally held its second shale gas auction in October after more than a year of delays.
Future: Spiralling domestic energy demand will continue to characterise future energy policy. Canada has recently approved CNOOC’s bid for Nexen, while Moscow and Beijing are thought to be nearing an agreement on pricing for a long-delayed gas supply deal. Finding fresh supplies of foreign energy will dominate Beijing’s thinking even as it endeavours to stimulate its own domestic unconventional energy sector.
Good: Saudi Arabia’s cheap feedstock prices have attracted substantial downstream investment and this will continue. The US Ex-Im bank’s agreement to lend more than US$5 billion to the Aramco-Dow Sadara Chemical joint venture is testament to just how important Saudi’s petrochemical sector will become in the years ahead.
Bad: The wooden spoon was shared by two countries with very different problems. Nigeria professes a willingness to turn around its crippled downstream sector but with murky contract signings and unknown companies involved, there is little reason to believe that the raft of deals announced this year will come to fruition on time, if at all. Iran, on the other hand, is suffering from the authorities’ insistence on pursuing their nuclear programme. The country has a proven downstream sector that would greatly benefit from a healthy relationship with the West, although that is extremely unlikely.
Future: Again a tie. Oman’s drive to position itself as an exit route for Middle East crude and products has seen the development of the ports of Sohar and Duqm. Refining projects will add around 290,000 bpd to Oman’s processing capacity, and with easy access to the Indian Ocean, Oman will not struggle to find buyers for its products. Iraq’s oil ministry is holding an investment roadshow in London this week as it seeks funding for two major export pipelines. If Iraq can get its regulatory framework right, the sky is the limit.
Good: The last year has been a whirlwind for the Eastern Mediterranean. A year ago, Houston-based Noble Energy found 198 bcm of gas in Block 12, and after another Cypriot bidding round, more drilling will take place in 2013. Add a potential boost for Greek exploration, and it is easy to see why the region has been grabbing headlines.
Bad: Regulatory forces in Italy and Spain have limited exploration during the last 18 months. Italy’s recent rescinding of an offshore drilling ban may help, but Spain’s complicated and lengthy bureaucracy means that much of the Western Med has remained off-limits while the country’s economy is brought to its knees.
Future: Cairn will return to the west coast of Greenland in 2013, working with Statoil, as it looks to make good on its so far unsuccessful – and expensive – efforts. Nuuk is holding two successive bidding rounds over the winter covering vast expanses off the east coast, where billions of barrels of oil and gas may be located. Oil will be found in Greenland; the only questions are when and how much.
Good: Finland’s Fortum has become one of the largest foreign investors in Russia’s power sector, opening 1,400 MW of newbuild capacity in 2012 as part of plans to invest 4 billion euros (US$5 billion) by 2014. The company is staying one step ahead of Russian government criticism of the slow pace of investment in new generating capacity.
Bad: The “No” vote in Lithuania’s referendum on the Visaginas nuclear project and the election of a centre-left government unenthusiastic about the venture have thrown the country’s nuclear sector into confusion. This has prevented any meaningful talks with neighbours Poland, Latvia and Estonia, and has caused those potential partners to consider alternative energy projects.
Future: The Czech Republic will choose the supplier of a new reactor for the Temelin NPP, with Westinghouse and a Russian-Czech venture led by Atomstroyexport left in the running after Areva was recently excluded by state utility CEZ.
Good: South Africa lifted its ban on hydraulic fracturing, paving the way for shale gas development to take place in the Karoo Basin. Exploitation of this resource could still be years away, but supporters of shale are describing it as a game-changer for South Africa, which is thought to have the world’s fifth largest shale gas reserves and is facing the prospect of LNG imports and rising emissions from coal-fired generation.
Bad: Shale gas exploration in Poland has returned disappointing results so far. ExxonMobil decided to stop exploring for shale gas in Poland earlier this year, and is in talks to sell its licences, as is Talisman Energy. The move is a blow to Poland’s efforts to end its dependence on Russian gas.
Future: China is stepping up shale gas development, with ambitious plans to produce 6.5 billion cubic metres per year of gas from shale by 2015. The country recently held a second shale licensing round, and its massive reserves have attracted a lot of interest, but development is expected to be far more challenging than in the US, and China is likely to struggle to reach its target.