US backs new MENA supply growth, official says

The US recognizes there are many important oil and gas opportunities in the Middle East and North Africa (MENA), Persian Gulf, and Eastern Mediterranean, and intends to ensure they are cooperatively developed in ways that benefit all people in the countries involved, a US Department of State official told a US House subcommittee.

Dramatic shifts in supply and demand worldwide mean the US “can and should continue to play a role in ensuring the stable and reliable flow of energy resources to all consumers,” Amos J. Hochstein, deputy assistant secretary for energy diplomacy at DOS’s Bureau of Energy Resources, told the Foreign Affairs Committee’s Middle East and North Africa Subcommittee.

“Our relations and interests in the Middle East have always been—and will continue to be—strong, multifaceted, deep, complex, and strategic,” he said in his written testimony. “We live in an international global economy with interdependent energy markets.”

The US economy is integrally linked to global markets, and the nation depends on the prosperity of others, just as they depend on the US, he continued. “As a major oil and gas producer, the United States will continue to have a vested self-interest in maintaining market stability because disruptions anywhere affect prices everywhere, even in the US,” Hochstein said.

Traditional overseas producers are adapting to the new dynamic, he maintained. The Organization of Petroleum Exporting Countries has changed from a cartel focused on maximizing prices to a group increasingly interested in market stability, Hochstein said. The US shares this interest and sees opportunities for future engagement, he indicated.

Focus for Iraq

“Within this context, Iraq has emerged from decades of mismanagement and sanctions to resume its role as a major oil supplier,” he told the subcommittee. “The country is still developing, but we are intensely focused on helping Iraq build in improved reliability in its energy sector, and to sharing best practices related to oil and gas production, distribution, and export.”

Qatar’s development of its massive natural gas liquefaction facilities transformed LNG from a niche product to a globally traded commodity, Hochstein observed. “Due to breakthroughs in processing and shipping by Qatar, LNG imports are a fundamental part of strategic energy planning and a core ingredient in the future energy mix of many countries, particularly in Asia and Europe,” he said.

He noted that in the Eastern Mediterranean, gas discoveries offshore Israel and Cyprus and significant potential in Lebanon, Greece, Egypt, and the Palestinian Authority have great promise for regional cooperation as well as economic growth.

“In February, a State Department-facilitated landmark agreement was announced in which Houston-based Noble Energy Inc. will sell gas from Israel’s offshore fields to Jordan starting in 2016,” Hochstein said. “The deal is a strong first step toward providing Jordan with critically needed affordable energy supplies after losing supplies from Egypt due to repeated terrorist attacks on the Sinai pipeline and due to the changing nature of Egypt’s production and consumption patterns.”

Cooperation will allow these resources to be developed in the most economic manner possible while building new bridges for potential future efforts on a wider range of issues, he said.

“Companies operating offshore Israel and Cyprus now face decisions on how best to monetize their remarkable investments,” Hochstein testified. “This is where geopolitical realities and economic imperatives need to converge. We will continue to work with Israel, Cyprus, and the other countries in the region to assist in any way we can.”

Accommodating risk

Developing frontier resources can be risky and capital-intensive, and companies can be deterred from making the necessary investments if they feel the risk is too high, he said. “When investments can be made in places like North Dakota with little legal or political risk, it becomes very hard for developers to find investors for projects in countries with less developed political and judicial systems,” Hochstein said.

Libya is a case in point, he noted. While it has giant, low-cost, and easy-to-extract oil and gas deposits, “political instability and pervasive insecurity have had a devastating effect, and the country’s production potential suffers from massive underinvestment,” Hochstein said.

“At 150,000 b/d, Libya is only producing 10% of what it had achieved just over a year ago, and even the previous amount of 1.5 million b/d is still well below what would theoretically be achievable in a better investment climate,” he said.

Also in North Africa, Algeria is pursuing the next development phase in its mature oil and gas fields and producing from its offshore and unconventional resources, “but has to get the investment conditions right,” he told the subcommittee.

With the correct incentives in place, Algeria has a unique opportunity to reinforce its role as one of Europe’s most reliable suppliers, “a point of critical importance as one component in a multifaceted solution to Europe’s energy diversification efforts,” Hochstein said. “This will require new infrastructure, new exploration, and new ideas.”

The US government and US companies are eager to help wherever they can to provide the most useful assistance to Algeria, he said.

Contact Nick Snow at nicks@pennwell.com.

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