Markets stay steady despite Libyan supply fears
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Libyan Supply Fears Dampen Oil Price Optimism 

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It appears that oil markets have stabilized over the Christmas holidays, with light trading and low oil price volatility, while fears of a Libyan supply increase are adding downward pressure to oil prices.

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Friday, December 23, 2016

Oil prices remained mostly stable this week on light trading and few major price-altering headlines. However, some weakness in the rally emerged as fears over restored Libyan supply weighed on prices. The influence of the OPEC production cut appears to have all but left the markets now, with trading slowing down into the new year. 

Libyan oil pipelines reopened. Libya’s oil output is set to
surge in the next few months as long shuttered pipelines restart operations. The pipelines can carry 270,000 bpd, which is equivalent to almost half of the country’s current output. The restart of operations could bring lost output online within the next three months, the National Oil Company says. Great news for Libya, but bad news for OPEC. Libya is exempt from any cuts as part of the November agreement, and if Libya succeeds in adding back 270,000 bpd, it would wipe out roughly a quarter of the OPEC reductions. Additionally, that comes on top of nearly 300,000 bpd the country has added since this past summer, taking output up to 600,000 bpd.



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Keystone XL back on the table. Canadian Prime Minister Justin Trudeau said that he talked with President-elect Donald Trump, who expressed his support for reviving the Keystone XL Pipeline. Trudeau supports the pipeline. At the same time, Trudeau said that Canada could take advantage of the vacuum left by the U.S. backing off support for renewable energy, which would allow Canada to attract more green tech investment. 

New U.S. LNG export terminal approved. U.S. federal regulators issued a crucial
permit for a new LNG export terminal along the U.S. Gulf Coast. The Golden Pass LNG facility was originally an import terminal but has undergone a $10 billion retrofit to turn it around for export. The project is owned by Qatar Petroleum (70 percent), along with smaller stakes held by ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP). The facility will be able to export 2 billion cubic feet of gas per day. 

Mexico to liberalize gasoline prices. After eight decades of government controlled pricing, Mexico is set to liberalize gasoline prices, letting the markets dictate price levels. Lifting price controls will likely lead to a spike in prices, which could result in a backlash. The removal of controls will start in some parts of the country in March, and spread to other areas over time. “All this could be a good thing if the people see some benefit when oil prices go down,” a truck driver in Mexico City told
The Wall Street Journal. “If not, this will only be a bad joke.”

Industry standardization could save costs. Offshore oil companies could
cut exploration costs by one third if they simply agreed to industry-wide standards for equipment, according to the International Marine Contractors Association. As it stands, offshore drilling projects typically use tailor-made equipment, inflating costs across the sector. At a time when everyone is trying to reduce drilling costs, standardization appears to be low hanging fruit. The onshore shale industry has already largely standardized equipment, leading to a sharp fall in the cost of production. The offshore sector should follow suit. A group of 10 oil majors set up a group last year to explore this possibility.

Anadarko to sell Marcellus assets to focus on Permian. Anadarko Petroleum (NYSE: APC) announced its decision to sell off natural gas fields in Pennsylvania’s Marcellus Shale for $1.2 billion. The company will use the proceeds and smaller footprint to expand in the booming oil fields of the Permian Basin in Texas and the DJ Basin in Colorado. The move is a sign of the times: more and more shale companies are pulling capital out of less competitive areas and concentrating funds in a few prized shale basins. 

Saudi Arabia expects oil revenue to rise by 47 percent. Rising oil prices will
help Saudi Arabia take in 47 percent more revenue from oil sales even as it cuts production, the kingdom says. Intriguingly, non-oil revenue will rise by 6.5 percent, an area of the economy that the government is hoping to grow over the long-term. 

Dollar strength stalls. The dollar has rallied to the strongest level in more than a decade but leveled off this week. The strong dollar is keeping a lid on oil prices, but the markets are now seeing the gains as reaching their limits. "We have had a big rally and we are due for a breather," Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle Investments in Minneapolis, told
Reuters. The dollar will be at a crossroads in the coming year – optimism around economic growth in the new administration could bump up against more interest rate increases and possible inflation from overheating. 

In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by
clicking here

Thanks for reading and we’ll see you next week. 

Best Regards,

Evan Kelly 

P.S. - In this week's Oil and Energy Insider, Dan Dicker discusses where best to find value in 2017 now that the bargains that were to be found at the start of 2016 are no longer around. Find out which two sectors he sees as having the most promise by claiming your risk-free 30 day trial on Oil & Energy Insider
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• Coal And Natural Gas Poised For Gains In 2017
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• Where To Look For Value Within Energy Next Year
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• Oil Prices Set To Rise In 2017 On Balancing Markets
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• NatGas: This Is The Line In The Sand For Bulls And Bears
Inside Intelligence:
• Global Energy Advisory - 23rd December 2016
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Global Energy Advisory - 23rd December 2016

Politics, Geopolitics & Conflict

•   The murder of Russia’s Ambassador to Turkey Andrey Karlov has sparked worry that relations between the two countries will hit a downward spiral once again. Karlov was killed by an off-duty policeman who was later shot down by police. Despite the fresh concerns for bilateral relations, both Turkey’s President Erdogan and his Russian counterpart Putin have declared that the assassination was an attempt to drive a wedge between the two. The assassin shouted “Don't forget Aleppo! Don't forget Syria!” according to media, which suggested the provocation, as Erdogan and Putin called it, had something to do with the two countries’ different stances on the conflict in Syria, where Russia is helping the Assad army while Turkey is backing some of the rebel groups, and prior to this latest staged détente, had been accused by Russia of supporting ISIS.

•    The Democratic Republic of Congo is on the brink of civil chaos as President Joseph Kabila has refused to step down despite the expiration of his mandate this Monday. Protests ensued, with protesters burning down the HQ of the ruling party in the capital Kinshasa. As many as 26 people were killed by police, according to Human Rights Watch. The DRC produced 20,000 barrels of crude daily back in 2014 but has potentially significant untapped reserves in its portion of Lake Albert.

•    India’s Prime Minister, Narendra Modi, has started losing friends as opposition mounts against his proposed demonetization of 86 percent of the country’s cash. Modi announced the scrapping of old 500 and 1,000-rupee banknotes in early November, warning that the transition would be difficult, especially since the deadline for returning the banknotes was the end of 2016. This opposition to India’s top politician could compromise his party’s performance in the 2017 state elections, which are considered a bellwether for national ones.

•    Saudi Arabia has admitted it has used cluster bombs bought from Britain in its war against the Houthis in neighboring Yemen. The British government confirmed the information, adding that the bombs were sold to Saudi Arabia in the 1980s, while the convention making their use illegal was only signed in 2008. Saudi Arabia, for its part, said it was not a signatory on this convention. The Yemen war has caused Saudi Arabia’s two biggest allies, the U.S. and the UK, to take a step back from their Middle Eastern ally. The U.S. earlier this month stopped an arms shipment to the desert kingdom, basing the decision on information about too many civilian victims, a result from Saudi problems with targeting. The Saudis have declared they will stop using British cluster bombs. The Yemen crisis is widely seen as a proxy war between Saudi Arabia and Iran for dominance over the Middle East.

Deals, Mergers & Acquisitions

•    ConocoPhillips has sold assets worth $1.3 billion this year, which enabled it to pay down debt, buy back some stock, and finance operations. Conoco also said that for the final quarter of the year, asset sales would generate $800 million. As a result of the divestments, daily production will fall by 27,000 barrels of crude, which, however, will not affect the overall figure for 2016.

•    BP is splashing out on new oil projects. The company announced a $2.2-billion deal for the purchase of 10 percent in one of the largest onshore fields in Abu Dhabi. The stake, in the field operator, Abu Dhabi Company for Onshore Petroleum Operations, will be financed with shares, giving the seller, Abu Dhabi National Oil Company, a 2 percent interest in the British giant. At the same time, BP also announced another major investment, of $1 billion, in the Tortue offshore gas field that lies off the coasts of Senegal and Mauritania. The deal, with Kosmos Energy, will see BP get 62 percent in the company’s Mauritanian business and 32.5 percent in its Senegal operations.

•    Shell has sold a 31.2 percent stake in its Japanese refining business Showa Shell. The deal was worth $1.4 billion and the buyer is local refiner Idemitsu. The sale is part of Shell’s efforts to generate some $30 billion from asset sales in a bid to prop up its cash position after the over $50-billion acquisition of BG Group.

•    Total is building its LNG presence: the French company has just announced the acquisition of a 23 percent interest in Texan LNG project developer Tellurian. The acquisition was worth $207 million. The deal will expose Total to the development of an integrated gas project, spanning gas production, liquefaction, and delivery to international markets.

•    Santos Energy is selling its 50 percent stake in an oil and gas field in Australia’s Northern Territory to Macquarie. The deal represents Santos’ focus on core operations and efforts to cut debt, lower costs and improve its overall performance.

Tenders, Auctions & Contracts

•    GE has delivered the first wind turbine in Saudi Arabia, to power the Bulk Plant of local energy giant Aramco. The two companies partnered on the project in a bid to demonstrate the viability of renewable energy in the oil-dependent Saudi economy.

•    Siemens is providing a credit facility of $2.5 billion for the construction of the Turkmenistan-Afghanistan-Pakistan-India gas pipeline. The project’s cost is estimated at $10 billion, of which Turkmenistan will shoulder 85 percent, of which 51 percent will come from its own funds and the rest from external funding sources such as Siemens.

Discovery & Development

•    LNG independent Venture Global will build an $8.5-billion LNG plant in Louisiana, to produce 20,000 tons of liquefied natural gas annually, starting in 2022. Construction of the facility is slated to begin in 2018. The project has attracted local opposition, not least because all its output will be exported. According to one opponent, Louisiana already has trouble protecting its coastline and this project would only aggravate the situation and it won’t even produce gas for local consumers. Venture Capital will, however, create about 1,000 new jobs.

•    Lukoil has not yet received from the Iraqi government a directive to reduce production in the country, the Russian company said, fueling worries that OPEC’s number-two may not stick to its new, reduced production quota. Lukoil develops the West Qurna-2 field, where output should reach 400,000 bpd.

•    Kinder Morgan’s Louisiana pipeline will start supplying gas to the Sabine Pass liquefaction plant from 2019, after its fifth liquefaction train comes online. The $151-million expansion of the pipeline will result in the delivery of 580 million cubic feet of gas daily to Sabine Pass.

Regulatory Updates

•    President Obama has effected a permanent ban on oil and gas drilling in most of the U.S. Arctic and Atlantic continental shelf, invoking a rarely used provision from the 1953 Outer Continental Shelf Lands Act. The provision allows the President to ban oil and gas exploration in certain parts of the shelf without consulting Congress or the Senate. What’s more, the ban cannot be rescinded by the next President, at least not quickly: Donald Trump will have to take the matter to court if he wants to remove the ban.

•    The UK High Court has rejected an objection by environmentalists against an earlier decision to allow fracking for natural gas in Yorkshire. The ruling will benefit Third Energy, a company owned by Barclays and the second exploration firm to get the green light for fracking in the country. The first was Cuadrilla, which was given the go-ahead by the central government, which overturned a Lancashire council ban on fracking.
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