E.ON to tackle Npower after EU clears Innogy takeover

ESSEN, Germany/BRUSSELS (Reuters) – E.ON (EONGn.DE) will move quickly to address problems at Npower, the loss-making British retail business it is taking over after European regulators approved its purchase of assets from peer Innogy (IGY.DE), the German energy group’s CEO said on Tuesday.

“(Npower) is an open wound which bleeds heavily,” Johannes Teyssen told journalists. “I am pretty sure that we will make statements on the matter in the course of this year.”

His comments came after European Union antitrust regulators earlier cleared E.ON’s purchase of Innogy’s network and retail assets, paving the way for a major reshuffle in Germany’s energy sector that was first unveiled in March 2018.

The approval seals the fate of Innogy, which was carved out from RWE (RWEG.DE) and listed three years ago as a separate entity, with its assets being taken over by its parent and E.ON.

Npower, one of Britain’s big six energy suppliers, has been losing money for years and both Innogy and E.ON have said they would look at all options for the business, leaving room for a sale, restructuring or winding it down.

Innogy’s break up marks the biggest overhaul in Germany’s power industry since the country sped up its exit from nuclear energy earlier this decade, and will turn E.ON into a networks and retail energy group with more than 50 million customers.

RWE, in turn, will become Europe’s No.3 renewables player after Spain’s Iberdrola (IBE.MC) and Italy’s Enel (ENEI.MI) and hold a 16.7% stake in E.ON, making it the largest shareholder. RWE CEO Rolf Martin Schmitz will join E.ON’s supervisory board.

PAINFUL CONCESSIONS

The European Commission, which oversees competition policy in the 28-member EU, approved the deal on condition E.ON sells certain businesses in Germany, the Czech Republic and Hungary.

“It is important that all Europeans and businesses can buy electricity and gas at competitive prices,” EU Competition Commissioner Margrethe Vestager said in a statement, adding E.ON’s commitments meant the deal would not lead to less choice or higher prices.

E.ON agreed to drop most of its customers supplied with heating electricity in Germany and to discontinue the operation of 34 electric charging stations along German autobahn highways.

It will also divest part of its retail business in Hungary as well as Innogy’s retail power and gas business in the Czech Republic, which have already drawn interest from potential buyers, Teyssen said.

The disposals, which include about 2 million supply customers, will reduce E.ON’s results by more than 100 million euros ($110 million), he added.

Teyssen said he was relieved by the regulatory clearance after the Commission vetoed deals by Siemens (SIEGn.DE) and Alstom (ALSO.PA) as well as Thyssenkrupp (TKAG.DE) and Tata Steel (TISC.NS) earlier this year.

“We decided in favor of addressing the concerns and against having our way no matter what,” Teyssen said. “Considering … E.ON’s outstanding development opportunities, these quite painful concessions are tolerable.”

Writing by Christoph Steitz; Editing by Michelle Martin and Mark Potter

Our Standards:The Thomson Reuters Trust Principles.

Opec+ expects to drain oil stocks as it makes supersized cut

Opec and its allies expect to deplete the global surplus in oil stockpiles sharply as demand holds up and the coalition cuts production by far more than initially planned.
Saudi Arabia, Russia and other producers in the Opec+ alliance have slashed crude output this year to shrink the glut amid faltering economic growth and soaring US shale output. Results have been mixed, with oil prices down more than 20% from this year’s peak, trading at about $59 a barrel in London.
In response, Saudi has reduced output by far more than pledged under the terms of the deal, and the coalition’s overall implementation rate last month was 59% above target, according to a statement posted on its website yesterday. That means the alliance cut supplies by about 1.9mn barrels a day.
Opec signaled that the deeper-than-anticipated cutbacks had been necessary because of the extreme upheaval in the global economy.
“This high level of overall conformity has offset uncertainty in the market due to ongoing economic-growth worries,” according to the statement from the Joint Ministerial Monitoring Committee, a body set up by Opec and its allies to oversee implementation of their strategy.
“Along with healthy oil demand,” the supply restraints have “arrested global oil-inventories growth and should lead to significant draws in the second half of the year,” the committee said.
World financial markets have been buffeted this year as the US and China become ever more entangled in a trade dispute that’s weighing on growth in both nations, the two biggest oil consumers.
Collectively, the 24 countries in the Opec+ coalition — comprising the 14 nations of the Organisation of Petroleum Exporting Countries and 10 non-members — pump about half of the world’s oil.
The burden for going the extra mile, however, has rested almost entirely on Saudi Arabia, the biggest Opec member. The kingdom reported that it lowered output to 9.58mn barrels a day in July, which means it’s cutting more than twice as much as agreed.
The JMMC will meet to review the strategy on September 12 in Abu Dhabi, and then the full coalition will gather in December to consider any measures for next year.
The committee said that forecasts by major institutions are for “robust” oil-market fundamentals for the rest of this year and 2020.
While it is the case that leading organisations like the International Energy Agency see world oil demand continuing to grow next year in line with recent trends, expectations for another surge in supply create a fragile outlook.
Both the IEA and Opec itself expect that oil supplies, driven by the US, will expand by roughly twice as much as the growth in consumption next year.

EU ministers collide over timid eurozone reforms

Agence France Presse

LUXEMBOURG: EU finance ministers wrangled over watered-down economic reforms Thursday with France hoping the eurozone budget it has long been pushing for was finally within reach. Almost a decade after the debt crisis, French President Emmanuel Macron wants his partners to implement the changes in order to make the single currency area more resilient to shocks and to tackle the global dominance of the United States and China.But resistance to overhauling the eurozone has deepened, amid a budget row with populist-led Italy, and as richer northern countries grow reluctant to indulge the budget-busters to the south. This distrust and hesitance has plagued the eurozone since it was launched in 2002, a disunity that economists say limits growth and invites crisis.

Ministers are discussing France’s flagship reform of a eurozone budget that has been scaled back by opponents led by the Netherlands that fear a transfer of wealth to Italy, Greece or Spain.

“We are not far from a consensus,” French Finance Minister Bruno Le Maire said on Thursday as he arrived for talks that were expected to last late into the night.

Such a step would be “a major breakthrough in strengthening the eurozone,” he said.

“We are close,” said German Finance Minister Olaf Scholz who added that approval was widespread for a Franco-German compromise on the delicate matter.

Not a budgetThe EU ministers are officially not negotiating a budget – which would be too politically sensitive – but something called the Budgetary Instrument for Competitiveness and Convergence, a fund with limited firepower to be used to back reforms.

The cumbersome renaming comes at the demand of the Dutch, who have only accepted the instrument on condition that it remains an extremely modest affair.

The skeleton of Macron’s plan on the table comes after months of negotiating the broad elements, including spending priorities, source of revenues, and who should ultimately wield control over its decisions

A European source said it was the last element that would keep ministers up late with the Netherlands and others insisting the budget remains under the auspices of the EU budget. As such, the budget’s firepower would remain at a modest 17 billion euros over seven years with no chance of expansion and under the authority of the EU’s 27 member states (after the exit of Britain).

Macron had originally demanded an amount of several hundred billion euros to be used to stabilize economically weak countries, but this was swiftly slapped down.

The young French leader also wanted the creation of a eurozone finance minister, an idea that was fast cast aside under pressure from Germany, which prefers that power over the economy remains national.

‘Impasse’Ignored for now is a Europe-wide deposit insurance scheme, which is supposed to be the last pillar of an EU banking union set up after a series of bank failures during the worst of the crisis.

“Regrettably, the impasse on this project is still there. No tangible progress has been made,” said EU commission vice president Valdis Dombrovskis on Wednesday.

The deposit scheme is resisted by Germany, Finland and other northern European countries that fear being put on the hook for deposits in fragile countries such as Italy or Greece. Ministers also discussed Italy with Rome in infraction of EU budget rules and in danger of major fines inflicted by its currency zone partners.

Exxon’s $53 billion Iraq deal hit by contract snags, Iran tensions – sources

BASRA, Iraq/BAGHDAD (Reuters) – Just weeks ago, U.S. energy giant ExxonMobil looked poised to move ahead with a $53 billion project to boost Iraq’s oil output at its southern fields, a milestone in the company’s ambitions to expand in the country.

But now a combination of contractual wrangling and security concerns, heightened by escalating tensions between Iraq’s bigger neighbor Iran and the United States, has conspired to hold back a deal, according to Iraqi government officials.

The negotiations have been stymied by terms of the contract that Baghdad objects to, said four Iraqi officials involved in the discussions who spoke to Reuters on condition of anonymity due to the sensitivity of the matter.

Oil hopes fire up Lebanon-Syria border issue

BEIRUT: All eyes have been fixed on south Lebanon as the country engages in U.S.-sponsored negotiations to demarcate its maritime border with Israel, ahead of Lebanon’s first offshore hydrocarbon exploration planned for later this year.But Lebanese officials have recently suggested that another issue critical for the country’s nascent oil and gas sector may soon be on the negotiating table: the demarcation of Lebanon’s northern border with Syria, which has never been formally agreed upon.

Lebanon and Syria have set their sights on potential revenues from oil and gas revenues as boons to their struggling economies.

At the same time, Beirut is hoping to capitalize on increasing international interest in the Eastern Mediterranean due to large hydrocarbon finds, including in Cyprus and Israel. Lebanon, though well behind its western and southern neighbors, hopes to join the club soon after its first exploratory well is drilled in December.

With the issue still in its early stages, experts told The Daily Star that demarcating Lebanon’s northern border should be much simpler than delineating those with Israel, with whom Lebanon is still technically at war. Still, demarcating the northern border could have its own stumbling blocks, particularly considering political differences in Lebanon over the nature of the country’s ties to Syria.

So what is under dispute?

The northern land border between Lebanon and Syria is de facto demarcated today by the Nahr al-Kabir River. This border is important, because the point at which it meets the sea is crucial for determining the maritime border.

Issam Khalife, a history professor at the Lebanese University who wrote a book about attempts to demarcate the northern border, said there were few points of difference over this border. He said the line would be set in the middle of the river, with the final point lying where it empties into the Mediterranean.

This contrasts starkly with the southern border demarcation issue, where 13 points are disputed.

Meanwhile, about 850 square kilometers of sea is disputed between Syria and Lebanon, Roudi Baroudi, an oil and gas consultant with some 40 years’ experience, told The Daily Star.

This is nearly the same number as the roughly 860 square kilometers under dispute between Lebanon and Israel.

Khalife said that Beirut and Damascus had engaged in serious talks over demarcating the border since after both countries gained independence from France in the mid-1940s. But those talks fizzled out with the advent of the Lebanese Civil War (1975-90).

In 1976, Syria entered Lebanon as part of a peacekeeping force, and remained in the country until its 2005 ouster by the massive popular uprising that followed the assassination of former Prime Minister Rafik Hariri.

“Syria felt that it and Lebanon are one country, so why draw its borders with Lebanon?” Khalife said.

Lebanon in 2011 published a unilateral outline of its northern border, on which Syria has not formally commented.

However, maritime oil blocks that Syria published in March 2019 show a large overlap with those published by Lebanon – encroaching by some 15 kilometers at the furthest point.

Using the methods set out by the United Nations Convention on the Law of the Sea – ratified by 168 nations including Lebanon, but not Syria, which maintains observer status – Baroudi has mapped out a line that he said marked the correct maritime border between the two countries. According to this line, Lebanon has encroached on Syrian territory by about 1.7 kilometers, while Syria, according to its oil blocks, sees its border as lying 15 kilometers inside Lebanon’s territory.

“Both sides have overestimated, so this has to be rectified between two friendly states,” Baroudi said.

Defense Minister Elias Bou Saab and Foreign Minister Gebran Bassil could not be reached for comment despite multiple attempts.

Two Foreign Ministry sources declined to comment on whether Lebanon had received a formal request from Syria to demarcate the northern border, as was reported this week in pan-Arab newspaper Asharq al-Awsat.

After the issue lay dormant for years, Bou Saab last week said he had knowledge that Syria was looking to demarcate the northern land and maritime border.

He later added that Russia could play a “positive” role in the dispute due to its energy interests both in Syria and in Lebanon.

Russia has been a major supporter of Syrian President Bashar Assad in the 8-year-old conflict, and Syria’s Oil Minister Ali Ghanem last month said that a Russian company would be tasked with maritime oil and gas exploration.

The Daily Star could not reach the Syrian Embassy for comment despite multiple attempts.

Meanwhile in Lebanon, Russian company Novatek is part of a consortium that is set to drill the country’s first exploratory well in December. And Energy Minister Nada Boustani told AFP last week that Russian companies Novatek, Gazprom and Lukoil had expressed interest in the second exploration round launched in April that includes two blocks bordering Syria, named 1 and 2.

She said that Cabinet’s approval of those blocks “means that it knows a deal will be brokered” with Syria.

Baroudi said the massive wealth at stake would likely bring Lebanon, Syria and Israel to the negotiating table.

“All the major firms involved in this sector do not flirt with countries that have problems, especially with their maritime boundaries,” Baroudi said. “They want to have clear-cut agreements, otherwise they will not come.”

MP Yassine Jaber, the chair of Parliament’s Foreign Affairs and Expatriates Committee, agreed.

“Of course this is what’s pushing us, to be able to lure big companies,” he said.

If the statements about Syria’s intentions to demarcate the border are proven, the question becomes how Lebanon will be represented at the table.

Lebanon’s indirect negotiations with Israel were aided by a unified stance among the country’s top leaders, but talks with Syria could be hurt by internal differences.

Prime Minister Saad Hariri has ruled out any direct negotiations with Damascus on any issues until a political solution to the Syrian crisis is reached. However, both countries maintain diplomatic relations, with embassies in Damascus and Beirut respectively.

Jaber expressed belief that Russian mediation could help Lebanon sidestep the political quagmire that direct talks with Syria could present. But he said he was confident that local obstacles could be overcome even without such mediation, given that the country’s leaders had agreed to negotiate with Israel even though the two were still at war.

“We are talking with an enemy in the south, so it’s much easier to have a joint committee to look at the dispute in the north, with experts,” Jaber said, adding it was in the interest of all countries to find peaceful resolutions to their disputes. “It’s quite simple: Oil and fire do not mix.”

https://www.dailystar.com.lb/News/Lebanon-News/2019/Jun-20/485660-oil-hopes-fire-up-lebanon-syria-border-issue.ashx

Exclusive: Russia to boost LNG output fivefold to supply Asia

Utilizing the Arctic, Moscow eyes 20% global market share, energy minister says.

MOSCOW — Russia aims to increase its liquefied natural gas output about fivefold by 2035 to capture about 20% of the global market.

The country envisions up to 70% of its LNG exports by then going to the Asia-Pacific region, through the Arctic Ocean shipping route.

Energy Minister Alexander Novak told Nikkei in Moscow that Russia’s government intends to strengthen its cooperation with Japan in terms of funding and technology for the LNG and related sectors.

Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin are expected to discuss economic cooperation in areas including energy when they meet in Osaka on June 29 on the sidelines of the G-20 summit. The leaders will also discuss a peace treaty and other matters between the countries.

Novak could join Putin’s delegation.

Russia’s current LNG output is about 28 million tons a year. This combines output from the Sakhalin-2 project, in which Japanese general traders Mitsui & Co. and Mitsubishi Corp. participate, and the Yamal LNG project in Arctic Russia.

The plan is to raise the total, which now represents around 6% of global demand, to between 120 million tons and 140 tons by 2035, according to Novak.

Qatar and Australia each accounted for over 20% of the global LNG market in 2018. Russia’s goal is to rival these producers as well as the United States in LNG output.

Novak said the Asia-Pacific region is home to some of the world’s biggest LNG markets, and that Russia expects to boost exports to Japan, China, India, South Korea and Vietnam.

Russia also exports LNG to Europe but has hastened the introduction of a planned Arctic Ocean shipping route so that 60% to 70% of its exports will go to Asia-Pacific, Novak said.

Russia hopes to attract Japanese technology, loans and investments to its LNG sector, Novak said, adding that Moscow welcomes foreign partners, including Japan.

He also expressed hope that final-stage negotiations between Russia’s Novatek and Japanese companies, including Mitsui, regarding investments in the Arctic LNG 2 project will soon come to fruition.

Russia’s annexation of Crimea in 2014 triggered sanctions from the West. Novak said there is a possibility that the sanctions could apply to the LNG deals. He added that Russia will consider procuring funds in currencies other than the dollar as a way to maneuver around the sanctions.

RWE warns on European gas demand

The German utility paints a sobering picture for the future of the fuel, even in a lower price environment.

Low carbon heating systems and a huge growth in renewables will continue to drive down northwest European (NWE) gas demand, which has been structurally decreasing since the financial crisis, Andree Stracke, chief commercial officer at the supply and trading arm of German utility RWE, told the Flame gas conference in Amsterdam in May.

The RWE base case for NWE gas demand is 227bn m³/yr in 2030, down from 267bn m³/yr in 2018 and from 309bn m³/yr in 2010. Its high case scenario is 275bn m³/yr, but its low case is just 178bn m³/yr.

Substitution in the retail sector will drive the highest demand decrease. Electric heat pumps are a “real killer”, says Stracke, along with wood pellets and better insulation.

Residential and commercial gas demand peaked as far back as 2003 and has trended slightly lower ever since. RWE predicts a 21pc decrease from 2018 levels by 2030—rising to 30pc in a high-efficiency, low-demand scenario—which is “really significant” as heating is the bulk of overall demand.

Recent UK and Dutch regulation to outlaw gas supply to new homes are “really huge milestones”, says Stracke, even though new houses make up, for example, only 2pc of the housing stock in Germany . The Netherlands is aiming for 200,000 houses ‘free of gas’ by 2030.

Limiting gas supply bans just to new houses would not be enough to ensure meeting the heating sector’s overall strict emission reduction targets, he notes. Regulation covering existing houses could push significant costs onto house owners and tenants, so governments are loath to legislate. RWE’s base case scenario sees heating sector regulation reducing gas demand, but only slowly.

But retrofitting, as is being promoted in UK and Dutch initiatives, once a community agrees to it, could go much further, Stacke warns, confessing that, “after 25 years in the gas industry, the new rules are a shocker to me”.

On a slightly more positive note, there could be some switching from fuel oil to gas in the German heating market, says Stracke, but only if legislation mandates customers to switch away from oil.

Gas to power

Gas demand for power has fallen by 16pc from a 2010 peak, mainly due to renewables, as well as high gas prices relative to coal. Germany has 100GW of installed conventional thermal capacity, but now has 110GW of renewable capacity, says Stracke.

RWE’s base case sees relatively flat overall demand for gas power, as German and Dutch coal exits and a reduction of German, French and Belgian nuclear capacity are largely compensated by an increase in renewables.

Quicker nuclear and/or coal phaseouts could offer additional gas demand upside, as the resultant electricity supply gap could not be filled fully by renewable generation. Lower gas prices could also drive demand with a potential major impact in the power sector, although not in the retail sector.

On the other hand, politicians and voters want to reduce CO2 further, says Stracke.
“We have underestimated the will of the people to go into renewable energy,” he says. “A renewables glut is coming, and we have to adapt.”

One reality of this new paradigm is a significant increase in the need for gas-fired power capacity as a back-up for intermittent renewables. NWE, in RWE’s base case, will see 39pc increase in peak gas demand by 2030, from c.300mn m³/d to c.400mn m³/d. Gas transmission capacity will therefore still be needed, but only on a short-term basis, says Stracke. And the current driver of gas storage usage, for summer/winter seasonality, will also change.

The challenge is that “no-one so far” is prepared to pay for the increase in required peak gas-fired power capacity, particularly as baseload requirements decrease, says Stracke. “Who is investing, given the uncertainty? We have not seen it. We need sustained higher peak power prices into the future”.

Without a capacity market, as the UK and France have introduced, there is no incentive to invest, beyond small-scale open-cycle turbines, as these can pay back quickly over 3-4 years, he adds.

US sanctions debilitate Venezuelan oil output

President Nicolas Maduro is standing firm, despite oil production falling to levels not seen since the infamous oil lockout of 16 years ago

Venezuela’s oil sector continues its precipitous collapse, stricken by US sanctions and mismanagement, which have reduced crude production to its lowest level since 2003 — when several months of nationwide protests at Pdvsa, the state-owned oil company, wiped out almost a third of production.

US sanctions on Venezuela’s energy sector are having a crippling effect. The US Energy Administration (EIA) has reported losses in overall Venezuelan production of around 400,000bl/d since the year began. In April, output averaged just 830,000bl/d according to the EIA, while Opec’s Monthly Oil Report put the estimated production figure even lower at 768,000bl/d.

Output has recovered slightly from March, when power outages across the country devastated the sector. Information provider S&P Global Platts calculated roughly 40,000bl/d returning to production in April, but many facilities remain damaged and further losses are expected. Power failures paralysed exports at Venezuela’s main oil terminal Jose, while the Puerto la Cruz refinery in Anzoategui, already barely operating, was put out of commission.

Until now, most of the production losses have been from Maracaibo and the Maturin sub-basin. But the power issues are now also starting to hit the Orinoco Belt oil fields. At the beginning of 2019, Orinoco constituted 40pc of total national output, according to the Center for Strategic and International Studies (CSIS) thinktank.

Three Orinoco upgraders were taken offline and are now in “recirculation” to prevent damage, but not outputting heavy crude. The Petropriar upgrader (jointly owned between Pdvsa and Chevron), Petromonagas upgrader (Russia’s Rosneft/Pdvsa) and Petrocedeno upgrader (Total/Norway’s Equinor/Pdvsa) were all affected and are still out of action due to lack of storage space. The Petrolera Sinovensa upgrader (China’s CNPC/Pdvsa) is partly running but only at 105,000bl/d. Combined, the four upgraders have a normal synthetic crude capacity of 600,000bl/d.

The Orinoco Belt is also struggling to cope with shortages of diluent, previously imported from the US, and available tankers. Last year, Venezuela imported almost 90,000bl/d of naphtha, mostly from the US, to help blend its heavy crude. Issues with sourcing alternative supply, as well as the scarcity of funds, is having a significant impact in the Orinoco. Platts reported combined production had dropped 77pc by mid-May to just 169,800bl/d, from 764,100bl/d at the beginning of April.

“Venezuela was able to obtain diluents from Russia and India after the OFAC [Office of Foreign Assets Control] action, but not in the volume needed for the Orinoco to run smoothly,” says Patrick O’Connell, fixed income analyst at Alliance Bernstein, a global asset management firm. “Partially due to the lower availability of diluent, Venezuela is converting its large Orinoco upgraders into simple blending facilities, which will yield a less valuable type of crude oil but save on imported intermediate products.”

Clinging on

Damage to the country’s oil industry may be a pyrrhic victory for the opposition-led National Assembly, increasing the pressure on incumbent president Nicolas Maduro, but so far there has been little sign of regime change.

On 30 April, head of the Venezuelan National Assembly and self-declared president Juan Guaido, alongside the recently freed opposition politician Leopoldo Lopez, called for national protests to unseat Maduro from power. He claimed Maduro no longer had the backing of the military; but the Venezuelan president, surrounded by key military personnel, quickly denounced the appeal as an attempted coup.

Pressure on the current regime will only mount, though, as crude production continues its prolific collapse. Carlos de Sousa, lead economist at Oxford Economics, a global economics forecaster, expects “oil production to fall to 500,00bl/d by year-end — China and India will remain the main buyers”.

But the CSIS predicts that, if Maduro remains at the helm, then output will likely fall below 500,000bl/d as early as October. If he is still in power by November the institution expects production to be hovering around 400,000bl/d. Even if the opposition takes control it will be difficult to return national output to 1.3mn bl/d any time soon. Damage to oil assets, attracting foreign investment and changes in global oil markets in recent years all point to a tough recovery even if the opposition gain control.

Cutting its losses

Meanwhile, Venezuela’s financial position could soon deteriorate even further. In May, the National Assembly voted to pay the $71mn interest on the Pdvsa bond 2020, the only bond the country has yet to default on, to avoid creditors seizing its US-based refining subsidiary Citgo. Bond holders control 50.1pc of shares in the company, while the remaining 49.9pc serves as collateral for a $1.5bn loan issued by Rosneft, who could equally enforce its security should Venezuela default on the payment.

“We believe the country will do what it can to keep current on these payments, as a default on this bond would lead to creditors attempting to seize control of Citgo — a valuable overseas asset which would likely prove crucial in an eventual debt restructuring,” says Thomas Nicol, product manager at Alliance Bernstein. “The National Assembly successfully paid the $71mn coupon within the 30-day grace period in May 2019, but making a payment of more than $900mn in October will prove more challenging, particularly in the absence of regime change against a backdrop of US sanctions and plummeting domestic oil production.”

Daniel Pilarski, a partner at law firm Watson Farley & Williams, a global law firm, doubts the legality of a forced sale. “Even if Venezuela wished to sell (which they do not), it would violate existing sanctions for any parties (US or non-US) to purchase Citgo and pay the proceeds to Pdvsa. Also, given Pdvsa’s dire financial position, the transfer would be potentially subject to fraudulent conveyance and similar conditions, so it would be very hard for the purchaser to get clean title,” says Pilarski.

Citgo has so far escaped sanctions but has until 27 July to end all crude imports from Venezuela. Similarly, US oil services companies Baker Hughes, Chevron, Halliburton, Schlumberger and Weatherford International all have a three-month window to exit the country.

Progress made on southern maritime demarcation talks

Israel has agreed to a number of Lebanese conditions for negotiating the demarcation of their joint maritime border, marking a positive shift in years-long efforts to find a solution to the dispute.

According to a number of reports, including in local newspapers The Daily Star and Al-Akhbar, as well as Agence France Presse a new round of shuttle diplomacy by Acting U.S. Assistant Secretary of State for Near Eastern Affairs David Satterfield had been successful in setting some broad outlines for negotiations. These include a Lebanese demand to negotiate both the land and sea borders at the same time, and to hold negotiations under the auspices of the United Nations at Naqoura, Lebanon’s southernmost point, in the same manner that determined the Blue Line that marks Israel’s 2000 withdrawal from Lebanon.

Lebanese officials dispute more than a dozen points along the Blue Line, while a sliver of about 860 square kilometers of maritime area is disputed by Israel and Lebanon.

Lebanese officials have described the new round of talks as “positive,” but have said outlying issues remain. This reportedly includes the duration of negotiations, which Lebanon has demanded be open ended, but Israel has called for limiting to a six month window.

In late April, Berri said Lebanon was ready to demarcate its southern maritime border with United Nations supervision, using the same mechanism adopted for the Blue Line. The U.S would act as a facilitator of the negotiations.

A small sliver of maritime Bloc 9, where exploratory drilling is slated to take place next year, sits in the disputed area. Blocs 8 and 10, both included in a second licensing round launched in January, also partially lie in this area.

While several rounds of negotiations have previously failed, Roudi Baroudi, an independent energy analyst with over 40 years experience in the field, said that large hydrocarbon finds in the region, and associated interest from leading companies, meant that all parties involved were keen to find a resolution.

“There are maybe trillions of dollars of hydrocarbons in this zone, and some of the biggest oil and gas players in the world are here,” Baroudi told LOGI. “They are not coming here to see us. They are coming here for our wealth, and big oil and gas companies don’t want to go exploring in an area where there is a problem.

For an explainer on the origins of southern dispute, click here.

Syria expects oil and gas production by 2023

Syrian Oil Minister Ali Ghanem announced that the country expects commercial production of offshore gas to begin by 2023, in a development that once again raises the issue of demarcating Lebanon’s northern maritime border with Syria.

Ghanem said that a Russian company already drilling onshore in Syria would go about the maritime exploration. The size of a single one of the five blocs Syria has delineated would hold reserves equivalent to its entire onshore reserves, he said, adding he expected some light oil to be found.

The announcement comes soon after Lebanon launched a second offshore licensing round which includes Blocs 1 and 2 – both of which lie in the north and border Syria’s maritime area. A zone of roughly 830 square kilometers is under dispute, according to Roudi Baroudi, an independent energy consultant with more than 40 years experience in the sector.

But while Lebanon is currently involved in serious UN-sponsored mediation efforts to resolve its southern maritime border dispute with Israel, there has been no public announcement of preparations to negotiate with Syria. The issue is politically sensitive, given divisions among factions in the Lebanese government over the nature of the country’s ties to Syria, effectively frozen since the Syrian crisis began.

The demarcation issue centers around the fact that Syria has never unilaterally published its maritime boundaries, while Lebanon did in 2011. When Lebanon’s line is compared to the blocs that Syria published in March 2019, there is an overlap of about 832 square kilometers, Baroudi said.

Because maritime boundaries are based on terrestrial borders, Baroudi said that demarcating the maritime border could be as simple as pinpointing the final land point between Syria and Lebanon, which would be in the middle of the northern Nahr al-Kabir. ”It has never been fixed because it’s never been relevant, but it’s no more than a technical issue” he said.

Baroudi noted that the northern demarcation issue would be aided by a resolution to the southern maritime border dispute with Israel, currently the subject of intensive U.S.-mediated negotiations. A resolution to that dispute would set a border point between Israel, Cyprus and Lebanon, known as a tri-junction point, which would aid in the drawing of the Syrian-Lebanese Cypriot tri-junction point.

Potentially complicating matters is the fact that Israel and Syria have not signed the UN Convention on the Law of the Sea, which in its article 74 sets out rules for delineating maritime borders between states with opposite or adjacent coasts.