US President Donald Trump’s decision to pull the US out of the 2015 nuclear accord with Iran and reimpose a raft of sanctions puts European businesses on the spot.
While the European Union insists it will stick by the nuclear accord to allow trade to continue with Iran, European companies are wary of being caught out by the US sanctions regime and many have already cut back their presence.
The sanctions introduced in August spooked the major automakers who were already cautious about their future in Iran and mindful of their much bigger business interests in the US.
Germany’s Daimler, which was teaming up with two Iranian firms to assemble Mercedes-Benz trucks, said it had decided against going ahead.
Volkswagen had said last year it planned to resume business after a 17-year break but was very guarded in response to the latest US decision.
VW “conforms with all the applicable national and international laws and regulations concerning exports,” a spokesman said.
French automakers Renault and PSA, who make nearly half the cars sold in Iran, were cautious.
PSA, behind the Peugeot, Citroen and Opel brands, said in June it was preparing to suspend activities in Iran.
Renault says it intends to keep its activities in Iran but stands ready “to reduce the scale very sharply” if need be.
Aviation saw large contracts reached following the 2015 nuclear accord as Iran set about modernising an ageing fleet.
Airbus booked deals for 100 jets and was looking forward to many more.
However, the potential loss of business in Iran would not weigh overly heavily on Airbus given its total outstanding order book of some 7,168 planes at end-June.
Oil is the key issue with global implications for all concerned as Washington aims to cut off Iran’s key source of foreign income.
French energy giant Total announced in August it was pulling out of a massive natural gas project.
Italian energy giant ENI meanwhile has a contract to take 2mn barrels of oil per month which it will not renew after it finishes this year.
German engineering giant Siemens signed a contract in 2016 to supply gas turbines to Iranian company Mapna.
A spokesman told AFP the company “will take the appropriate measures to bring its affairs into conformity with the multilateral framework concerning Iran.”
Italy stands to lose most in these sectors, national railway operator Ferrovie dello Stato Italiano having signed a deal in 2017 to build a high-speed line linking Qom to Arak in northern Iran.
Shipmaker Fincantieri, engineering firm Maire Tecnimont and gas boiler maker Immergas all signed a string of deals with Iran which are also threatened.
Italy was Iran’s largest European trade partner in 2017, with its exports rising 12.5% to €1.7bn.
Iran is potentially a major tourist destination but European companies were quick to pull back after the August US announcement.
British Airways and Air France halted services in September, saying the flights were not commercially viable.
German carrier Lufthansa, Austrian Airlines and Alitalia for the moment continue flights to Tehran.
French hotel chain AccorHotels, which opened an establishment in Iran in 2015, declined to comment on its plans for the future.
Spain’s Melia Hotels International chain, which signed a 2016 deal to run a five star hotel in Iran, the Gran Melia Ghoo, said in November it was still going ahead.

BRUSSELS (Reuters) – Ten European Union finance ministers want any unsustainable public debt in the euro zone to undergo restructuring, with losses imposed on the private sector, before a public bailout is organized, a joint position paper by the 10 ministers said.

It comes amid growing concern that spending by Italy, the euro zone’s third-largest economy, could trigger another debt crisis. Italy’s proposed budget includes greater borrowing and spending despite its public debt, which amounts to 133 percent of gross domestic product.

The paper was drafted for a meeting on Monday of all EU finance ministers except Britain’s, which will be devoted to changes to the euro zone bailout fund. It was signed by the Czech Republic, Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands, Sweden and Slovakia.

Although it did not sign, Germany, the euro zone’s biggest economy, is of the same opinion and Austria is also sympathetic.

The 19 countries that share the euro have a bailout fund, the European Stability Mechanism (ESM), which is a lender of last resort to governments that have lost market access.

Talks are under way among the 27 countries that will remain in the EU after Britain leaves next year to give the ESM more powers to monitor economies so it can provide a bailout at short notice when a crisis hits.

“The current ESM treaty already recognizes the possibility of private sector involvement in exceptional circumstances and an amendment of the treaty should be used to reaffirm this principle,” the paper of the ministers said.

The ESM should verify the repayment capacity of the country before lending and restructure the debt if needed, it said.

“In the unlikely situation where strict conditionality alone could not reasonably be expected to restore adequate repayment capacity, financial assistance would only be granted after measures to improve debt sustainability, taken in cooperation with existing creditors,” it said.

The euro zone has so far helped organize only one debt restructuring, in Greece in 2012, to accompany a second bailout loan package for Athens.

But concern is growing over the planned debt increase in Italy, which already has 2.3 trillion-euro of public debt. Many euro zone officials say there is no political will to bail out such a huge economy should Rome lose market confidence.

Exxon Mobil reported a big jump in third-quarter profits yesterday on higher oil prices and refining margins, and said the production ramp-up at key new US oilfields was on track.
Net income surged 57.1% increase in profits to $6.2bn. Revenues advanced 25.4% to $76.6bn.
The results topped analyst expectations and follow a number of earnings disappointments in recent quarters, pushing the company’s shares higher in pre-market trading. US oil prices were in the $60 to $70 a barrel range in the third quarter, well above the year-ago period, which was in the $40 to $50 range.
The US oil giant has struggled to maintain and grow production as old oil and natural gas projects suffer field decline and new investments take time to come online.
Oil and gas production was down 2.3% from the comparable quarter of the previous year, but rose 3.8% from the second quarter, which executives had described as a bottom due in part to outages at key projects.
The company is bullish on new projects in the Permian Basin, a key US shale territory in Texas that helped the company notch higher output in its home market. “We’re pleased with the increase in production from the second quarter of 2018 recognising it reflects contributions from just one of our key growth areas, the Permian,” said chief executive Darren Woods.
“We expect to continue to increase volumes over time as we ramp up activity in the Permian and new projects start up.”
Shares rose 1.8% to $82.15 in pre-market trading.

Chevron
US oil and natural gas producer Chevron Corp said yesterday its quarterly profit doubled as record oil and gas production helped overcome a series of one-time items.
With the price of crude in the third quarter up 44% from the same period a year ago, major oil companies’ earnings have returned to levels not seen in as much as four years. Chevron topped analysts’ estimates with third-quarter net income of $4.05bn, or $2.11 a share, compared with $1.95bn, or $1.03 per share, in the same quarter a year earlier.
“Our strong financial results reflect higher production and crude oil prices coupled with a continued focus on efficiency and productivity,” said chief executive Michael Wirth in a statement.
Analysts were looking for the company to report $2.06 per share profit, according to I/B/E/S data on Refinitiv.
Shares rose 2% in pre-market trading to $113.53.
The stock declined 9% in October and was off 11% year to date through Thursday’s close.
Chevron’s production rose to 2.96mn barrels of oil equivalent per day (boed) from 2.72mn boed a year ago.
Quarterly results included $930mn in one-time expenses for an asset impairment, a write-off and contract settlement offset by a $350mn gain from the sale of its South African refining and marketing operations, the company said.
Profit in the company’s downstream business, which refines crude oil into gasoline and other products, fell 24% reflecting lower margins and year-earlier gains on asset sales.

Energy storage on a commercial scale is the holy grail for supporters of renewables, including French President Emmanuel Macron.

Unfortunately for his government, a dispute with the European Union is blocking investment for facilities which could store enough wind or solar power for hundreds of thousands of homes.

At the heart of the deadlock is a series of hydroelectric dams operated by Electricite de France SA. The state-controlled utility’s rights to run several facilities expired a few years ago and the EU wants to boost competition by giving other companies a chance to operate them. EDF says it would be unfair to exclude it from new tenders, and Macron’s government is seeking a compromise.

As the spat enters its fourth year, more than 2 billion euros ($2.3 billion) of potential investment in pumped-hydro projects remain frozen. As long as the fate of their expired concessions is unclear, EDF and Engie SA, France’s dominant hydro producers, are reluctant to invest in new reservoirs and more powerful turbines. But the country will need additional storage capacity for its planned expansion in wind and solar power.

“Today, some investments on concessions are blocked because of our disagreement with the competition department” of the EU, Virginie Schwarz, director of energy at the French Environment Ministry, said at a conference this month. The government, which is about to present France’s energy road map for the next decade, is assessing ways to fund regeneration of old dams and the development of small hydro projects, she said.

That would boost France’s existing 25.5 gigawatts of hydropower capacity, which generates more than a 10th of the country’s electricity. EDF, which operates more than 20 gigawatts of these dams, has the most to lose in future tenders. That’s because it still operates most of the almost 3 gigawatts of concessions that have expired, and this number will climb to 5 gigawatts in the next few years.

French oil giant Total SA and Norwegian state utility Statkraft AS are among the companies that are prepared to bid for EDF’s and Engie’s hydro concessions when they come up for grabs. The issue has been a contentious one for the government, which owns 84 percent of EDF, as it risks being left with smaller, unprofitable dams.

Window Extension

Still, there may be a “political window” of opportunity for France to make a deal with the EU after European parliamentary elections in May next year, said Regis Collon, a spokesman for Statkraft France, which aims to operate at least 1 gigawatt of French hydro concessions by 2025.

The French government has asked the EU to extend EDF’s concession on the Truyere river in southern France. In exchange, the utility would build a pumped-hydro facility of about 1 gigawatt, according to Yves Giraud, EDF’s hydro chief, who says he hasn’t heard of any response from the EU.

“You can’t go through a windless week with a battery, while you actually can with some pumped hydro,” said EDF’s hydro chief.

The cost of building 1 gigawatt of pumped hydro is around 1 billion euros. However the next gigawatt would be more expensive because the best locations have been used already, according to Arnaud Renaud, head of consultant Artelys. Such costly investments may require some financial support mechanism because of fluctuating power costs, he said.

“Even if we’ll probably need them, it’s difficult to make such long-term investments with uncertain revenues,” Renaud said.

Chesapeake Energy Corp is buying oil producer WildHorse Resource Development Corp in a nearly $4bn deal, it said yesterday, as it looks to increase oil production capacity during a period of rising crude prices. The Oklahama-based oil and natural gas producer said each WildHorse shareholder will get either 5.989 shares of Chesapeake common stock, or a combination of 5.336 shares of Chesapeake stock and $3 in cash, for each share they hold. WildHorse’s shares surged 13.5% to $20.50 in premarket trading, while Chesapeake shares slumped 8% to $3.42. The acquisition is expected to give Chesapeake about 420,000 high-margin net acres in the Eagle Ford shale and Austin Chalk formations in Southeast Texas, and help it save between $200mn and $280mn in annual costs. Chesapeake has been directing its capital toward oil production and shifting away from natural gas amid a rise in crude prices and a slump in natural gas prices. “We plan to focus the vast majority of our projected 2019 activity on our high-margin, higher-return oil opportunities in the PRB and Eagle Ford Shale, while decreasing capital and activity directed toward our natural gas portfolio,” Chesapeake Chief Executive Off icer Doug Lawler said in a statement. Chesapeake also reported third-quarter results yesterday, which showed a net profit of $60mn for the three months ended September 30, compared with a loss of $41mn a year earlier. Excluding one-time items, the company earned 19 cents per share. Wall Street analysts on average had expected 15 cents, according to Refinitiv data. It was not immediately clear if the figures were comparable. Revenue jumped to $2.42bn from $1.94bn.

SINGAPORE (Reuters) – High oil prices are hurting consumers and could also have adverse implications for producers, the executive director of the International Energy Agency (IEA) said on Tuesday.

Major emerging Asian economies such as India and Indonesia have been hit hard this year by rising crude oil prices, which despite declining this month are still up by about 15 percent since the start of 2018.

Fuel import costs have been pushed up further by a slide in emerging market currencies against the dollar, denting growth and even triggering protests and government fuel price controls in India.

“Many countries’ current account deficits have been affected by high oil prices,” IEA chief Fatih Birol said at an energy conference in Singapore.

“There are two downward pressures on global oil demand growth. One is high oil prices, and in many countries they’re directly related to consumer prices. The second one is global economic growth momentum slowing down.”

The effect of high oil prices will be compounded in Southeast Asia as demand is rising fast but production is falling, resulting in the region becoming a net importer of oil, gas and coal, Birol said.

Despite the possibility of a slowdown, Birol said the general outlook for fuel consumption was for continued growth.

While the rise of electric vehicles is expected to result in peak demand for products like diesel and gasoline within coming years, a consumption boom in products such as plastic as well as fuel demand growth from aviation have triggered large-scale refinery investment into petrochemical products and high quality products like jet fuel.

“Global oil demand will continue to grow even amid the rise of electric vehicles as they are governed by petrochemicals, aviation, among others,” he said.

BHP Billiton, the world’s biggest miner, which has oil and gas assets but also hopes to benefit from the demand for raw materials coming from batteries for electric vehicles (EV), also said oil demand would still grow despite the rise of EVs.

BHP’s Chief Commercial Officer, Arnoud Balhuizen, said on Tuesday during a conference in Melbourne that oil demand will increase by 1 percent a year on average over the next 10 to 15 years.

“There will be substitution coming… on the back of an increased pickup of electric vehicles. But even if we plug in the most ambitious electric vehicle trends… in our forecasting, we continue to see oil demand on the back of other sectors,” he said.

To meet the 1 percent per year consumption growth, Balhuizen said “quite a bit of new capital needs to be allocated to the oil industry in the next five to ten years to be able to meet that demand.”

More so than oil, Birol said demand for liquefied natural gas (LNG) would boom.

He said that global LNG trade could pass 500 billion cubic meters per day (bcm) by 2023, growing by a third in the coming five years.

BHP’s Balhuizen echoed this in Melbourne, saying “LNG is a commodity with very strong demand outlook.”

Birol said just three countries, Qatar, Australia and the United States, would supply 60 percent of global LNG by 2023.

LNG demand is primarily driven by growth in China, where an anti-pollution program is driving a massive shift from coal to natural gas.

Manufacturing PMI: Japan rebounds, but trade hits China while UK slumps
But demand is also expected to grow fast in Southeast Asia, where Birol said the power sector needed $50 billion of investment by 2040, more than twice the current level, to keep up with consumption.

Despite this growth potential, the LNG sector faces increasing competition from renewables and storage technology, which are cleaner than fossil fuels and becoming much cheaper.

In many countries, Birol said solar power was on track to become the cheapest source of new electricity.

LONDON/RIYADH (Reuters) – OPEC signaled on Thursday it may have to return to oil production cuts as global inventories rise, in a statement that may further sour relations with U.S. President Donald Trump.

The president has repeatedly lashed out at the Organization of the Petroleum Exporting Countries, saying it is not supplying enough oil. OPEC, plus Russia and other allied non-OPEC producers agreed to pump more in June.

An OPEC and non-OPEC ministerial panel concluded that supply is “very comfortable” compared to demand and warned producers may need a change of tack because of rising inventories and economic uncertainties.

“The committee, however, expressed concerns about rising inventories in recent weeks and also noted looming macroeconomic uncertainties which may require changing course,” a statement issued by OPEC said.

Brent crude oil, the global benchmark, has lost about $10 a barrel since hitting a four-year high of $86.74 on Oct. 3, on signs of ample supply even as U.S. sanctions on Iran aimed at cutting the OPEC member’s oil exports loom.

For now, producers are making progress in increasing production in line with the June agreement.

OPEC and its partners agreed in June to lift oil supplies so that compliance with output curbs in place since January 2017 falls to 100 percent, from closer to 150 percent because of declining production in some countries.

Countries complied with 111 percent of pledged supply curbs in September, the statement said, meaning production increased from August when adherence was 129 percent.

The panel, called the Joint Ministerial Monitoring Committee, can make recommendations but does not set policy. OPEC and its allies hold their next policy meeting in December.

Forecasters, including the International Energy Agency, expect slower growth in global oil demand next year and rising supplies from outside OPEC, which could further increase inventories if OPEC keeps output at the same level.

The ministerial panel asked its technical group, called the Joint Technical Committee, to “continue to study the 2019 outlook and present options on 2019 production levels to prevent re-emergence of a market imbalance.”

Earlier on Thursday, top exporter Saudi Arabia said the oil market could be oversupplied in the fourth quarter of the year as stocks rise and demand slows. It said it will “mirror” such changes in its production.

“We are of the view that the market in the fourth quarter could be shifting towards an oversupply situation as evidenced by rising inventories over the past few weeks,” Saudi OPEC governor Adeeb Al-Aama told Reuters.

The OPEC governor is typically one of the most senior posts in a country’s OPEC delegation after the energy minister.

Countries heavily reliant on oil and gas for revenue must diversify their economies or face worsening finances, the International Energy Agency warns in a new report.
While revenue for petro-states has always fluctuated in boom-and-bust price cycles, this time is different. Surging US shale production, the expansion of renewables and increases in energy efficiency pose a more fundamental challenge.
“Now, more than at any other point in recent history, fundamental changes to the development model look unavoidable,” IEA executive director Fatih Birol said in an interview. “Countries cannot afford to base their economies on oil and gas revenue only. It’s high time to diversify their economies.”
The most obvious answer to the diversification question, particularly for Middle Eastern producers, is to ramp up solar power capacity, the IEA says.
Around 2mn bpd of oil is used for electricity generation in the Arabian Gulf, according to Birol. “This is very inefficient. It’s like using Chanel perfume to fuel your car,” he said.
Prices will come under pressure over the long term, the IEA says, because of rising US shale oil production, increased energy efficiency and policies to curb climate change and local air pollution.
“A big amount of shale oil is coming onto the market,” Birol said. “We expect between now and 2030 more than 50% of global oil production growth will come from shale oil.”
Since the price crash in 2014, net income from oil and gas has plunged for producer countries. For Iraq the drop was around 40%; for Venezuela it was as much as 70%.
The risk of failing to diversify away from oil and gas is outlined in the IEA’s Low Oil Price Case scenario, where it assumes crude settles in a range between $60 to $70 a barrel.
In the Middle East, this would equate to a $1,500 drop, compared to the IEA’s base case New Policies Scenario, in average annual disposable income per person, the IEA said. In countries with rising, young populations in need of jobs this would be critical.
If crude prices average around $60-70 a barrel between now and 2040, net oil and gas income across the industry will never recover to 2010 to 2015 levels, the IEA said. This would lead to a cumulative $7tn loss in revenue, through to 2040.
“Without far-reaching reforms, this would translate into large current account deficits, downward pressure on currencies and lower government spending,” the report said.
Saudi Arabia’s Vision 2030, a plan to wean its economy off oil, was unveiled in 2016 to much fanfare but concrete reforms have been lacklustre. While the IEA stops short of singling out the world’s largest oil exporter as being especially at risk, it highlights how the kingdom remains “heavily dependent on hydrocarbon revenues today” despite having first expressed a desire to diversify its economy back in 1970.
The IEA says that how these producer countries adapt is crucial, not just for the survival of their own economies but also for global energy security and environmental sustainability. Maintaining investment in low-cost and low- carbon energy resources is vital.
The disadvantages of being heavily dependent on oil and gas revenues are evident in the recent history of the global economy, the IEA said.
“Producer economies have not performed significantly better in economic terms than non-producers in recent years, despite having access to vast revenue streams from oil and gas,” the report said. “More than at any other point in recent history, fundamental changes to the development model in resource-rich countries look unavoidable.”

Opec signalled yesterday it may have to return to oil production cuts as global inventories rise, in a statement that may further sour relations with US President Donald Trump.
The president has repeatedly lashed out at the Organization of the Petroleum Exporting Countries, saying it is not supplying enough oil.
Opec, plus Russia and other allied non-Opec producers agreed to pump more in June.
An Opec and non-Opec ministerial panel concluded that supply is “very comfortable” compared to demand and warned producers may need a change of tack because of rising inventories and economic uncertainties.
“The committee, however, expressed concerns about rising inventories in recent weeks and also noted looming macroeconomic uncertainties which may require changing course,” a statement issued by Opec said.
Brent crude oil, the global benchmark, has lost about $10 a barrel since hitting a four-year high of $86.74 on October 3, on signs of ample supply even as US sanctions on Iran aimed at cutting the Opec member’s oil exports loom.
For now, producers are making progress in increasing production in line with the June agreement.
Opec and its partners agreed in June to lift oil supplies so that compliance with output curbs in place since January 2017 falls to 100%, from closer to 150% because of declining production in some countries.
Countries complied with 111% of pledged supply curbs in September, the statement said, meaning production increased from August when adherence was 129%.
The panel, called the Joint Ministerial Monitoring Committee, can make recommendations but does not set policy.
Opec and its allies hold their next policy meeting in December.
Forecasters, including the International Energy Agency, expect slower growth in global oil demand next year and rising supplies from outside Opec, which could further increase inventories if Opec keeps output at the same level.
The ministerial panel asked its technical group, called the Joint Technical Committee, to “continue to study the 2019 outlook and present options on 2019 production levels to prevent reemergence of a market imbalance.”
Earlier yesterday, top exporter Saudi Arabia said the oil market could be oversupplied in the fourth quarter of the year as stocks rise and demand slows.
It said it will “mirror” such changes in its production.