Rescue talks for Prinos, Greece’s only producing field, making progress

Talks between Energean Oil & Gas and officials at the energy and economy ministries for a solution to rescue offshore Prinos, Greece’s only producing field in the north, are making progress, sources have informed.

Heightened Turkish provocations in the Aegean Sea over the past few days – the neighboring country sent a survey vessel into Greece’s EEZ – and greater US presence in the wider southeast Mediterranean region, are two developments that have injected further urgency into the Prinos field rescue talks.

The east Mediterranean is at the core of geopolitical developments that promise to create new political and energy sector conditions.

US oil corporation Chevron, America’s second-biggest energy group, has joined fellow American upstream giant ExxonMobil in the east Mediterranean with a five billion-dollar acquisition of Noble Energy.

This takeover by the California-based buyer adds to the Chevron portfolio the gigantic Leviathan gas field in Israel’s EEZ, as well as the Aphrodite gas field, situated within the Cypriot EEZ and estimated to hold 4.5 trillion cubic feet.

It also offers Chevron prospective roles in the East Med pipeline, to supply Europe via the Leviathan field, and Egypt’s LNG infrastructure, all elevating the petroleum group into a dominant regional player.

Israel and Cyprus recently ratified the East Med agreement, as has Greece, while Italy appears to be examining the prospect.

In another regional development, the Total-ENI-ELPE consortium is preparing to conduct seismic surveys at licenses south and southwest of Crete, and an environmental study southeast of Crete has been approved by Greek authorities. Also, oil majors with interests in Cyprus’ EEZ have planned a series of drilling operations for 2021.

Meanwhile, Turkey, trespassing into both Greek and Cypriot EEZ waters, consistently cites a memorandum recently signed with Libya as support for its actions, as well as its refusal to sign the UN’s International Law of the Sea treaty, strongly disagreeing with an article that gives EEZ and continental shelf rights to island areas.

Greek government officials are well aware that closure of the Prinos field amid such precarious conditions would lead to major consequences, not just economic and social, as would be the case under normal conditions, but also geopolitical.

Hydrocarbons can push RES sector to next stage, new EDEY official says

The hydrocarbons industry will continue to play an important role in the energy mix until 2050, despite a shift in policies turning to renewable energy, and could also serve as a lever of support propelling the RES sector to its next stage, according to Aristofanis Stefatos, the newly appointed chief executive of EDEY, the Greek Hydrocarbon Management Company.

Stefatos and Rikard Skoufias, concurrently named new president of EDEY, offered their views on the upstream sector during questioning by Greek Parliament’s permanent committee on institutions and transparency.

The two men, both proposed by energy minister Costis Hatzidakis for the top EDEY jobs, officially assumed their roles following approval by the committee.

During questioning, committee members asked about the future of the hydrocarbons sector and licenses in Greece given the major decline in crude oil prices, as well as climate change policies being adopted.

Stefatos described the dip in crude oil prices as a temporary condition, noting the sector has experienced such situations in the past before rebounding. “It is only a matter of time before the same thing happens again,” he noted.

The two officials were also asked to comment on environmental protection issues, while Stefatos, the new chief executive, was asked to clarify on his position as shareholder of a Norwegian upstream company.

An offshore corridor running down from Albania into Greece’s EEZ has potential, while signs of a deposit in the area are encouraging, Stefatos told the committee. However, further 3D seismic surveys must soon be conducted in the area, he stressed.

Crisis’ impact on Prinos looked at, Energean up against time

The energy ministry has turned to specialized consulting firm assistance for a detailed analysis on the pandemic’s financial impact on the Prinos offshore oil field in northern Greece, the country’s only producing field at present.

The energy ministry’s secretary-general Alexandra Sdoukou, handling the matter on behalf of the ministry, is currently holding talks on a daily basis with officials at Energean Oil & Gas, the field’s license holder.

The company wants emergency government support amid the extraordinary market conditions, energypress sources have informed.

The two sides are believed to be closely examining related data to determine the extent of the financial damage, for this project, due to the plunge in international oil prices, prompted by lower demand amid the widespread lockdown.

Energean Oil & Gas has invested 50 million euros between September, 2019 and May to keep production flowing at Prinos, an aging field, sources noted.

Sustainability is becoming a growing challenge at this venture, employing a workforce of approximately 270 employees, market authorities have noted. A cutdown in operating costs is seen as essential.

A cash injection for “Epsilon”, a fresher field in the area also licensed to Energean, could be made as a support for the company. Another option may entail financial support by the Greek State in exchange for a stake in Energean. Alternatively, state guarantees could be offered for a bank loan.

The finance ministry is also expected to become involved in the Prinos rescue effort. Much work lies ahead before any decisions can be reached. These will require European Commission approval.

Gov’t examining pandemic’s impact on Prinos oil field

The pandemic’s financial impact on offshore Prinos, Greece’s only producing oil field, south of Kavala, is being closely examined by government officials and specialized advisors, energypress sources have informed.

Conclusions have yet to be reached on the extent of the financial damage to the Prinos oil field, licensed to Energean Oil & Gas, but it appears the government will seek financial support for this venture through the European Commission’s Directorate-General for Competition.

Though it is still considered too early for any decisions, the government has apparently already recognized the damage inflicted on Prinos by the pandemic and subsequent drop in demand and oil prices.

The Greek government has pledged production continuity and job protection for Prinos, as was recently highlighted by deputy energy minister Gerassimos Thomas.

Limits have been exhausted to keep Prinos operating, Energean Oil & Gas officials have pointed out, stressing the cost burden on the company.

 

Oil drilling plans on hold, forced by price collapse, pandemic

Preliminary hydrocarbon exploration work planned by oil companies at licenses in the Ionian Sea and south of Crete is being postponed for an indefinite period that could last as much as a year, possibly more.

Upstream players are revising plans as a result of the collapse in oil prices and the coronavirus pandemic, a double setback for the sector.

Worse still, investment conditions for the Ionian Sea and Crete areas are made even more challenging by the fact that neither has yet to reveal sustainable fields.

In addition, both Greek zones are deep-sea areas of depths ranging from 2,500 to 3,000 meters, making exploration a high-cost venture.

Global oil majors are reducing investments and expenses by the billions in response to the unfavorable market conditions that have emerged over the past couple of months.

Fields with proven reserves have not been spared, which pushes untested fields such as those in Greece even further down the priority list.

The resumption of drilling ventures still at preliminary stages is not likely until oil prices rebound, energy minister Costis Hatzidakis noted in an interview with Greek daily To Ethnos.

It is a similar picture for Cyprus. The Eni-Total consortium yesterday announced it is postponing oil drilling activities in Cyprus’ Exclusive Economic Zone until March or April next year.

PPC boss: Oil cost benefits outweigh pandemic’s damage

Benefits offered by the sharp drop in oil prices promise to outweigh the negative impact of pandemic-related tariff discounts offered to customers and lower revenues, power utility PPC’s chief executive Giorgos Stassis highlighted to analysts and investors during a two-hour virtual conference held yesterday.

Company financial figures for 2020 and the first half of 2021 have needed to be revised but the coronavirus lockdown measures imposed until now do not appear to have negatively impacted the corporate group, the CEO informed.

On the contrary, operating profit has risen as a result of a significant reduction of energy costs, Stassis explained, noting this gain is greater than reduced turnover figures prompted by lower energy consumption during the pandemic as well as the consequences of electricity bill payment delays by customers.

PPC’s energy expenses rose by 425 million euros in 2019, according to yesterday’s presentation.

The state-controlled corporation’s decarbonization schedule, or withdrawal of lignite facilities, will not be postponed by the pandemic, Stassis noted, responding to related questions.

PPC plans to soon withdraw its Amynteo facility from the grid, while the corporation’s lignite-based electricity generation has been significantly reduced, according to recent company announcements.

Lignite-based production at PPC has dropped by 65 percent compared to last year, according to a monthly report released by the Greek energy exchange in March.

PPC’s lignite facilities financially burden the corporation by 200 to 300 million euros per year, analysts were told yesterday.

The power utility’s retail electricity market share is expected to keep falling in 2020 but an attempt will be made to limit this slide through a new commercial policy, Stassis told analysts.

The company’s renewable energy portfolio will grow to 650 MW from a current capacity of 160 MW over the next three years, he noted.

WTI may plunge again, local market indirectly impacted

Monday’s unprecedented collapse on the US market of May oil futures, driven down to negative territory by a pandemic-induced evaporation of demand that left the world with an oil oversupply and not enough storage capacity — meaning producers were willing to paying buyers to take it off their hands – could be repeated towards the end of May for June oil futures, analysts have noted.

Besides this week’s price collapse of oil futures in the US, the biggest day-to-day price drop in the history of oil trading was also recorded Monday.

Output, especially by small-scale producers, will gradually be wound down for market equilibrium, or a production correction reflecting the dive in demand prompted by these extraordinary times. However, this process will require some time and may be achieved slightly before June, according to a Goldman Sachs estimate.

The below-zero prices have mostly affected holders of futures contracts, the majority of these being traders, not actual buyers of oil. Actual buyers, namely refineries, make oil purchases at average price levels determined over extended time periods.

The Greek oil market is not directly influenced by the US market’s WTI index, but, instead, primarily takes its cue from Brent prices. Their fall was less acute, dropping to a level of 19 dollars per barrel when the WTI had fallen into negative territory. Brent prices then rose to levels of between 20 and 25 dollars per barrel the following day, yesterday.

The current oil market volatility has created conditions for lower price levels but the lockdown does not permit consumers to take full advantage.

 

US oil futures collapse to below-zero price, unprecedented

US oil price futures collapsed to unprecedented below-zero prices in New York trading yesterday as a result of the coronavirus pandemic’s evaporation of demand that has left the world with excess oil and not enough storage space, meaning producers are paying buyers to take it off their hands.

The price of crude scheduled for delivery in May collapsed by 55.90 dollars, or 306 percent, to -37.63 dollars per barrel. This means that US traders will need to be paid to forward crude to the country’s main delivery point of Cushing, Oklahoma.

The previous record low figure, 10.42 dollars per barrel, was reached on March 31, 1986.

Considerably higher prices for June, registering approximately 21 dollars per barrel last night, indicate slightly better trader expectations concerning the supply and demand balance as the second half of the year.

 

Greek upstream investments suspended, oil crisis hits hard

The current oil crisis, prompted by a Saudi-Russian price war and lower demand amid the coronavirus pandemic, comes as the latest setback for the upstream sector. The oil price slide, during which prices have plummeted to levels as low as 25 dollars per barrel, had added to the strain already felt by investors as a result of excessive bureaucracy in the Greek market.

Upstream players, troubled by the overall uncertainty, are believed to have suspended their investment plans despite a mild market rebound over the past few days, lifting oil prices to levels between 33 and 34 dollars per barrel.

Energean Oil & Gas’ Katakolo license off western Peloponnese and the Gulf of Patras license, co-owned by Hellenic Petroleum (ELPE) and Energean, rank as Greece’s two most mature upstream projects.

An environmental study for the Katakolo license has not yet been approved by the energy ministry. Even if it had, Energean would not move ahead with the venture under the existing market conditions. Current oil price levels would simply not cover investment costs.

Just before Christmas, investors behind the Gulf of Patras license were given an 18-month extension to begin drilling at this project, taking the date to June, 2021. Regional port facilities had been deemed insufficient by the consortium. All activity for this investment has also been suspended, sources informed.

Energean to utilize measures for crisis-hit Prinos field

Energean Oil & Gas, whose offshore Prinos oil field in the country’s north has been heavily impacted by the coronavirus pandemic’s effects on the global economy, including record-low oil prices, intends to utilize relief measures offered by the Greek government for various sectors, including the upstream industry.

The government’s relief measures, introduced to help enterprises weather the financial impact of the unprecedented coronavirus crisis, promise respite in a variety of forms, including tax payment delays, VAT discounts as well as employee allowances covering suspended work contracts.

Energean, which has invested tens of millions of euros to keep upstream  activities alive in Greece, now needs to reduce its Prinos operating costs and keep production flowing. A disruption of production and resumption at a latter date is not technically feasible. Prinos is Greece’s only producing oil field.

The oil price plunge has made big impact on the Prinos field, an old high-cost venture whose production costs are estimated at 21.5 dollars per barrel.

This specific field produces heavy crude of higher refining demands. Subsequently, Energean sells the unit’s output to BP at price levels that are between 7 and 8 dollars lower per barrel compared to Brent prices.

Production at Prinos is declining. Output peaked at 4,000 barrels per day in 2018 but fell to 3,300 in 2019 and is projected to slide further in 2020, officials noted.

Energean has cut back on investments at Prinos by 80 million dollars.

International crude prices plunged from 66 dollars to less than 25 dollars per barrel in the first quarter. Prices have not fallen so low since 2003.

 

Crisis impacting energy sub-sectors in different ways

Energy companies are not being impacted in a universal way by the impact of the coronavirus pandemic, its effects varying from one sub-sector to another, as was made clear during conference-call presentations of 2019 financial results by two different types of firms, Motor Oil, active in refining and fuel trade, and Mytilineos, whose interests include energy production and supply.

Motor Oil needs to counter lower international oil prices, lowered by the coronavirus outbreak combined with a price war between Russia and Saudi Arabia. Oil prices may have fallen but fuel demand is expected to slide further as stricter coronavirus stay-at-home orders are enforced.

The main challenge for Motor Oil is to maintain liquidity at levels ensuring sustainability.

As for the corporate group Mytilineos, represented by Protergia in the retail energy market, it has yet to experience a drop in electricity demand. Italy, hardest-hit by the coronavirus in Europe, has seen electricity demand drop by 7 percent.

The significant decline in natural gas prices is expected to offer Mytilineos purchase cost savings of about 99 million euros over a one-year period.

The group is continuing its development of a new gas-fueled power plant.

Despite the crisis, the Mytilineos group aims to continue operating its units at full capacity and utilize the availability of low-cost fuel.

Fuel price plunge pressuring refineries, opportunities seen

The plunge of international crude oil prices is impacting Greek refineries and local fuel trade, while, worse still, market forecasts are impossible to make, even for the short term.

Hellenic Petroleum (ELPE) and Motor Oil, Greece’s two refinery groups, are being tested by the fall of Brent prices to levels of around 30 dollars per barrel. Highlighting this challenge, unleaded 95 octane fuel prices have dropped to less than 1,000 euros per cubic meter (including surcharges before VAT) for the first time in many years.

This represents a drop of more than 100 euros compared to prices on March 9, dubbed “Black Monday” as it was the worst day in markets since the financial crisis, a result of the outbreak of the oil price and output level war between Russia and Saudi Arabia, along with the coronavirus spread’s impact on demand.

The drop in prices is seen continuing. Domestic fuel demand is falling as a result of the Greek government’s broadened enforcement of restrictive measures aiming to contain the coronavirus spread. Local transportation needs have subsequently dropped dramatically, while the only other viable option left for Greek refineries, exports, has been canceled out by plunging fuel demand internationally. Borders have closed and airlines are limiting flights.

The cost of fuel stocks, purchased at far higher prices, is a big concern for both ELPE and Motor Oil. This cost, however, can be partially offset by opportunities currently available for lower-cost production.

On a more positive note, both refineries reduced their loan servicing costs prior to the crisis. This is particularly so for ELPE as the petroleum group was pressured by high borrowing costs. Motor Oil has traditionally pursued a more conservative borrowing policy.

Both refineries will need to take extremely cautious steps amid these highly unpredictable market conditions, analysts agree.

Lower-cost oil, gas an obstacle for RES growth, electric cars

Lower-cost oil and gas, as well as solar module supply chain irregularities caused by the coronovarirus spread in China, the world’s dominant supplier of solar energy systems, have emerged as obstacles for RES sector growth and investments.

Numerous solar energy projects around the world are being delayed or postponed as a result of the solar module supply problems in China.

The recent plunge of oil and gas prices, prompted by the impact of the coronavirus spread on economies and a simultaneous oil-price war between Russia and Saudi Arabia, has suddenly made RES investments less competitive against conventional technologies in terms of electricity generation, energy efficiency or electrification of sectors such as transportation or shipping.

The duration of lower oil prices remains unknown.

Natural gas prices have fallen as a result of idle LNG shipments in China and forecasts for weaker demand worldwide.

Under the current conditions, market forces will turn against green energy technologies, which had just begun establishing themselves as competitive options against conventional technologies.

Questions are also being raised about the growth prospects of the electric vehicle market, still at an embryonic stage.

 

Pros and cons for refineries, fuel demand sliding

The drop in oil prices as a result of the price war between Saudi Arabia and Russia and the coronavirus spread presents a major challenge for petroleum firms.

Brent crude’s 30 percent plunge last Monday inflicted major damage on companies stocked with petroleum products, Greek refinery officials informed, as these products had been  purchased at previously higher prices.

The market volatility, however, has also created opportunities, namely lower-cost supply of raw materials without the need for high working capital. Operating costs have dropped considerably.

The major concern at refineries and petroleum product trading companies is demand, or fuel consumption, expected to drop amid the growing number of mobility restrictions being imposed by governments around the world in an effort to contain the coronavirus outbreak.

Demand for gasoline and diesel has dropped since last weekend as a result of reduced transportation needs. This decline in fuel demand is expected to continue following latest preventive measures. The Greek government yesterday announced a measure closing all educational institutions for 15 days as of today.

Fuel demand levels during the year’s first two-month period were unchanged compared to a year earlier, but the month of March has already shown first signs of a decline. Many airlines are cancelling flights.

Petroleum companies fear a further deterioration from May onward, when Greece’s tourism season begins in earnest.

For the first time since 2009, the International Energy Agency has forecast a drop in petroleum consumption for 2020.

Iranian crude buyers brace for prospect of new US sanctions

The latest deterioration of US-Iran relations, prompted by US President Donald Trump’s policy shift towards the country since taking office, is likely to impact the global oil market, including supply to Greece, as the possible cancellation of a bilateral nuclear agreement between the two countries, which would lead to new US trade sanctions against Iran, cannot be dismissed.

A previous embargo imposed on the country had disrupted Iranian ol exports, forcing long-time buyers, including ELPE (Hellenic Petroleum), to turn elsewhere for supply.

The establishment of a nuclear agreement in 2016 enabled Iran to resume its oil exports. At present, these cover approximately 25 percent of ELPE’s needs.

According to Platts, the energy and commodities information provider, numerous Asian buyers of Iranian crude are preparing for the prospect of a new embargo. Some of these countries are believed to be looking at solutions that would restrict oil imports.

The pressure now being felt by buyers as a result of the unstable climate could prompt them to seek improved supply deals, sector pundits believe.

The US president is expected to discuss issues concerning Iran next week.

New trade sanctions on the country would be embraced by OPEC members as the resulting global oil supply reduction would raise international oil prices and, as a result, enable the cartel to relax or even end an agreement between its members to cut back on output.

Saudi Aramco chief sees future oil shortages, higher prices

Though lower international oil prices over the past two years have led to a drop in sector investments, conditions for higher prices in the next few years are gradually ripening, according to Amin Nasser, president and chief executive officer of Saudi Arabian oil company Saudi Aramco.

Highlighting the subdued activity of recent times, Nasser, in comments reported by Bloomberg, noted that investments in the oil sector plummeted by one trillion dollars between 2014 and the present.

New production capacity and investment needed in the future are lagging, Nasser told an event at Columbia University in New York.

“While the short-term market is pointing to a surplus of oil, the supply required in the coming years is falling behind,” he noted.

Nasser forecast that a production level of 20 million barrels per day will be needed to cover increasing oil demand and offset shortages prompted by depleted older reserves.

New investments being made are primarily small-scale, short-term moves and therefore will not cover future production needs, Nasser noted.

The Saudi Aramco head said his company forecasts a continual rise in demand during 2018 and 2019, contrary to the current year, for which the International Energy Agency (IEA) expects a slowdown.

ELPE, spurred by favorable supply deals, seen posting 48% EBITDA rise

Driven by a series of more profitable crude supply agreements reached in recent times, the refinery ELPE (Hellenic Petroleum) is expected to post a first-quarter EBITDA figure of more than 250 million euros, according to market analyst forecasts.

If achieved, this performance will represent a 48 percent year-on-year rise compared to the 169 million-euro EBITDA figure posted for the first quarter last year.

Besides the greater profit margins offered by the refinery’s more recent crude supply agreements, other factors contributing to ELPE’s upward trajectory include its rising production levels and over-performance levels.

These set of factors helped ELPE post a record EBITDA figure of 836 millions euros last year, propelled by a 16 percent production increase to 14.8 million metric tons, as well as a net profit of 329 million euros, up from 45 million euros in 2015 and a loss of 369 million euors in 2014.

In recent times, ELPE has established a number of direct deals with crude suppliers and relied less on traders acting as middlemen. Last year, the Greek refinery reached direct supply deals with Iran’s NIOC and Russia’s Rosneft.

Most recently, ELPE struck a deal for supply of Kurdish-controlled crude within Iraq. A first of at least two shipments is expected within the next two weeks. The order’s delivery should be completed by late May.

According to sources, this crude is of high-performing quality as reflected by its elevated cost of 2.5 dollars per barrel, compared to just one dollar per barrel paid for Iraqi crude. The Kurdish crude is expected to replace the Iraqi crude in ELPE’s energy mix.

According to sources, ELPE’s EBITDA figure totalled 184 million euros for January and February this year, while an additional 70 to 80 million euros is expected to be added by the company’s performance in March.

ELPE has announced it will report its first-quarter results on May 17, a week ahead of the refinery’s scheduled annual shareholders’ meeting.

 

 

Saudi Arabia output cut aiming to boost earnings, finance future investments

Saudi Arabia, as part of an agreement reached between OPEC members and Russia, has limited its oil production over the past few months, the move’s objective being to support crude prices, reduce international oil reserves and ultimately bolster oil producer revenues.

The national budgets of major oil producing countries, heavily reliant on oil revenues, have been negatively impacted as a result of low oil prices supressed by an oversupply in the market.

It is believed that Saudi Arabia and fellow OPEC members are striving to boost oil prices up to a level of as much as around 60 dollars. If this level is exceeded, US shale production promises to benefit at the cost of OPEC members, whose global oil market share would consequently contract.

Saudi Aramco, the state-owned Saudi Arabian national petroleum and natural gas company, is pushing for an international oil market share of 5 percent by 2018 and earnings of as much as 100 billion dollars.

The country plans to invest its additional earnings in the development of ambitious projects aiming to greatly reduce and eventually eliminate Saudi Arabia’s hydrocarbon dependence.

Saudi Aramco’s market value is currently estimated at close to 2 trillion dollars, equal to that of Google and twice the market value of Apple.

Fuel prices to be pushed up by crude oil, imminent tax hike

The arrival of higher fuel taxes in Greece, decided on earlier this year and set to take effect as of January 1, coupled with elevated international crude oil prices, which appear to have stabilized at the loftier levels recorded over the past few months, promise steeper fuel prices for all consumer categories.

The higher crude oil prices have already influenced fuel prices, up by about three to four cents over the past ten days or so, elevating gasoline prices to around 1.49-1.50 euros per liter, diesel to 1.18-1.19 euros per liter and heating fuel to 96-98 cents per liter.

The higher special consumption tax, which was imposed on heating fuel on October 15 and will now also be applied to all auto fuels as of January 1, will bring about further price increases.

An extra 3 cents per liter of special consumption tax will be imposed on unleaded fuel, which, along with the VAT surcharge, will increase the tax to 3.7 cents and elevate the fuel’s average retail price to 1.53-1.54 cents per liter.

An additional 8 cents per liter of special consumption tax will be imposed on diesel, which, with the VAT surcharge, will reach 9 cents, taking this fuel’s average retail price to 1.27-1.28 euros per liter.

As for LNG, an extra 10 cents per liter of special consumption tax, to reach 12 cents with the VAT surcharge, will increase the fuel to 84 cents per liter from the current level of 72 cents per liter.

The government anticipates it will collect 492 million euros from these new taxes in 2017.

However, the findings of an IOBE (Foundation for Economic and Industrial Research) study conducted in October support that the fuel tax hike will reduce fuel consumption and, by extension, tax revenues, while increasing business costs.

The tax hike will subdue expected GDP growth by 0.3 percent – 530 million euros per year – in 2017, 2018 and 2019, according to the IOBE study. The subdued GDP growth translates into 10,700 job losses per year and an annual 178 million-euro reduction in other tax revenues and social security fund contributions, the IOBE study determined.