Rising Tension in Lebanon After Friday's Car Bombing

 

October 21, 2012

BEIRUT, Lebanon — Tension has been rising sharply in Lebanon after Friday afternoon's car bombing (October 19), which exploded close to Sassine Square in Beirut's Ashrafieh, a Christian central neighborhood. The bomb detonated in a narrow street that is in the proximity of the headquarters of Saad Hariri's 14 March Alliance. The explosion was well heard around the city — from adjacent areas like Gemmayze and Mar  Mikhael to the far hilly neighborhood of Baabda. The blast took the life of eight people, wounded scores and completely ripped off at least two buildings.

The target of the bomb was the head of the Lebanese intelligence branch of the Internal Security Forces (I.S.F.), Brig. Gen. Wissam al-Hassan, a Sunni Muslim who was profoundly anti-Syrian and who was very close politically to Saad Hariri. Mr. al-Hassan was probably going to be the I.S.F. next head. A couple of months ago he had been behind the investigation that was later the basis for prosecuting the former Lebanese information minister, Michael Samaha and two Syrians for complotting in order to foment religious hatred in Lebanon.

 

Previously, Mr. al-Hassam directed an investigation into the deaths of the Prime Minister, Rafic Hariri and 21 other people in February 2005. His analysis pointed out strongly toward Syria and Hezbollah's direct implication into the murderous attack. At this regard, it should be noted that the Syrians at the time of the blast still had a military presence in Lebanon. Until last Friday, Mr. al-Hassam had been able to escape several assassination attempts. "He used to move around according to exceptional safety measures and he had his family installed in Paris because he felt himself as a target" added Samir Geagea, a prominent Lebanese politician, senior member with the March 14 Alliance.

Immediately after the blast, many anti-Syrian a politician, like Saad Hariri and Druze leader Walid Jumblatt, started accusing President Bashar al-Assad of Syria to be behind the explosion. And Mr. Hariri's coalition also requested the government, which is run by Prime Minister Najib Mikati, to resign because of its inability to maintain internal security in the country. In fact, Lebanese politicians (especially those belonging to the opposition) are scared by the possible direct involvement of Lebanon into the current Syrian turmoil. It's worth remembering that the Syrian Army withdrew from Lebanon only in 2005, after a 29-year occupation. On Saturday, Mr. Mikati offered to resign so as to create a government of national unity, but President Michel Suleiman requested him to stay in power and to find a way out from this political crisis.

Late Friday, some protests started in Beirut and Tripoli, especially in Sunni-inhabited areas. Currently, people are burning tires and are blocking several roads. On Sunday morning, a fifteen-year-old boy was killed by a random gunfire while confrontations between supporters and opponents of Syria's president occurred in Tripoli. While thousands of Lebanese attended peacefully (but, unequivocally chanting against the government and Syria) the funeral of Mr. al-Hassam in Beirut's Martyrs' Square in the early afternoon of Sunday, then later some people started storming with stones and metallic rods the government offices located nearby. The police retaliated with warning shots and tearing gas.

With reference to the current turmoil in Syria, the Muslim community in Lebanon is almost perfectly split between Shias, who support President Bashar al-Assad of Syria, and Sunnis, who support Syrian rebels (Druze people are much less numerous). Before Friday afternoon's car bombing, tension had already risen in Lebanon for almost a week, following last Sunday's (October 13) Martyrs' Square's sit-in. On that occasion, the powerful Salafist Sheikh al-Assir from Saida (Sidon) — he gained a lot of popularity some months ago after that he and his followers had blocked the road between Sidon and Beirut — held a Sunni sit-in in Martyrs' Square, which is the same square where today was celebrated the funeral. While on stage, he hurled all his anger toward Syria's president and Hezbollah. The Sunni rally ended peacefully, but later Sheikh al-Assir's convoy was pelted with stones in central Beirut on its way back to Saida.

The situation looks quite unstable right now and there is now fear that the country may fall back to a cycle of sectarian violence and reprisals, which it has undergone in the past four decades. The only real hope is that Friday's car bombing was only an isolated sort of reprisal against a man who was deeply anti-Syrian and who, as said above, had already escaped some assassination attempts. Instead, were this car bombing the first piece in a series of terrorist attacks, the situation could really push Lebanon into another civil war.

At the beginning of al-Hassan's funeral, politicians, the military and security officials attended at the I.S.F. headquarters a ceremony held with full military honors. There, President Suleiman said that the government and Lebanese people must work "shoulder to shoulder" to overcome these sad events. And then he added: "I tell the judiciary do not hesitate, the people are with you, and I tell the security be firm, the people are with you, with you. And I tell the politicians and the government do not provide cover to the perpetrator." Beautiful words, indeed.

The next days will now prove whether Lebanon will continue with the peaceful normality of the last four years or it will revert to the previous turmoil.



 

Hydrocarbons Tensions Between Erbil and Baghdad Don't Seem to Abase



 September 4, 2012

 

On Thursday July 19, 2012, the American oil giant Chevron declared that it was in the process of purchasing oil interests in Iraq's semi-autonomous Kurdistan region. In specific, the super-major stated that it would acquire from India's Reliance Industries Ltd. an 80 percent stake of two blocks (called Rovi and Sarta, with the related operational control) located north of the city of Erbil within Iraqi Kurdistan. The junior partner in the two blocks would be Austria's O.M.V. (O.M.V. Rovi GmbH and O.M.V. Sarta GmbH). Unconfirmed sources spoke of a $300 million deal.

A few days later on Tuesday, July 24, 2012, the Ministry of Oil of Iraq released a statement that explicitly stated that "Chevron is barred [banned] from any agreement or contract with the federal ministry of oil and its companies ... unless it retreats from the contract it signed in the Kurdistan region". The latter in turn stated that all and any deals it had signed well complied with the country's new constitution. In other words, Chevron was disqualified from doing business in the central and southern part of Iraq, where it previously had prequalified to bid. Chevron, when replying to the ministry's statement, explained that it had been working in Iraq since 2003 and that it would be interested into participating to new businesses if these met its investment criteria. Moreover, at the time of reply, Chevron had no stake to lose in southern Iraq as a consequence of this disqualification.

This banning was the direct consequence of the long dispute between Iraq's federal government in Baghdad and the Kurdish Regional Government (K.R.G.) in Erbil in relation to the control of Kurdish hydrocarbons production and the related consequent export from Iraqi Kurdistan. This current confrontation was — and still is today — well amplified by the lack of legislation for the energy sector in Iraq.

Because of the current argument between Baghdad and Erbil, several major foreign oil companies up to now have preferred to avoid buying or just being involved with assets located in Iraqi Kurdistan and/or in the territory right now disputed between Baghdad and Erbil. Certainly, signing directly with the K.R.G. a contract that could be nullified by the central government is not the best way to conduct oil operations in an already-difficult country like Iraq.

Until this spring, the only super-major operating in Iraqi Kurdistan had been ExxonMobil, which in October 2011 declared that it was the first oil super-major to purchase the rights for some oil fields within Kurdistan — in specific, the deal concerned six oil fields. Also in this case the central government's subsequent move was to ban Exxon from any future oil and gas deal with Iraq. It should be noted that ExxonMobil was already running a very giant oil project in southern Iraq.

What was immediately clear was that the central government's opposition to the K.R.G. contracts would lose weight if another super-major started operating in Kurdistan. In fact, already in the previous months of 2012, other foreign big-oil companies seemed interested into working in Iraqi Kurdistan, notwithstanding the fact of being consequently excluded from energy operations in central and southern Iraq. To support this thesis, last spring's energy auction (Iraq's fourth energy auction, which included both oil and gas blocks) held by the federal government for twelve blocks located in southern Iraq raised very limited interest from foreign companies. In practice, only two blocks were sold and not to the big companies.

Big-oil companies do consider the terms imposed by the Iraqi Oil Ministry for investing in Iraq as excessively onerous with reference both to payment terms and the revision of the original targets so as to increase capacity. In practice, Erbil permits production sharing agreements (P.S.A.s) in its oil fields, while Baghdad only signs simple fee-based service contracts. Before Chevron's arrival, in Kurdistan were already working several small- and mid-sized oil and gas companies (among them, Norway's D.N.O. and Austria's O.M.V., which is partially owned by Abu Dhabi's International Petroleum Investment Company (IPIC)). With no doubt, if big players could really add to the minor oil and gas companies it would be a good outcome for the local energy sector, which requires, especially in the initial phases, imposing investments. So, the scarce attractiveness of Baghdad's contracts pushed big-oil companies to be focused much more than in the past on Iraqi Kurdistan. And a few days after Chevron's move, at the end of July, France's Total followed suit in Iraqi Kurdistan buying a 35 percent stake in the Harir and Safen blocks (covering an area of 705 square miles) from U.S. Marathon Oil Corp. Until this summer, the K.R.G. had signed about 50 exploration contracts with minor oil and gas companies (some of them are really wildcatters). And indeed Baghdad considered all these deals to be illegal and already blacklisted some companies that had negotiated with Kurdistan (one of these is U.S. Hess Corp. which like ExxonMobil was excluded from Iraq's fourth energy auction). Three months ago Iraq explicitly asked President Barak Obama to convince Exxon not to explore in Kurdistan, signaling in this way the importance for Baghdad to completely control its hydrocarbons sector.

On April 1, the K.R.G. stopped its oil export consisting of around 120,000 barrels a day through a Baghdad-controlled pipeline from Kirkuk to the Turkish port of Ceyhan. The reason behind this move was that the central government was retarding the payment of approximately $1.5 billion to the contracting companies. Later, on August 7, the K.R.G. restarted the oil shipments, but it clearly stated that it would interrupt them one more time, if within one month there would be no agreement on the payment that Baghdad should give to the contracting companies. Lately, on Saturday September 1, according to Kurdish sources, the K.R.G. extended the deadline until September 15 as a goodwill gesture. This move should permit Baghdad to have more time in order to resolve the payment issue.

Currently, shipments from Kurdistan are around 120,000 barrels per day, although Baghdad affirms that the amount should be 175,000 barrels per day (something less than 5 percent of Iraq's total production, which reached in August 2012, 3 million barrels per day), which, in October 2011, were agreed upon for year 2012. Iraq between 2010 and 2012, as a consequence of the interruptions of the K.R.G. shipments lost some $8.5 billion and according to Deputy Prime Minister Hussein al-Shahristani of Iraq it would be correct if the government deducted this sum from the national budget allocated to the K.R.G.

In any case, it should be understood that presently Kurdistan does not have any available shipping alternative to the Iraqi pipeline — trucking oil to Turkey or Iran is absolutely not a 100 percent substitute — and that Kurdistan is strongly dependent on the yearly budget allocation it receives from Baghdad. This allocation  reached in 2012 almost $11 billion (It's about 17 percent of the whole Iraqi national budget, although Erbil receives something less, probably just 13 percent, as a result of deductions utilized to cover federal expenditures for a range of items of which the Kurdish region benefits like the rest of Iraq). But — and here lies the problem for Baghdad — according to Ashti Hawrami, the natural resources minister of the K.R.G., Erbil wants to reach 1 million barrels per day by 2015. In reality, if Erbil were able to produce just 400,000 barrels per day of oil and to export them with a new Kurdish pipeline to Turkey, it could make $14.6 billion (considering a $100 per barrel of oil ). This value is consistently superior to the budget allocation Erbil receives now from Baghdad. In other words, economic self-sufficiency could be a potent tool to lately declare independence from Iraq. And of course, when Kurdistan and Turkey announced last May that they were planning to build this direct pipeline (with one million barrels per day of capacity) from the K.R.G. to Turkey by 2013 in this way bypassing Iraq, the federal government instantly defined this plan as very hostile. Plus, toward the end of July, Iraq accused Turkey and Kurdistan of doing illegal oil trade on the basis that only Iraq's central government may export oil. And adding oil to the fire, the visit of Turkey's foreign minister, Ahmet Davutoğlu, to Erbil on August 2012 increased tension.

Chevron's move indeed follows a protracted stand-off between Iraq’s federal government and the K.R.G. over the control of oil production and exports from Kurdistan. It immediately seemed quite improbable that Baghdad could completely boycott Kurdistan while at the same time its own energy auctions had reaped so scarce an interest. According to Kurdish sources, Erbil would like to reach a production of 2 million barrels a day by 2019 (the intermediate step will be 1 million barrels a day by 2015 as pointed out by Mr. Hawrami ) from a current value of only 300,000 barrels a day.

Almost nine years have passed since that December 13, 2003 when President Saddam Hussein was captured by the U.S. forces near Tikrit. Iraq, an OPEC member which owns the third largest proven oil reserves in the world (143 billion barrels) does not possess yet a binding hydrocarbon law, the so-called Iraqi Federal Oil and Gas Law (FOGL). In fact, the 2007 draft law was immediately marred by political infighting among different factions. The current dispute between Erbil and Baghdad is the direct consequence of their century-old struggle, and now, dangerously, hydrocarbons could buttress Iraqi Kurdistan's economic autonomy if not in the future its independence.



 

Fujairah: A Slumbering City May Become A Major Gas Terminal

 

July 24, 2012

 

The Emirate of Fujairah is one of the seven emirates that make up the United Arab Emirates (U.A.E.) and it's the only one that abuts the Gulf of Oman (Indian Ocean) rather than being located within the Persian Gulf.

The city of Fujairah does not have the appeal of the two main cities of the U.A.E.: Abu Dhabi and Dubai. And as a matter of fact, already many Fujairah's residents travel to the western emirates for entertainment and shopping ends. Part of this Fujairah's slumbering attitude is due to pitiable land transport infrastructure, which only recently has been improved thanks to the Dubai-Fujairah motorway.

The real importance of this slumbering city is its port facing the Indian Ocean. In fact, Fujairah's main businesses are shipping and ship-related services. Geographically the city is perfectly located — Chinese and Indian merchants sailed regularly from and to Fujairah more than 2,000 years ago — and as a consequence ships trading from the Persian Gulf anchor here for provisions, bunkering, repair and technical support before starting their long voyages. Its port along with Singapore's and Rotterdam's ranks as one of the top three bunkering ports in the world.

Now, two relevant events have the potential to additionally boost and strongly diversify the economic development of the Emirate of Fujairah. The first one is the recent inauguration of the Abu Dhabi Crude Oil Pipeline (Adcop), which permits the U.A.E. oil to bypass the Strait of Hormuz and to be exported directly from the Indian Ocean. The second one is the plan by Mubadala and International Petroleum Investment Company (IPIC) of building a major floating L.N.G. import and regasification unit in Fujairah. This option would eliminate the need for gas vessels to enter the Strait of Hormuz.

Let's now focus our attention on the second event, which is related to the construction of the gas terminal. In relation to the first event for more detailed information please refer to: BACCi, A., U.A.E.s Alternative Oil Exporting Route Bypassing the Strait of Hormuz, July 2012.

The basic idea behind the construction of this gas terminal (it will be the second regasification terminal in the U.A.E. after the one in Dubai) — the project feasibility study was completed last year and the terminal should be ready by 2014 — is to provide gas tankers with the possibility of delivering their cargoes to the U.A.E. directly in Fujairah — in this way cargoes would avoid to pass through the Strait of Hormuz. In other words, we are talking about energy security. Headlines normally point out the importance of the strait for oil trade, but with reference to L.N.G. the position is probably worse. For, currently there are no available alternatives for gas to the route through the Hormuz waterway. And, given the relevance of Qatar in the L.N.G. market, this means that almost a third of all world's L.N.G. shipments pass through the strait. The construction of the floating storage and regasification unit (FSRU) is another Emirati step aimed at mitigating its exposure to Iran's possible destructive actions within the Persian Gulf. During the last months in response to U.S. and E.U.'s economic sanctions Iran has menaced to close the Strait of Hormuz raising again the tension in the area. And surely, memories of the 1980s with its Tanker War (1984-88) are still very vivid and present in the U.A.E.

For completing the FSRU, the two wholly owned investment vehicles of the Government of Abu Dhabi, Mubadala Development Company (The gas project is run by its subsidiary Mubadala Oil & Gas) and IPIC have established the joint venture Emirates L.N.G. The gas unit will be built in two phases and in the end it will have an import capacity of 1.2 billion standard cubic feet of gas per day.

For decades the U.A.E. had been a gas exporter, but since 2007 it has been requiring more gas that it has been producing. Increasing natural gas production in the U.A.E. is not an easy task because of the subsidized prices. Now, the majority of the country's electricity is generated by plants that burn natural gas. With energy-hungry industries (for instance: steel production, aluminum and petrochemicals) and households consuming more and more energy, the U.A.E. (the Emirate of Dubai in 2010) and previously Kuwait (in 2009) have been forced (especially during the summer season) to import gas notwithstanding the fact that Middle East owns 40 percent of the world's known natural gas reserves. In specific, Abu Dhabi owns 3 percent of the world's total. It's quite probable that Bahrain and Oman will soon start importing L.N.G. as well. According to the Oxford Institute for Energy Studies, it seems that together the G.C.C. countries have a gas shortage summing up to 46 billion cubic meters a year. In general, forecasts state that between 2010 and 2030 Middle East annual gas consumption will double from 315 billion cubic meters to 550 billion cubic meters.

Mubadala is already a partner (with a 51 percent stake) in the Dolphin Project, a pipeline, whose full capacity is up to 3.2 billion cubic feet a day. This pipeline carries natural gas from Qatar to the U.A.E. (both Abu Dhabi and Dubai are served) and to Oman at very discounted prices ($1.3 to $1.5 per million British thermal units). The problem here is that the pipeline is operating at less than two-thirds (around 1.859 billion cubic feet a day adding together the gas for the U.A.E. with the gas for Oman)of its full capacity. Currently, the U.A.E. imports from Qatar an average of 1.659 billion cubic feet a day (929 million cubic feet a day of gas for Abu Dhabi and 730 million cubic feet a day for Dubai), while Oman receives only 200 million cubic feet a day. And for sure, Qatar with its immense reserves of natural gas ideally would be the best candidate for providing gas to the other G.C.C. countries. But power politics among the six G.C.C. countries and Qatar's desire to maximize its revenues (which is absolutely not unfounded) have always impeded progress in relation to a pan-G.C.C. gas network. Qatar prefers to sell its L.N.G. outside the Persian Gulf at much more remunerative prices. And it makes sense.

Plus, until at least 2015 Qatar is set to maintain a moratorium on gas export projects and this well precludes for both the U.A.E. and Oman the possibility of purchasing supplementary gas to be transported through the Dolphin pipeline. Given the current confrontation between Qatar and the potential G.C.C. customers, some G.C.C. countries are necessarily trying to develop some extreme gas projects like Saudi Arabia in the Empty Quarter or the U.A.E. with the Shah ultra-sour gas field in the Emirate of Abu Dhabi (the latter is a joint venture between the Abu Dhabi National Oil Company (Adnoc) and U.S. Occidental Petroleum and it's due to come on stream in late 2014). Still in the U.A.E., Adnoc has signed an agreement with Germany's Wintershall and with Austria's O.M.V. in order to develop a difficult (sulfur) gas field located in the desert of Al Gharbia. In any case, it should be understood that removing sulfur from domestic gas is expensive (gas price up to $6 per MMBtu) and forces the governments to raise the price to final customers as it's now happening with the utility bills in Dubai.

Surely, all that glisters with the newly built pipeline and the still-to-be-built gas terminal is not gold. And new problems may easily arise. For instance, one is piracy. Last February, a container vessel came under attack very close to Fujairah's coast. In the area shipping routes are already menaced by piracy and increasing the number of vessels may further decrease safe shipping routes.

But the real problem is: Where does the L.N.G. to be treated in Fujairah come from? L.N.G. is expensive for a country accustomed to pegging gas prices to around $1 per MMBtu and this well explains why Qatar prefers to sell its gas to the energy-hungry Asian countries, which — given a tight market — are right now paying around $16 per MMBtu. Emirates L.N.G. suggested that it could get 1 million tons per annum of gas from Abu Dhabi's Adgas L.N.G. once an existing agreement with Japan's Tepco to supply an additional cargo a month expires in 2013-2014. Moreover, once the 25-year agreement delivering an average of 4.9 million tons per annum by Adgas L.N.G. to Japan expires in 2019, it's highly probable that it won't be renovated, but that this gas will be used domestically. Given these circumstance, supplies may come from far places like Russia, Australia, Mozambique (some commentators think also of the United States as a gas provider for the U.A.E.) but the problem is always the final price.

In the previous months, international oil traders have already built rows of massive oil storage tanks along Fujairah's coast in anticipation of the new pipeline (Sinopec, the Vitol Group and Royal Vopak N.V. are just some of these companies). Summing up, many oil and gas companies are setting up their bases in Fujairah. Estimates envisaged Fujairah's storing capacity (both for crude oil and refined products) to rise from 6.8 million cubic meters in 2012 to 13.3 million cubic meters in 2015.

For the moment the real winner of all this frantic activity along the Indian Ocean is the Emirate of Fujairah that — while maintaining its long-dated shipping and ship-related services — could really become U.A.E.'s energy security hub both with reference to oil and gas with the two commodities well suited to being clustered in the same area. At this regard, the gas terminal may well supply energy to IPIC's still-in-construction 200,000-bbl/d crude oil refinery in Fujairah, which will be operational in 2016.