Butterflies in Egypt: EU 'Oil-Gas' Consumption, African Supply !!!

African Unrest Puts Europe's Natural Gas Supply at Risk as Oil Passes $100

The unrest in Egypt that forced BG Group Plc and Statoil ASA to stop drilling threatens a region that represents more than 15 percent of Europe’s natural gas supply and 4 percent of the world’s crude oil.

No disruptions to gas pipeline shipments under the Mediterranean Sea or to oil tankers through the Suez Canal have been reported so far in North Africa after popular unrest erupted last month. Concern pushed Brent crude oil on Jan. 31 to more than $100 a barrel for the first time since 2008.

Algeria, the third-largest gas supplier to Europe, last month suffered riots over food prices similar to those that kicked off a broader protest in Tunisia and toppled President Zine El Abidine Ben Ali on Jan. 14. In Egypt, President Hosni Mubarak failed yesterday to quell protests after saying he will step down later this year after almost 30 years in power, about 10 years less than Muammar Qaddafi has held sway in Libya.

“It’s especially southern Europe that’s exposed to a supply halt from Algeria and Libya,” said Thina Saltvedt, an analyst at Nordea Markets in Oslo. “As Europe’s third-largest gas supplier, unrest in Algeria would especially put southern Europe’s security of supply to the test.”

Algeria and Libya combined export about 70 billion cubic meters of gas, or about 15 percent of the EU’s annual consumption. The two members of the Organization for Petroleum Exporting Countries also pump a combined 2.8 million barrels a day of crude, according to data compiled by Bloomberg.

Suez Canal

Egypt pumped 742,000 barrels of crude a day and 62.7 billion cubic meters of gas in 2009, according to BP Plc data.

Egypt’s Suez Canal is the main artery for shipping more than 2.2 million barrels of oil a day headed for Europe and North America. Last year 368 liquid-natural gas vessels also went through the Suez to the Mediterranean carrying 30.3 million tons of the fuel, according to PanEurasian Enterprises Inc.

Egypt produces about 3 percent of the world’s LNG from two export plants at Gas Natural SDG SA’s Damietta and BG’s Idku LNG facilities, according to Goldman Sachs Group Inc. and Energy Intelligence Group’s World LNG Review.

“Any supply disruption will certainly impact the balance of the European gas market, potentially putting upward pressure on natural gas prices,” Bank of America Merrill Lynch analysts including Alejandro Demichelis said in a report this week.

Brent oil for March settlement traded at $101.68 a barrel, down 6 cents, on the ICE FuturesEurope exchange in London as of 7:24 a.m. It gained 0.7 percent to $101.74 yesterday, the highest settlement since Sept. 26, 2008.

Little Disruption

The month-ahead gas for delivery at the Dutch Title Transfer Facility has slipped 14 percent this year to about 21.15 euros a megawatt-hour. The TTF is the most liquid mainland European gas hub. The equivalent U.K. gas contract, the most traded market in Europe, has fallen 14 percent this year.

So far, there has been little disruption in supplies to Italy from Algeria via the Transmed pipeline from Tunisia. The link flowed at a rate of about 87 million cubic meters a day on Jan. 31, according to Snam Rete Gas SpA, Italy’s pipeline operator. Algeria also ships through the Maghreb Europe pipeline to Spain, while Libya sends fuel through a link to Sicily. Algeria may also open the Medgaz pipeline to Spain this month.

“It’s important to emphasize that even if the problems spread to one of these countries it is not necessarily the case that energy supplies would be disrupted,” Goldman analysts led by Jeffrey Currie in London said in a weekly note on Jan. 31. “History has shown that energy can still flow even under very adverse political conditions.”

Perceptions

All Arab countries except Lebanon and Iraq are classified as authoritarian regimes in the Economist Intelligence Unit’s 2010 Democracy Index. Egypt, Algeria and Libya rank in the bottom half, below 65th-placed Tunisia, in the latest survey of corruption perceptions in 180 nations by Transparency International in Berlin.

According to Bank of America Merrill Lynch, Austria’s OMV AG, Repsol YPF SA, and Eni SpA, have the largest exposure to “political risk” in North Africa. OMV and Repsol have about 20 percent of their reserves in North Africa and Yemen, while Eni has 17 percent, according to the U.S. bank.

“As far as we’re concerned it’s a problem in Egypt, and we’re experiencing no problems there at all,” Kristian Rix, a Repsol spokesman, said by phone from Madrid this week.

No Impact

The unrest in Tunisia and Egypt has “no impact on our business activities at the moment,” Michaela Huber, a spokeswoman for OMV in Vienna, said by phone on Jan. 31. She declined to comment on potential developments.

In Egypt, BG and Statoil halted drilling as the protests began to take a toll on the industry.Apache Corp., which got about a third of its production revenue from Egypt in 2009, said it shut its Cairo offices. Royal Dutch Shell Plc and Transocean Inc. also closed offices. BP, the largest foreign investor in Egypt, made plans to evacuate the families of expatriate workers.

BP is also the biggest investor in Algeria, according to its website. The company is seeking to raise money to pay for the cleanup in the Gulf of Mexico after the Macondo spill, and Algeria’s government said last month it’s examining the possibility that assets in the country may be part of that sale.

Three people were killed and 420 injured in clashes with police this month in Algeria during rallies against high food prices and a lack of public housing. Three men set themselves on fire, emulating the Tunisian university graduate whose self- immolation a month ago began the wave of demonstrations that culminated in the fall of Ben Ali, El Khabar newspaper reported.

A surge in food and energy costs is stoking inflation in emerging markets and causing riots that may topple governments, said Nouriel Roubini, the New York University economist who predicted the financial crisis, in an interview with Bloomberg Television’s “The Pulse” on Jan. 26.

Source: http://www.bloomberg.com/news/2011-02-01/african-unrest-puts-europe-s-gas-supply-at-risk-as-oil-gains.html

NUTSHELL:

This article underscores the significance of a possible contagion effect with the potential to wreak havoc not just in the Arab world but potentially for Europe. This unraveling Egyptian situation proves a case point for students and proponets of  energy supply security, students of oil price volatility and students of geo-politics. Indeed, a butterfly flapping its wings in Egypt can cause a cyclone in the world energy markets.