by Alberto Perego – Photo by Jerry Mathes II
The first week of February saw the figure of the new US president Donald Trump inhabiting the background of many energy-related events. From his harder line on Iran to his links with top figures in oil and gas companies and his yet unclear position on renewables, Trump seems to be the ‘Ariadne’s tread’ of many energy news stories. However, most of the words spent discussing the new president are speculations. In this week’s news review we will focus on two storylines: the situation in Iran and the activities of Shell. Iran is need of investments for its oil and gas sector, and the recent missile test did not make its position in dealing with foreign IOCs and with the US any easier. This situation is further illustrated with an IOC’s perspective: Shell is carefully treading around investing in new oil developments (including in Iran), while at the same time not going ‘all in’ for renewables yet.
Iran’s missile test puts the Nuclear Deal under pressure
On January 29th, 2017, in Semnan, many kilometres east of Tehran, Iran tested a long-range missile. This missile flew 1010 km and will test the resilience of the Iranian Nuclear Deal, which was reached one year ago and led to the lifting of sanctions. The Trump administration reacted swiftly by introducing a new set of sanctions. These sanctions are different from those lifted a year ago and targets individuals and entities, while earlier sanction packages were aimed at blocking Iran from exporting oil and accessing international financial markets. Despite the introduction of the new set of US sanctions, the Nuclear Deal seems to be surviving, which is vital for Iran to attract foreign capital and to regain its oil productivity and to boost its exports.
On this note, the next round of Iranian tenders were scheduled for the 15th of February. Twenty-nine companies qualified in the previous round of tenders, but the bidding was postponed several times for undisclosed reasons. Total, Shell, Schlumberger, ENI, Gazprom, Lukoil, CNPC, Sinopec Mitsubishi, and Petrobras are all interested in increasing their presence in Iran. The size of their bids is considerable; Total’s alone is worth 4.8 billion USD. Additionally, Gazprom has signed two agreements to develop the Iranian oil fields of Cheshmekosh and Changouleh.
Focus: Shell’s priorities in Iran and beyond
It comes as no surprise that some oil and gas companies are still uncertain about investments in the Iranian energy sector. This is certainly the case of Shell. In December, the company signed a provisional deal to develop some Iranian oil and gas fields, but at the same time its CEO Ben van Beurden stated that his company has no real investment opportunities in Iran.
Shell is not only reluctant in investing in Iran’s oil, but it also sold more than half of its oil production in the North Sea to the investment firm Chrysaor for $3.8 billion USD. However, the reasons of the sale could be that these fields are depleting fast. Moreover, being off shore in the British North Sea, they are not producing oil at competitive prices in the present market. Speculating on why Chrysaor is buying these fields is difficult, and we could only hazard that it might be hoping for prices to go up following OPEC’s cuts or Middle East instability. Shell’s willingness to sell should not be too surprising, also considering the recent attempts at reducing its debt, which in the last three months decreased from $78 to $73 billion USD.
Another reason behind the sale could be Shell’s cautious tendency to invest in renewables. Shell is one of the most advanced IOCs in trying to shift its original focus from being mainly on fossil fuels to expand its portfolio to include renewables. In the words of its CEO, Shell will ’participate [in renewables] in order to learn but we are not going to go in at a level that could be considered reckless’. Such a statement was made addressing the possible impacts that President Trump might have on the development of renewables. Ben van Beurden seems optimistic about the fact that president Trump’s connection with the oil and gas world won’t reverse the current trend towards renewables. However, the CEO is also aware that there is still a great demand for oil and natural gas, and its company is therefore investing in renewables with no more than $1 billion a year to be in the lead in the transition, but keeping a prudent outlook.
Alberto Perego is a student at ENERPO Program, European University at Saint Petersburg. He can be contacted via email aperego@eu.spb.ru