Tuesday, March 08, 2016

SNAPSHOTS OF OIL PRICES PLUNGGING ISSUES - URGENCY REQUIREMENTS TO SOLVE THIS OIL CRISIS

As a Freelancer Independent Business Lawyer you are sometimes very busy working long hours because of the load of  work  requested  by Client,  among others  Drafting Oil Business Agreements relating to the sale of some portion of  Equity by the Owner of an  Oil Company to Investors, to  pursue it's business Operations.
  • However  there are times, where we are not too busy, perhaps   due to the Collapse of Oil Prices Globally. We all experienced that within this 2 Years since June 2014, the Oil Price  plungged from U$D 100 / per Barrel  into U$D 50  and than  U$D 27. This Crude Oil Prices have fallen more than 70%  from Serbia to the Arabian desert, which caused Oil Producers Countries and Oil Companies loosing money. It is not only an Economic issue but also a Geopolitical issue.  We  remember that in the 1980-ies  the Oil Prices also tumbled down  causing  the collapse of Sovyet Union  and the break down of the Berlin Wall. From the news we read,  we understand  there was sort of a Geopolitical Warfare, in which the Russian had blamed the West. 
At this present Oil Crisis, we can also observe from the Media that Russia was also claiming that there is a conspiracy by the Saudi Arabia and US to punish Iran or influence the economy of Russia who supported the Regim in Syria. Such claim maybe have a point  to argue or it may not be the case. From analysis in the media, we understand  there maybe 2 (two) sides of a Coin in this kind of situation. It depends who you are and where you are. For Oil Importing Countries actually it's good because they can reduced their cost for buying such Oil to fill in their State Budget.  In this case Europe is gaining some benefits of the Low Oil Prices and also Natural Gas is going to be cheaper.
But for the Oil Producers and Oil Country exporters which  are selling Oil this really hurts their financial condition.  Russian Oil Companies are selling Oil  below production costs,  where people are just exploitating from the on going projects existing whatever reserve they have and nobody is planning for long period of time.  
From the media we got the information that Saudi Arabia has U$D 600 Billion Worth of  Revenues stached away in some places, to a relative extent,  but it can quickly burn out  Saudi's  long saving due to its Deficits. We observe that Russia is pumping its production on its  maximum, before sitting and negotiation with Saudi Arabia; According to the expert analysis  this is a normal strategy used by Oil Producers in negotiation to stop the over supply of oil in the market which are also frequently used by OPEC members.
  • We can also see that  from the Geopolitically perspective, Europe is facing flood of imigration from the Middle East particularly primarily from the crisis in Syria. We can watch in the media television there are many imigrants coming to Greece through Turkey.  So there exist Immigrant crisis in Europe. From  the media, according to the analyst, Saudi uses its saving to fund Yaman, Egypt, Oman, Bahrain, therefore it is not only using its monies  for its Domestic requirement. 
Thus, we can see that according to the analyst in the media there is also an urgency requirement to  resolve this Crisis,  where it is a net minus for everybody in the macro economic level as well as in the Geopolitical level.  We observe OPEC, including Saudi controls nearly 40% of World's Oil Supply.  Geopolitics seemed to make a deal problematic. As we can see Russia is helping President Bashaar Assad and the Saudis are suppporting the Assad Opposition fighters. However both have a common economic interest to stabilize the Global Oil Price; They both agree to freeze their production. In the Doha Agreement it appears that Venezuela and Qatar was also party to the Agreement, however the question may arise :  are they able to pursuade the rest of the Opec members to agree upon a production freeze. The other issue is Iran, whereby Iran will defend it's right to raise oil exports to the level that they prevailed before Western Sanctions was imposed in 2011.     

  • How about in Indonesia ? Indonesia is no longer just Exporting Oil and gas but Indonesia is also a Net Importer of Oil. Indonesia produced 790,000 barrels per day (b/d) of Crude Oil and condensates   in 2014, the 3rd Lowest level among OPEC members. Indonesia originaly joined OPEC in 1962 but suspended its membership at the begining of 2009. Indonesia's decision  to suspend   in Opec membership was due to the growing internal demand for energy, declining crude oil and condenste production in mature fields, and limited investment to increase production capacity. 
As we know  Indonesia had become a Net Importer of Petroleum and other liquids by 2004 after domestic demand exceeded production, as Indonesia's production of petroleum and other liquids had declined since the mid-1990's. We noticed that  OPEC had notified  Indonesia that it plans to accept Indonesia's request to re-activate its membership. Based on Opec's statute, it allows as a member any country that is substantial net crude oil exporter, has similar interests to Opec, and and is accepted by 3/4 of full members. Although Indonesia is a net Oil Importer, Indonesia continues to export crude oil and condensates. Despite of it's Oil demand, we can observe that Indonesia's Oil and Natural gas sectors continue to play as  an important element of the Country's economy. Indonesia is in present purchasing crude oil and petroleum product through 3rd Parties or Traders and desries to have a direct acces to long term crude oil supply contracts through negotiations between  National Companies of OPEC members. 

  • We observed from the news in the media  that  Indonesia plans a number of upgrades and expansions to existing refiniries to become operational. From the media-news,  we noticed that Indonesia has also proposed to build 4 New Refineries each having a capacity of 300,000 b/d. Since Indonesia struggles with the level of Investment needed to offset the declining of the Oil and Natural Gas production and the lack of adequated infrastructure, Indonesia is really striving hard to attract  Investment in both upstream and downstream sectors with OPEC members. We can observe that Indonesia is currenntly in discussions with several OPEC members concerning the Crude Oil Deals as well as Investments in Refinery Projects.  
In the other side due to the plungging Oil Prices, after previously taking effeciency measures to minimize the impact of the plungging Oil Prices we may see several  Oil and Gas Companyies are now being forced to take a stiffer action of Lay-Offs and streamlining it's staff members. This also are being suffered by Services Companies, globally. 
  • Apart from the above issues, there seems to be kind of a tug of war and different approaches concerning the Development of the Masela Blog in Maluku,  between Ministerials level from the Cabinet, which emerged in public media, as to whether it is more efficient performing off-shore scheme or onshore,  which we feel  must be immediately solved by the Highest Authority of this Nation, to give Certainty to Oil/Gas Investors.                
Jakarta, 8 Maret 2016 Agung Supomo Suleiman

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