Outlook: Areas of Energy Production Affected by Geopolitical Trends, Domestic Corruption & Conflicts

TotalEnergies claimed record-breaking profits of $36.2 billion in 2022. It was then reported by Upstream that the company’s exploration & production (E&P) play in Namibia was set to become commercially viable after the offshore oil discovery in the Orange Basin in 2022. Shared with neighboring South Africa, this offshore production area covers 8,215 km² in the gas reserves of Block 2913B at the offshore Namibia production site.

The French oil and gas supermajor is one of the most important partners of Adani Group, operating under the subsidiary Adani Total Gas Ltd. TotalEnergies came out with its own public statement regarding the Hidenburg report’s findings, claiming that due diligence was carried out appropriate to the company’s business practices. In the statement, TotalEnergies said: “TotalEnergies welcomes the announcement by Adani to mandate one of the ‘big four’ accounting firms to carry out a general audit.”

Indian-based Adani Group is a global investment enterprise founded by billionaire Gautam Adani. It’s a long story, but here’s one report that sums up the findings from US-based Hidenburg Research about Adani Enterprises’ flawed strategies. Once the richest person in Asia, the findings from Hidenburg have caused Adani’s market share to lose $26 billion from a massive stock market sell-off. One of India’s prominent billionaires, Adani has strongly criticized the Hidenburg report’s finding in the media.

Staying on the topic of Africa, Mozambique and Nigeria have been closely followed by multi-national corporations (MNCs), investors and human rights leaders alike about the ongoing domestic conflicts and corruption.

• Spotlight on Corruption argued that the United Kingdom must enforce the arbitral award of $11.1 billion against Nigeria’s Process & Industrial Developments (P&ID), because the people most affected by the alleged bribery scheme are the 40% of Nigerians living below the poverty line.
• Jean-Christophe Rufin, an expert in humanitarian affairs and human rights, was appointed by TotalEnergies on the independent mission at Cabo Delgado Province where the company has invested $20 billion. Due to the conflict between government and rebel groups, most operations in the industrial zone have been halted since 2021.

In another critical LNG project co-operated by Shell, the Abadi LNG project in Indonesia has gained a renewed interest from Japanese operator Inpex for its “national strategic importance” to Japan’s energy security. Inpex will carry out comprehensive studies on how to conduct carbon capture, utilisation and storage (CCUS) at the Abadi production site, calling it “a clean and competitive project.” Inpex owns a 65% stake in the LNG project.

Indonesia is becoming an attractive prospect for offshore gas investments, especially LNG production, which is probably why Shell is interested in selling its 35% stake in the Abadi LNG project. Upstream gave figures of up to $13.5 billion in capital expenditures since Shell joined as a co-operator, while the assements of the production figures are around 10.5 million tonnes per annum (tpa) which will be a mix of LNG, pipeline gas and gas condensate.

Shell is reportedly in talks with Indonesia’s state-owned company Pertamina to sell its stake in the project located at Masela in eastern Indonesia. There have been several revisions to the project since it was commenced in 2017. For example, it was initially designated as a one of Indonesia’s strategic greenfield gas development projects. Next, it was approved by Indonesian regulatory authorities in 2019 to conduct an onshore liquefaction scheme, commiting the project to LNG production investments. In 2020, Inpex signed a memoranda of understanding (MoU) with the government of Indonesia to sell a proportion of the gas production to domestic distributors. This ensured that some of the gas would be utilized for domestic energy capacity.

However, the deepest significance of this offshore LNG project lies in the maritime boundary between Indonesia and Australia. There has been some tensions over the Exclusive Economic Zones (EEZ) of the two countries in this maritime area of the Timor Sea, including the Perth Treaty.

This offshore gas project in the Abadi field is estimated to contain more than 10 trillion cubic feet of gas reserves. By contrast, the Senoro-Toili gas block has proven gas reserves of 870 billion cubic feet. This is another one of Indonesia’s national LNG projects, located in Central Sulawesi, under the 50% ownership of Pertamina and with other Japanese partner, Mitsubishi.

These LNG projects signal Japan’s increasingly larger role in the offshore energy production investments of Indonesia. But also in the broader aspects of other energy production investments, such as coal, as when the Japanese government pushed Indonesia to lift the coal export ban in January 2022.

But make no mistake, China is on the radar too. Since the latest discovery by the British oil and gas producer Harbour Energy in Indonesia’s Tuna Block, territorial claims over the South China Sea and Indonesia’s EEZ in the maritime areas have sparked an intense focus on China’s interpretation of the nine-dash line. In response, Indonesia announced it would make the North Natuna Sea into its own Special Economic Zone (SEZ).

Russia’s Gazprom is the state-owned energy giant responsible for a large share of the country’s revenues, as it is the largest taxpayer in Russia. Reuters has reported that overseas gas sales from Gazprom have dropped to $3.4 billion in January 2023, which means that it is trending to lose around half of its overall revenues on a year over year (yoy) basis. Although the declining sales revenues are being attributed to the lack of European imports, what’s happening in other parts of the world tell an important part of the story too.

A flashpoint case has recently come into the spotlight over a disputed claim where natural gas discoveries in the maritime EEZ of Cyprus are at the center of the territorial dispute between Greece and Turkey.

On 21 December 2022, it was announced that French oil and gas producer TotalEnergies and Italian oil and gas producer Eni had made new discoveries of natural gas deposits off the coast of Cyprus in the Mediterranean Sea. This part of the sea is referred to as the Eastern Mediterranean, or East Med.

It has been estimated that the offshore gas area of Cyprus can produce 2 trillion tcf, or 72 billion cubic meters (bcm), but territorial issues have come into play between the Turkish Cypriot government and the Greek Cypriot government. The former entity is only recognized by North Cyprus, which was occupied by Turkey in 1974.

The offshore gas exploration and production (E&P) in Cyprus has caused Turkey to accuse Cyprus of escalating tensions with Turkey. The Turkish foreign ministry said that the latest discovery intends to “violate the rights of the Turkish Cypriots, who are one of the co-owners of all natural resources of the island.” Reuters

Since Turkey is one of Russia’s biggest natural gas importers, how this offshore gas project plays out could determine factors in Gazprom’s market share. Read about Grain Markets & Natural Gas Production Explain Key Trends Going Into 2023 for an in-depth analysis on issues related to natural gas and geopolitical trends.

Another one of Gazprom’s biggest customers is China. OilPrice.com has been working overtime to put all of the critical pieces of information together on this momentous turn of events in Iraq’s oil industry. According to the latest report, PetroChina is going to become the sole leading operator of the massive West Qurna 1 oilfield in Iraq, with ExxonMobil coming close to finalizing its sale of the 32.7% stake in the production.

The significance of this oilfield has to do with its location near the oil and export hub of Basra. The West Qurna 1 oilfield contains an estimated 43 billion barrrels of recoverable reserves. The production strategy by China comes in line with Iraq’s Oil Ministry plans, which OilPrice.com noted is to boost oil production capacity to more than 700,000 barrels per day (bpd) by 2025.

At the same time, PetroChina and Sinopec have publicly announced their intentions to resume imports of Russian crude oil. According to a Reuters report, an oil trader in China remarked: “Prices of Urals are well below the price cap, and the cheap feedstocks are timely as they would increase refining throughput when China’s demand picks up.” Sanctions on Russian seaborne exports of crude oil will be in focus, of course, since they went into effect on 5 December 2022 after the results of the G-7 Summit in 2022.

While sanctions on Russia will have an impact on China’s crude oil imports, Sinopec announced its plans to historically increase capital expenditures for upstream production in March 2022. Thus, crude oil market prices and the outcomes of other global oil supply dyanmics will play a bigger role in China’s success to secure its own oil production and supplies.

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