Greetings from London.

New York gets its moratorium on fracking; if you can spell “shale” you can get a job in the skilled-labor starved industry; the death of Hugo Chavez isn’t likely to lead to any changes in energy policy or any particular optimism on the part of foreign investors; Saudi Arabia hits gas in the Red Sea and a sneak preview of our Premium offerings this week from Oilprice.com…

After two failed attempts, the New York Assembly has now succeeded in passing a two-year ban on hydraulic fracturing, which will be lifted in May 2015 after the state concludes an ongoing safety and health study. The previous attempts at imposing a moratorium on fracking in 2010 and 2011 were both vetoed.

Specifically, the state is waiting for a health assessment that is reviewing the medical histories of people who live close to wells that are undergoing hydraulic fracturing. The state is also waiting for a study from the Environmental Protection Agency (EPA) on the effects of hydraulic fracturing on drinking water. There are also concerns that fracking could render farmland unusable. That said, the state may still issue fracking permits before the moratorium is lifted, based on preliminary determinations from the Health Department.

At the same time as fracking gets temporarily stuck in New York, elsewhere, there is a severe shortage of skilled labor for unconventional oil and gas operations, which experts say is putting $100 billion in projects at risk. The biggest shortage of skilled labor is being experienced by new petrochemical, refining and export projects servicing the shale industry. Analysts predict that the shale boom would double labor costs by 2020 for skilled workers—particularly for scientists and engineers. Speaking at an energy conference this week, as reported by Bloomberg, ConocoPhillips CEO Ryan Lance quipped that the only requirement to get a job in this sector today is the ability to spell “shale”.

Who’s head-hunting most ferociously? Try the petrochemicals industry. Chevron Phillips will need some 10,000 engineers and construction workers for its new ethylene plant and two plastics factories near Houston. Dow Chemical and Exxon Mobil Corp. will also be looking for thousands of workers for new ethylene plants on the drawing board. Also look to Ohio, where 500 newly drilled wells in the Utica shale will need countless new workers, who will have to be trained specifically for the task at hand.

We would be remiss if we didn’t discuss the death of Venezuelan President Hugo Chavez, though we don’t foresee any change in energy policy as a result of a handover of power.

Foreign investors in Venezuela should neither be concerned nor optimistic about a change of power in Venezuela. Chavez’s successor will stay the course on energy for political survival. Chavez has long been viewed as an enemy to Western foreign investors and we see no chance that his successor would attempt at any time in the near future to change the country’s energy policies in a way that would restore investor confidence. In fact, the opposite may be true. A new leader may have to resort to increased resource nationalism rhetoric to bolster support and enable the state-owned oil company to serve as a socialist tool. The existing regulations require foreign investors to partner with the state-owned oil company, which must retain a 60% share in any JV, while the foreign partner provides 100% of the investment capital. This will remain in place for the immediate to medium-term. What we will see right now is a period of bet-hedging, while major investors (like China) hold off until the dust settles on the domestic political scene. After all, this was not a revolution, just the natural death of a leader who will most likely be succeeded by a fellow party member.

Elsewhere, Saudi Arabia seems to be getting nervous about the increasing scale of shale activities globally and what this means for its status as the world’s largest oil producer. With that in mind, it was with much popping of the champagne corks that the country’s largest oil exporter, Saudi Aramco, announced that it had discovered natural gas in the Red Sea.

Earlier this week, Aramco announced the successful drilling of its first well in the shallow waters of the Red Sea, with plans now to drill in deeper waters. Until now, Saudi Arabia—unlike its neighbor, Qatar—has had difficulty finding gas deposits in its territorial waters. But with help from Shell, Red Sea drilling is now being realized, apparently to much success.



For those of you interested in investment opportunities in the energy sector I thought I’d also put down part of Dan Dicker’s Investment report from today:

An Energy Company that Continues to Excite Me

There’s no doubt that the energy sector has been a virtual minefield this year. With the Dow Jones Industrial Average hitting fresh highs, you would think just about any energy company would be doing well, but some are performing spectacularly while others are in a deep funk.

I’ve done a lot to tell you how I try to separate the wheat from the chaff, the great potential runners like Anadarko and EOG resources and avoiding the slowpokes like Devon energy, BP and SandRidge.

Leviathan has been much ignored because it is almost entirely natural gas and will affect only the markets surrounding the Eastern Mediterranean; Turkey, Italy and Greece. But here's the thing: Europe isn’t the US and Natural gas is good in these markets, spectacularly so: Italy and Greece are two of the more expensive local markets in Europe with prices almost three times higher than here in the U.S. With natural gas dependency in Europe almost two-thirds tethered to Russian and Norwegian supplies, a new player for substantial natural gas reserves could be a game changer. This could adjust the power in southern Europe away from the less reliable Russians and, surprisingly, toward the less-favored Israelis. Imagine what that the geopolitical implications would be in that area.
I hope you enjoy the reports below and have a nice weekend.

James Stafford
Editor, Oilprice.com

Inside investor

• An Energy Company that Continues to Excite Me.

Inside Opportunities:

• LNG Technology: The Holy Grail of Gas Investments.

Executive Report:

• Shale Gas: The Courtship Begins in India, Algeria.

Inside Markets:

• Oil Market Forecast & Review 8th March 2013.

Inside Intelligence:

• VENEZUELA: No Energy Policy Changes with Chavez’s Death.

• IRAN-PAKISTAN-CHINA: New Powers Emerge in Strait of Hormuz.

• MONGOLIA: New Mining Code Nearing Final Phase.

• BULGARIA-RUSSIA: Bulgarian Govt Collapse Prompts Lash-Out at Russia.

Four Energy Intelligence Reports

VENEZUELA: No Energy Policy Changes with Chavez’s Death

Bottom line: The death of Venezuelan leader Hugo Chavez will not usher in any changes in energy policy, as acting president Nicolas Maduro—who has effectively been leading the administration for the past several months—will stay the course for survival. Changing energy policy at this juncture would endanger cash flow and be tantamount to political suicide.

Analysis: Chavez’s party the PSUV is in survival mode and Maduro is their best chance at holding on to power. At the moment chavistas appear unified behind Acting President Nicolás Maduro, Chávez’s chosen successor, but there are deep divisions within the PSUV. In the immediate wake of his death, internal pressure is high to adhere to Chávez’s declared wishes.

Maduro will pander to the far left, who are his strongest supporters. Just as Chávez did, he is likely to increase social spending for misiones in the weeks leading up to the election. And Maduro will win – whether cleanly or not.

Elections will be set within 30 days, capitalizing on the emotional ties many Venezuelans felt for Chávez – the sympathy vote. But elections will probably take place 40 to 90 days from now, not in the next month because of Venezuela’s typical vacation schedule.

There will be no change in policy, and especially not energy policy. Maduro has already been effectively leading Venezuela for the past few months. More than anything, Venezuela needs money, which it mainly gets from oil exports. Neither Maduro nor any other politician would dare endanger Venezuela’s cash flow by changing oil production or export policies.

China is a prime target for sales; China is happy to loan money repayable on favorable terms in oil. Moreover, China, the China Development Bank and a number of Chinese companies, including CITIC, China Railway Engineering Corp., and Sinohydro Corporation, signed contracts worth over US$10 billion with the Chávez administration. Still, our sources indicate virtually every major project is running years behind schedule (e.g. the Batalla de Santa Inés refinery in Barinas).

Even if Henrique Capriles Radonski, the strongest opposition candidate, were to win the upcoming presidential election, his hands would be tied in a government that Chávez has molded for the past 14 years. The Courts, the Armed Forces, the National Assembly – they are all run by Chávez loyalists who would not cooperate with a Chávez opponent.

The strongest internal rival for Maduro is Diosdado Cabello, who has been conspicuously absent from some key meetings. Yesterday, 5 March 2013, Maduro met with all the chavista state Governors except Cabello. Cabello’s mother died on 3 March 2013, which is either a good reason or a convenient excuse to explain his absence if Maduro and his clan do not want Cabello privy to workings of his inner circle.

IRAN-PAKISTAN-CHINA: New Powers Emerge in Strait of Hormuz

Bottom Line: Last week Pakistan announced that construction on the Pakistani portion of the Iran-Pakistan pipeline will begin on 11 March. This week Iran announced it would build a refinery in Gwadar, in Pakistan's Baloch province. This will spur China's energy plans in Pakistan and sets up Gwadar to become a major oil city near the Strait of Hormuz and out of Washington's hands.


Analysis: The Iranian-funded refinery—announced by Iran but not yet signed into force by the two parties—will have a 400,000 barrel per day capacity and comes on the heels of an announcement that construction on a massive Iran-Pakistan pipeline would begin on 11 March, despite sanctions threats from the US and shadow attempts by the US and Saudi Arabia to sabotage these plans. This will give greater impetus to Chinese oil and gas plans in Pakistan, and reshape Pakistan’s foreign policy clearly towards China and Iran and out of Washington’s hands. What would happen next would be this: China would revive its own oil refinery plans at Gwadar and eventually build its own pipeline from Gwadar to western China.

China is on a solid footing in Gwadar, though its projects have been stop and start over the past several years. In February, China took over operational control of the port and agreed to become its largest investor. For China, this is a significant port because of its proximity to the Strait of Hormuz. For the US, this development is significantly negative as it will not only give Iran more influence in the Strait of Hormuz, but it creates an Iran-Pakistan-China triangle of influence over this key strategic oil and gas transit point. China will feel less insecure about the volatility in Balochistan with Iran pursuing a refinery there as well. Essentially, this means a merger of the Hormuz Strait, Iran, and a Chinese-Pakistani energy corridor. US threats of sanctions will not sabotage the projects. The timing of these announcements is also important, as Pakistan has general elections coming up and Iran is keen to get these deals finalized before any potential government upset in which the US is expected to meddle.

Recommendation: Watch for a strategic shift to Gwadar as a major energy hub for Asia and as an emergent petrochemical center in the next 3-5 years. In addition to the Iranian-led refinery, we expect a Chinese oil refinery and petrochemical facilities and storage complexes to go up here, turning Gwadar into an “oil city”.

MONGOLIA: New Mining Code Nearing Final Phase

Bottom Line: Mongolia is revising its mining regulations and preparing to submit a final draft to parliament in an attempt to attract more foreign investment in the sector. While the Mongolian government has traditionally be very sober about its legislation and has not made any overt attempts at resource nationalism or legislative adjustments that would give it an unduly larger share of profits, we believe the new regulations will specifically make the terrain more complicated for foreign investors in terms of environmental regulations.


Analysis: The new regulations will focus on reducing environmental damage caused both by artisanal mining and large-scale exploration and extraction activities by local and foreign companies since 2009. Herders have been particularly impacted due to pollution of water sources and pastures. Uniquely, the Mongolian government is very fast to act on environmental issues. In 2009, it easily passed a law prohibiting mineral exploration in water basins and forest and canceled 200 mining and exploration licenses as a result. The playing field has also been challenging due to corrupt practices in the issuance of licenses by provincial authorities: this, too, will be addressed in the new mining code.

Recommendation: Keep an eye on these developments, especially if you are a small or intermediate-sized mining company. What is likely to happen here is that the focus of the negative aspects of the new mining legislation will be on small and medium-sized companies because the bulk of public protest is over the activities of these companies who do not have the capacity to engage in real community development projects but still cause environmental damage. The new legislation is likely to favor large companies with greater investment capacity.

BULGARIA-RUSSIA: Bulgarian Govt Collapse Prompts Lash-Out at Russia

Bottom Line: Bulgaria’s scrapping of a Russian pipeline deal to carry Russian and Caspian oil to Greece is a response to the government’s collapse in February over energy prices that demonstrate how energy giant Russia can bring down a government.


Analysis: Just days after the Bulgaria government collapsed over bloody protests triggered by rising energy prices, the outgoing Bulgarian parliament voted to scrap a pipeline deal to carry Russian oil to Greece. The pipeline deal dates back to 2007 and would have seen 280 kilometers of pipeline carry Russian and Caspian oil from the Bulgarian Black Sea port of Burgas to the northeastern Greek port of Alexandropoulos. The government claims that the financial conditions are not viable for Bulgaria. The project would have cost $1.5-2 billion. The deal came as no real surprise, as Bulgaria has been talking about it for over a year, but was dragging its feet over a unilateral pullout.


On 21 February, the Bulgarian government of Prime Minister Boyko Borisov resigned amid mass protests that turned into bloody clashes with police. The situation came as a surprise to most observers because the government had so far done fairly well at implementing austerity measures in budgetary terms. However, the austerity measures also bankrupted almost 50% of companies across sectors and led to a sudden surge in unemployment and poverty. The biggest trigger of protests was the rise in electricity prices and the public knowledge that the country’s energy distribution systems are fully controlled by oligarchs—the most notable of them from Russia. Bulgaria has long been bullied by Russia, which uses its influence to force Bulgaria into Russian-led energy projects. The protests are more than anything about this and the Bulgarian government’s move last month to scrap the Russian-led nuclear project (Belene) and this week to scrap the Bulgaria-Greece pipeline is a direct response to this public disillusionment.

Recommendations: Look to more Russian energy projects going offline in Bulgaria. Any incoming Bulgarian government will also have to deal with the public’s anger over Russian bullying, and the next major project that could be targeted is the South Stream gas pipeline, signed into effect by Bulgaria and Russia only late last year.