2013-12-27 13:17:52 - New Energy market report from Business Monitor International: "Spain Oil & Gas Report Q1 2014"
Although current domestic production of oil and gas negligible, with imports meeting around 99% of current demand, we are witnessing a gradual but notable uptick in investment targeting Spain's upstream. The acceleration of onshore and offshore activity could cut Spain's hefty import bill, but there are political and regulatory risks that hold sizable downs risks to both conventional and unconventional efforts.
While we are seeing increasing opportunities in Spain, we cannot yet quantify the upside risk to our forecast given the challenges and nascent stage of activity. Therefore our core view remains for Spain to see domestic production, although efficiency gains and lower prices globally will translate into some relief for its energy costs.
The main trends and developments we highlight in
Spain's oil and gas sector are:
* A delay to a planned shale gas exploration programme by Repsol underscores the threat local bans on hydraulic fracturing (fracking) pose to shale gas in Spain. Although support continues at the national level, regional bans remain a key downside risk. However, we highlight with Spain heavily dependent on imports and energy bill set to rise under government reforms, the call for greater domestic production could go stronger.
* In November 2013, Australian junior Petrel Resources revealed that its Tesorillo licence in the Guadalaquivir Basin had been independently certified to contain prospective gas resources of up to 84bn cubic meters (bcm). P50 reserves were placed at 34bcm, but given Spain's current natural gas reserves are estimated by the US Energy Information Administration to be just 2.5bcm presently, Tesorillo offers sizable upside to our forecast if the appraisal proves successful. Drilling is due to test the prospect over 2014, but Petrel noted that given the Maghreb pipeline is located some 3km away, 'any reasonable flow rate would be readily commercial.'
* spain is also seeing activity target its offshore plays. Namely the Gulf of Valencia basin and the waters near to Morocco where the Spanish Canary Islands are benefiting from newfound interest in the offshore potential of North Africa. Activity in the Gulf of Valencia, an area to the east of central Spain also reflects growing interest in the broader Mediterranean.
* Spanish oil and gas giant Repsol has also sought permission for drilling near the Canaries. The company has previously indicated it was willing to spend in the area of US$10bn to develop offshore fields it hoped find and believes may hold some 900mn to 2.2bn barrels (bbl) of hydrocarbons. Repsol has previously estimated that the region could produce some 140,000b/d, a rate that would result in a sizable cut to Spain's current import bill.
* At the November 2013 East Atlantic Oil and Gas Summit in Madrid Cairn Energy general manager for Spain Antonio Martin characterised Spain as 'a country with growing exploration potential, offering a friendly investment environment with new investment business opportunities.' Attendees at the conference cited that sustained by high oil prices and improved offshore E&P capabilities, Spain was once again an attractive destination for upstream investment. * * Spanish industry Trade group ACIEP (Association of research and exploration companies oil and underground storage) reported the country may hold 2bn bbl worth of oil reserves and a further 2.5trn cubic metres (tcm) worth of gas. According to the group, there is a resurgence in activity in Spain, with 70 active exploration permits currently issued and a further 75 in the process of being awarded. Some 25 of the permits are said to be offshore, where a number of operators have expressed interest. * * Lengthy and cumbersome approval processes have seen operator timelines impacted and discouraged new exploration, with the majority of the 688 wells drilled in Spain completed over 30 years ago. Long waiting times for drilling permits, with local and regional government lacking an incentive to approve drilling given environmental risks, are a key source of complaint for the industry. Given Spain's energy and tourism authorities are part of the same ministry, a lack of clear regulatory jurisdiction and competing interests are also a cause for concern.
Full Report Details at
We expect imports of crude and other liquids to average 1.15mn b/d in 2013, representing US$44.3bn of expenditure. At the time of writing, we assumed an OPEC basket oil price for 2013 of US$105/bbl, falling to US$101.8/bbl in 2014. Imports of gas will see Spain spend a further US$17bn in 2013. We expect combined imports of liquids and gas to be lower, on the back of moderating prices, at US$58.8bn in 2015.
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