Scraping the Barrel… 6 August 2012

Today’s barrel scrapings include: Nigeria continues its struggle with illegal refineries costing them over $1 billion a month, letters published by the KRG gives us a sneak peek into how they are wooing Big Oil, and what obstacles lay before Israel in exporting the bounty of the East Med natural gas bonanza? See below for more…

The make-shift illegal refinery in the Niger Delta visited by Al Jazeera journos was likened to a high school grade project, although few could see the rusted pipes and naked flames flames just metres away from fuel sneaking past health and safety regulations in your average classroom. But not only is the theft and illicit ‘cooking’ of Nigeria’s crude wealth dangerous to those involved, what they saw is only the tip of a vast criminal underworld that is siphoning up to 400,000 barrels of oil per day from the country’s pipelines and resulting in reported losses of more than $1 billion each month of financing desperately needed to improve Nigeria’s depressed development indicators.  The resulting environmental devastation has also made fishing and farming, Nigeria’s remaining hopes of economic activity, increasingly infeasible. Worryingly the unrepentant criminals ‘know this is stealing’, but as countries like Colombia have learned when combating coca cultivation on their territory, military crackdowns will futile unless accompanied by genuine alternatives for the livelihoods of villagers in the Delta.

Now much is written speculatively about the delicate negotiations and political games that go on between governments and energy companies operating in volatile parts of the world, none more so than semi-autonomous Kurdistan in northern Iraq. But rarely do we get a glimpse of the wording caught in black and white. However a series of letters published on the website of the Kurdistan Regional Government do just that, giving us a peek at Natural Resources Minister Hawrami’s efforts to ease the minds of oil execs, among them Genel’s Tony Hayward, who await payment for oil exported in the face of an ongoing stalemate between the Erbil and Baghdad. Hawrami squeezes a further month of exports out of the three companies, who are seemingly persuaded by his faith in ‘some of the reasonable people in Baghdad’ to release the payments. The incredible patience on display is another sign of the lengths Big Oil is willing to go to get its hand on the rare undeveloped resources in the mountains of Kurdistan. The commercial savvy of Hawrami, a former consultant, appears to be persuading oil men. Quite simply put by one among their ranks,  ‘the difference is that they want us here while in the south of Iraq, it feels like they don’t’. 

Despite oil-rich neighbours such as the Iraqis and Saudis, Israel has been can energy importer since square one in 1948. But all that could change now that the country is poised to spring into action as it claims its own portion of the hydrocarbon pie – enough gas has been discovered to supply the country’s energy needs for a full 150 years. But improbably enough, some of this bounty may end up ‘stranded’ if Israel cannot negotiate various obstacles to put in place the infrastructure needed to export natural gas (liquefaction plants are infamously pricey, and pipelines in this fractured part of the world inevitably tricky). The prospect of securing any floating LNG facility, a sitting duck for militant groups, from attack, unsurprisingly gives many investors cold feet. And all that is before we start with the endless squabbles over maritime boundaries in the Levantine basin. The parade of LNG tankers bringing imports to Israel’s coast may be about to come to an end, but the government still has a way to go to encourage exploration companies that their money is safe here.

To check out previous news roundups, see the Scraping the Barrel series.

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