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Contribution de Monsieur Aissaoui « I have just returned from Paris »

I have just returned from France where I participated in the spring meeting of the Paris Energy Club to brainstorm on the following:
•             The future of transportation fuels;
•             The changing geopolitics of energy;
•             Current energy-related issues.
As usual, the Club’s social evening, which was sponsored by IFP Energy Nouvelles, included a taste of Paris’ cultural and culinary distinctions.
The following three points constitute my personal take of the Club’s full-day discussion, which was conducted under Chatham House rule of non-attribution.
First, the transportation sector – across all transport modes – remains largely dominated by oil with road vehicles continuing to be powered almost exclusively by internal-combustion engines (ICEs) that are fuelled by petroleum products. However, we realized that signs of changes are ubiquitous – from continuing improvement in fleet-wide fuel economy, to alternative fuels, to rapidly evolving technology for electric cars. In the latter field, while long-range electric vehicles and plug-in hybrids remain very much in play, the smart car market is growing rapidly, with the extraordinary emergence of Tesla having the most serious impact on traditional automotive. Progress is expected to be even more spectacular when looking at the way digital technologies will drive mobility in the future. Our attention was invited to the fact that there are already examples of innovation such as the one supported by the so-called GAFA (Google, Apple, Facebook, Amazon) that are making their mark on the way people travel, particularly in urban cities. Despite the huge uncertainties associated with disruptive technologies and innovation industries, the potential threat to oil is real and could be far-reaching.
Second, a new geopolitics of energy has emerged in the wake of the dramatic shift in energy investment and trade of recent years with a consequent reshaping of international politics. We first discussed, but passed over undecided, the question of whether or not OPEC (and Saudi Arabia) can regain their role as global swing producers in face of shale oil’s incremental economics, lean structure and flexible business model. As we shifted focus to the complex dynamics in Eurasia, we noted how, “East of Baku”, China and Russia are calling the shots and wondered what the Western world could do to balance Beijing and Moscow, hopefully through win-win propositions to reduce geopolitical tensions. We further took note of President Xi’s “One Belt One Road” strategy – probably one of China’s most important foreign policy initiatives – and its declared ambition of contributing to the development of China and the rest of the world in the areas of energy, trade and culture. The energy security implications of the initiative (the energy connectivity along both the Silk Road Economic Belt One and the 21 century Maritime Silk Road call for major investments in energy infrastructure), could lead to a more assertive role of China in global energy security.
Third, in discussing current and upcoming issues, we focused on how Big Oil is coping with the price collapse and what is at stake at the Paris December climate summit. In past depressed oil market environments, IOCs bought their way out of trouble through mergers. Until recently this was considered unlikely to happen again on the ground that the last such mergers – at the end of the 1990s and early 2000s – failed to create new opportunities for long-term growth. But Shell’s just-announced acquisition of BG has come as no surprise to the better informed. In any case, this is the most significant response yet to the oil price collapse and could set in motion a series of other mergers as IOCs seek to keep paying dividends they may no longer afford. Indeed, reducing capital investment, embarking on a new round of cost-cutting, and either turn to the debt market or sell assets, are all measures that are no longer sufficient. Finally, as little time was left to discuss what to expect from the upcoming climate summit, we concluded that a lasting agreement will predictably hinge on whatever direction the US and China would have agreed. Therefore, any such an agreement is likely to be weak. We also expected that a no-deal scenario could have serious consequences for investment in renewables and low-carbon energy technologies.
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Ali Aissaoui, Senior Consultant
Economics & Research

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:         +966 13 859 7138
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Email   : aaissaoui@apicorp-arabia.com
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Algeria Wakes Up to a Looming Crisis…

Algeria Wakes Up to a Looming Crisis

I am pleased to inform you that ENI’s quarterly OIL magazine has just published an article I authored under the Editor’s title “Algeria: The Threat of a Possible Crisis”. The theme of the magazine’s issue is about “Winners & Losers” in the context of the current oil price collapse.

The following is a quoted excerpt from the introduction and conclusions of the article. For any further reproduction or republication of part or all the article, please contact Gianni Di Giovanni, the Editor in Chief of the magazine. You may also wish to freely subscribe to OIL, which provides authoritative analysis of current trends in the world of energy, with particular attention to economic and geopolitical developments (www.abo.net).

Prime Minister Abdelmalek Sellal’s ominous statement early this year that Algeria “faces a crisis” does not forebode well for the nation’s outlook. He and his government seem to have suddenly woken up to the real dimensions of the global oil market collapse. The sharp fall in prices, which was mainly caused by a supply shock from the growth momentum in North American unconventional oil production, then aggravated by OPEC’s unwillingness to mitigate it, is likely to overwhelm government’s ability to respond. Already in the benign environment that prevailed before prices spiraled downward, the government could hardly cope with a myriad of socio-economic problems. As Algeria’s woes could worsen, the financial resources saved during past oil market uptrends might not be sufficient to help deal with the most urgent challenges.

As Algeria’s economic prospects remains closely bound to the state of its hydrocarbon sector, the collapse of oil prices has served as a strong reminder of the country’s extreme vulnerability. In the current critical context, neither the available fiscal buffer nor the new framework for attracting FDI in the hydrocarbon upstream sector, would entirely overcome the heightened challenges the country faces, including funding expansionary budgets and moving forward the process of recovery in the oil and gas industry. Furthermore, the government does not seem to have a realistic grasp of the threats and challenges from a new, unpredictable opposition that its inconsistent policies and lack of participation have provoked. Favoring participation requires a significant change in the Algerian policy-making mindset. This mindset, which has been shaped by old experiences and traditional ways of identifying problems and devising policies, is far too rigid to effectively deal with the challenges – and indeed the opportunities – that lie ahead. Challenges will hardly lead to opportunities without an informed public debate and the articulation of a coherent, credible, and consensual vision to steer the country out of a looming crisis and lead it in a more viable direction.

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Contribution de Monsieur Aissaoui « i have just returned from Dubai where I participated in Moody »

I have just returned from Dubai where I participated in Moody’s 10th Annual GCC Credit Risk Conference as a guest speaker.

This full day event, which was held under the general theme of « After the Fall: Understanding Oil Trends and Consequences for the Gulf Region », centered on two sessions: GCC sovereign resistance to oil-market stresses and who will feel the pain from low oil. This was followed by three concurrent practical workshops: credit considerations for family-owned companies; Moody’s new methodology for analyzing MENA banks; and a market overview of Islamic finance with a focus on hybrid sukuk.

While the conference was designed to gain new insights into the fairly sophisticated analyses of Moody’s Investors Service, it also offered an opportunity to hear from external guest speakers. The first was Bassam Fattouh who assessed current developments in the oil markets, analyzing their causes and implications and exploring their global perspectives. The second was myself presenting the GCC energy investment outlook and highlighting new trends and challenges in the broader MENA context.

The oil market situation worked as a general introduction to the main topics of the conference. My take on Bassam’s presentation is that the rapid growth in US light tight oil should not be seen as just a supply shock to the market. By shifting the perception of oil supply availability from scarcity to abundance, it has fundamentally affected both prompt prices and the longer prices. It has also changed the international dynamics and trade patterns of crude oil and oil products with far-reaching implications for price differentials and marketing strategies. Looking ahead, there are still many uncertainties, as oil markets balances will be shaped by the way supply and demand will ultimately adjust in response to low oil prices and changing market expectations and sentiments. Furthermore, the perception of a loss of an important supply feedback (stemming from the November 2014 shift in OPEC policy) will continue to affect market sentiments and volatility as well as increase the risk premium on investment in energy projects.

The latter conclusion offered a perfect transition to my own presentation. But since the overarching theme of the conference was about credit risk arising from investment activities, I will focus the remaining of this brief account on APICORP’s perceptual mapping of the energy investment climate in the region, which clearly attracted the audience’s interest.

The oil price collapse and the uncertainties surrounding its recovery have combined with persistent political turmoil to adversely, though unevenly, affect the region’s business risk outlook. The degree to which this has been the case is often determined using a proxy indicator of country risk, most conveniently in the form of a sovereign credit rating. In recent years, the region’s rating landscape has indeed dramatically evolved in response to the aftermath of the Arab uprisings: Tunisia, Egypt, and to a lesser extent Bahrain were downgraded, while Libya was suspended from being rated. Also, in the stir of Syria, the ratings of both Jordan and Lebanon were lowered. Whereas Algeria, Iraq, Iran, Syria, Yemen, Libya, Mauritania and Sudan have remained unrated. Nonetheless, despite Bahrain’s lower credit rating and current negative outlook, the GCC countries have maintained their strong position. As a result, there has been a marked bifurcation trend between GCC and non-GCC countries (omitting from the latter unrated countries).

However, using sovereign ratings as a proxy means that we are relying on a definition of country risk that focuses on the likelihood that the sovereign borrower will meet its debt obligations. More relevantly, country risk should be related to the likelihood of events and policies impacting business and investment. In this respect, an alternative, less conventional measure of the degree to which MENA energy investment climate has been affected is provided using a ‘perceptual mapping’. This is a multidimensional scaling analysis combining in our case three attributes: potential energy investment; country risk; and the enabling environment for the development of the oil, gas and energy industries. In the resulting 3D map each point has three coordinates corresponding to each country’s scores of selected attributes. The map shows an Ideal Point, whose coordinates are the highest achievable scores. Countries’ perceived investment climates appear at varying (Euclidean) distances from the Ideal Point taken as a benchmark. Notwithstanding considerable uncertainty, our perceptual mapping, if interpreted correctly, provides a more nuanced insight into the complex situation investors face in the region.

Accordingly at this time, Saudi Arabia appears well positioned, nearest to the benchmark. Next, are Qatar and the UAE putting some distance between themselves and Kuwait. The two remaining GCC countries, Oman and Bahrain, seem to have managed to secure the next best positions, in spite of Bahrain’s vulnerability to lower oil prices. Beyond the GCC, Iran and Iraq continue to be pulled up by their respective investment potential

notwithstanding their deteriorating country risk and the enabling environment for business. Algeria has not managed to improve its position, despite some policy progress, while Libya has definitely regressed to being among the farthest from the ideal point, including Yemen and Syria. Looking ahead, it is difficult to foresee any significant improvement to the current mapping.

A detailed agenda of Moody’s 10th Annual GCC Credit Risk Conference is available at: www.moodys.com/newsandevents/events/detail_/4400000009045/ed

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Commentary Vol 10 No 3 March 2015.pdf

téléchargez :Commentary Vol 10 No 3 March 2015

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