Energy hotspots & strategic dynamics in the Middle East hotspots AOGC.pdf · • Industry...
Transcript of Energy hotspots & strategic dynamics in the Middle East hotspots AOGC.pdf · • Industry...
Energy hotspots & strategic dynamics in the Middle East
Key Opportunities stemming from lower oil prices
• Progressive fiscal systems: Pressure on governments to adopt more investor
friendly fiscal systems and petroleum contracts
• ‘Cash rich investors’: Preference investors and operators able to ‘front load’
investments and absorb deferred returns (XOM, CNOOC,
• Industry consolidation: Increased M&A activity and drive for organizational
excellence
• Gas regionalization: Opportunity to deepen strategic gas investment and
trading projects throughout region
• Strategic ties with ASEAN: Still unexplored potentials in the full oil & gas value
chain between Middle East producers and ASEAN
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12000
2015 2017 2020 2025
Pro
du
ctio
n (
kbp
d)
Manaar low case Manaar mid case
Manaar high case Original plateau targets
New plateau targets National Energy Strategy mid case
Federal Iraq: lower production growth in short term
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Factors of influence
Politics & Security
Fiscal system
Infrastructure & Export capacity
Government bureaucracy and approvals
Source: Wood Mackenzie; Iraq National Energy Strategy; Ministry of Oil; Forecasts: Manaar projections
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Scenario Probability Petroleum sector implications
National Unity
Baghdad, Kurds in federal
system
BASE CASE
55% Macro Level
• Exports under federal system, with increasing Kurdish autonomy
• Increased Bi-lateral co-operation with Iran
• Deepening relations with Asian investors, operators, traders
Domestic & local dynamics
• Frequent disagreements, fragile alliances
• Turkey becomes key export route especially for Kurdish gas
Kurdish independence
KRG independent; Baghdad
shaky control of North Iraq
30% • Turkey becomes principal gas market from 2018
• KRG excluded from Iraq market
• Competition with bilateral gas projects with Iran
• LPG confined to supplying Turkey
Chaos*
No central control
ISIS, militias & factions
10% • Shifting political alliances between Ankara, Erbil, Baghdad,
Tehran)
• Tactical, short term consolidation
• Priority on trading and short term gas deals
3+ state solution*
Independent KRG, North Iraq,
South Iraq
5% • Ankara/Erbil, Baghdad/Tehran alliances
• Short-term domestic gas & LPG
• Exports to Turkey accelerated
The main gas sector driver - politics
112/99BCM
87/152BCM
0/364 BCM
Current 2P/2C Gas Reserves
• Central Kurdistan will lead production
• Needs infrastructure for export to
Turkey
• Relatively small southern production -
needs unique market options
• From 2017-18, Kurdistan might have
surplus gas for export
Kurdistan Kurdish gas – the reserves potential
Note: definition of each reserve category in appendix 14
The decision to use 2P, 2C and 3C to forecast
production reflects the combined technical and
political uncertainty in KRG
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Gas
Res
erve
s (B
CM
)
2P North 2P Central 2P South 2C North
2C Central 2C South Total 3C
Supply side gas: Strategic options for Iran
Strategic capabilities
Risks
Supply: South Pars development priority
Demand: Meeting domestic demand
Risks
• Iran’s strategy still unclear in terms of supplying domestic, regional and global gas markets
• Priority appears to be supply of domestic market + friendly regional deficit markets
• Iraqi TSC likely to provide ‘lessons learned’ and improved Iranian fiscal system
• Strategic objectives are underpinned by improving infrastructure, operating conditions, skills and talent of
state petroleum sector
• Cause for optimism that Iran is poised to attract investment and achieve above strategy
throughout the nest 3-5 years
Gas Demand Side: Turkish Gas import options
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LNG (undifferentiated)
LNG (Egypt)
LNG (Trinidad)
LNG (Nigeria)
LNG (Algeria)
LNG (Yemen)
LNG (Oman)
LNG (Qatar)
LNG (Other Europe)
LNG (Norway)
KRG
Iran
Russia
Azerbaijan
Domestic production
Domestic demand + exports
Domestic demand
Russia continues as main supplier
Azerbaijan (SCP / TANAP)
KRG gradually displaces Iran from 2030
Turkey needs spot LNG 2015-16
Turkey transits 10 BCM to EU from 2019
Planned expansion of Iranian supplies
Source: IEA; media reports; Forecasts: Manaar research – Base Case economy, power sector
• Turkey is key potential market for Kurdish gas – diversifying from Iran & Russia• Can take 20 BCM from early 2020s & transit more to EU
• But price competition – numerous competing suppliers• New Russian pipeline (14 BCM to Turkey, 49 BCM to EU)
• Gas demand forecast to slow down in 2020s as power sector diversifies
Concluding remarks
• Hotspots: The key energy hotspots in the Middle East are Iran, Iraq, Turkey,
with varying but significant ‘trade offs’ in risks and rewards
• Geopolitics: Politics and security to continue as key development constraints,
with more unilateral and bilateral attempts to create sustainable strategic
relationships independent of US initiatives
• Uncertainty: Lower oil prices likely to add more uncertainty in Iraq’s
hydrocarbon sector, flatter growth, limited opportunities for fiscal improvement
• Hope: Emergence of Iran and Turkey steps towards organically driven regional
gas market and investment environment
• Ambition: relationship between the hotspots and ASEAN appear still under
exploited, growing opportunities but continuing challenges throughout energy
value chain
Appendix
Iraq political SWOT analysis
• Survival & Domestic politics
• Regional geopolitical interests
• Oil Prices
• Domestic reconciliation
• Bi lateral energy ventures
• Rebalancing of regional geopolitical alliances
• Political & economic vision
• Security & politics
• State institutions
• Evolving identity
• Stagnant economy
• Hydrocarbon Wealth
• Economic potentials
• Legacy of state building
• Strategic location
• Talented labor force
Strengths Weaknesses
ThreatsOpportunities
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Description Impact Mitigation
Political• Geopolitics, e.g. US• Baghdad-KRG relations: oil/gas exports,
budget payments, joint projects• Turkey, Iran influence: markets, export
routes, supply competition• Intra-KRG politics
• Political engagement• Market engagement with top
players in Turkey• Flexible strategies• Bilateral high-level political
backing
Economic & commercial
• Local oil/gas/electricity markets• Gas, oil product pricing• Tax and PSC terms• Cooperation with other operators
• Local market development• Local partners• Federal Iraq engagement
Technical and operational
• Seismic and exploration prospectivity• Gas vs oil reserves• Drilling challenges• Access to infrastructure
• Further data gathering• Cooperation with MNR & other
operators
Security and CSR
• Local community protests• ISIS
• Holistic CSR programmes• Security & situation monitoring
High
Medium
Low
Risks for Companies Operating in Iraq
Iraq’s political outlook
• National vision: Developing a functional gas sector is the ultimate test of a
concerted political and economic vision which Iraq so far looks unlikely to meet
• Opportunities: Iraq's government is still struggling with understanding its dire
need for the global private sector and how best to interact with it
• The South: With the country’s largest gas reserves, these are mostly associated
gas with an evolving program for development, but no sustainable non
associated E&P program
• The North: While far ahead of federal Iraq in its gas strategy, Kurdistan suffers
from many of Iraq's constraints (politics, infrastructure, incoherent strategy)
• The Strategy: Over-simplication and fundamental misunderstanding of strategy
at government and investor levels is likely to increase the challenge in
developing a viable gas sector anywhere in Iraq
Iraq gas flows example: medium case exports, 2025 (BCM) - a patchy long term vision
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Production
Power
Transfer
Export
Import
14.6
11.1
11.8
30.4
4.1
10
1.6
• Location of consumption approximate
• Assumes no imports from KRG
11.5
24.6
15.5
Other consumption
5.6
1.9
5.2
14.4
18.3
8.8
0.6 5
• In this 2025 scenario, Iraq would have ~20 BCM gas deficit without Iranian (or KRG) imports
• South Iraq approximately self-sufficient (nearly all associated gas) – transits Iranian gas to Kuwait and middle Iraq
• Middle Iraq (mostly non-associated gas) has large deficit but Iranian gas imports allow some supply to north Iraq
• North Iraq has significant deficit• West Iraq (Akkas) sends small amounts to Jordan & north
Iraq
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Chemchemal 97.6
Miran 99.05
Kurdamir 63.9
Khor Mor 125
Shaikan 36.7
Bina Bawi 138.7
Bijeel 0.37
Khurmala 102.3
Topkhana 47.2
Summail 41
Barda Rash 12
Chia Surkh 8Taza 10.1 Shakal 3.9
Source: Manaar; MNR;
Wood Mackenzie; company
reports
• Figures in BCM (2P + 2C);
associated gas in blue
• Total 199 BCM reserves (2P)
and 615 BCM contingent (2C)
resources Total 814 BCM
• 72% (585 BCM) - non-
associated & gas caps
• 28% (229 BCM) – associated
• 1352 BCM of Gas Initially in
Place (GIIP) – ‘geological
reserves’
• Still under-explored for gas, and
lack of sufficient data
• Deeper reservoirs potential
(Permo-Triassic) and southern
area?
KRG: Gas reserve and supply analysis
Regional existing and planned gas pipeline capacity and utilisation (BCM for 2013; capacity in 2020 only for planned pipelines)
Pipeline Capacity
(BCM)
Flows 2013
(BCM)
Diameter
inches
Start
year
Status / Issues
1: Blue Stream (Russia-Turkey) 16 12.7 48 2003 Operational
2: Khor Mor (KRG) 3.4 3.4 24 2008 Dana-KRG dispute
3: Tabriz-Ankara 12.8 8.7 16 2001 Winter supply disruptions
4: SCP (Azerbaijan-Turkey) 7.4 3.3 24/34.5 2007 Operational
5: Turkmenistan-Iran 7.7 4 39 1997 Supply disruptions
6: Iran-Mansuriya 9.1 0 (2014) 48 2016? Insurgent attacks in Diyala
7: TANAP (Azerbaijan-Turkey) 16 56 2018 In construction
8: TAP (Turkey-Italy) 9.9 48 2019 Construction start 2015
9: KRG-Turkey 10 2017-18 KRG-federal relations
10: Iran-Basra 18 2022? Politics; high price
11: Iraq-Kuwait 4-10 40 2016? Existing line needs repair; politics
12: Iraq-Jordan 2.6 2020? Anbar insurgency
13: Iran-Pakistan 22 56 2017? Iran side complete; sanctions
14: Iran-Oman 10 2020? Sanctions
15: Russia-Turkey new 63 4 x 32 ? 14 BCM to Turkey
16: IGAT (1, 2, 6, 9) 11.7-16.8 56 Multiple pipelines (1970+)
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Political
• Military gains against ISIS, immediate priorities being Baiji, Tal Afar, Mosul
• Stable bilateral relations between Iraq-Iran, Iraq-Turkey, Iraq-US
Economic
• Domestic interdependence and integration of Kurdistan in domestic market
• Kurdish budget share (nominal 17% - deal could be actual ~13.6%) and oil exports in
federal system
• Proactive domestic initiatives from existing oil & gas operators, promoting projects
between Kurdistan & federal Iraq (e.g. KAR, potentially BP in Kirkuk)
• Low oil prices – weaken KRG financial independence
Triggers and signals
• Baghdad / Erbil dialogue concerning long term reconciliation & Kirkuk
• Agreement on 2015 budget and smooth operation of oil-export sharing deal
• Continued Turkey, Iran, US pressure for unity
KRG: Driving factors for ‘National Unity’ scenario
Federal Iraq: Existing and planned refining infrastructure
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Planned Refineries in Iraq Capacity (kbpd)
Nassiriya 300
Kirkuk 150
Maissan 150
Karbala 140
Total 740
Location Design Capacity (Kbpd)
Available Capacity (Kbpd)
North Refining Company (NRC)
BaijiNorth-Central Iraq 310 250
Haditha North-West Iraq 16 10
Kisik North Iraq 20 16
Kirkuk North-East Iraq 30 25
Qaiyarah North Iraq 34 28
Siniya North Iraq 30 20
Al Jazeera North Iraq 20 0
Midland Refining Company (MRC)
Daura Baghdad 185 120
Diwaniya East of Najaf 20 18
Najaf Najaf 30 27
Samawa Najaf 30 27
South Refining Company (SRC)
Basra Near Basrah 140 130
Missan South-East Iraq 30 24
NassiriyaSouth-Central Iraq 30 20
Grand Total 925 715
Baiji Refinery
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Gas
dem
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/yea
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Exports- Federal Iraq
Exports - Turkey
Other
Industrial
Power
Gas supply
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• Turkey is natural export market in any scenario (20 BCM by early 2020s and in the long-term) – preliminary GSA
already signed
• Federal Iraq is potential export market in the right domestic political conditions
• Even with National Unity, federal Iraq will come later than Turkey because (a) politics (b) later in planning (c) lack of
Iraqi infrastructure (d) insecurity in Diyala, Kirkuk
• Baghdad/ Erbil negotiations part of ‘national program’ if there is national success against ISIS
• Key issues for Kurdistan to be viable long term supplier for Turkey & federal Iraq:
• Commercial / fiscal model
• Domestic and regional political alignment
• Iran response to competition
Degree of exports to Turkey
decided on basis of negotiations
with Baghdad
Final status of negotiations
with Baghdad & Ankara on
gas programmes
Development priorities on North &
South fields (eg: Miran, Bina Bawi,
Shaikan)
KRG: Key gas market drivers
Further non-associated gas developments
depend on geological, commercial factors