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What Next Week’s Crucial Energy Summit Means for You

by | published February 10th, 2017

We only just landed back in South Florida from Paris. And I’m already preparing to move out again on Sunday, bound for Frankfurt (through Vienna).

You’ll be hearing all about the energy meetings I’ll be attending, right here in Oil & Energy Investor.

Now, I hope our trip back from Paris is not a harbinger of the trip back to Europe this weekend. We have enough concerns already.

Especially given who I’ll be meeting in Frankfurt…

“Bad Omens” for Next Week’s Summit

Our flight back home may have been direct from Charles de Gaulle Airport (CDG) outside Paris to Miami, but that didn’t mean it was without problems.

First, our terminal at CDG went into lockdown just as we were at the ticket counter. It seems that somebody decided to leave a bag in the security area. After what has happened recently in this city, Parisian gendarmes take a dim regard of such actions.

That delayed everything by about 90 minutes.

No word on when – or if – the tourist gets his bag back. The last we saw it, two heavily armored bomb specialists where putting the black piece of luggage into a specially reinforced van and speeding it off the airport grounds.

But that was just the beginning…

Then we arrived at Miami International, one of the worst airports in the world when it comes to long passport lines. We used to spend literally hours waiting. That’s why we committed to what turns out to be one of the best investments we have ever made.

If you travel frequently abroad, I suggest you do the same: make the $100 investment, go through the interview, have your fingerprints taken, and get Global Entry. This time around, despite the normal long lines, Marina and I went through passport control in less than 10 minutes because of that program.

Unfortunately, that turned out not to be the problem this time. Our driver was over an hour late with no idea when he would make it down south to the airport. He was blocked in traffic because of an accident in the “express” lane on I-95.

We ended up having to take a taxi with traffic now inching north on the interstate with the meter running. It took us almost two hours to travel the less than 35 miles back home to Fort Lauderdale. In all, the little adventure cost us the evening.

Now, I don’t believe in omens.

But with the people awaiting me next week in Frankfurt, I need flights to be uneventful…

Iran is Looking for Natural Gas Investment

The people in question are Iranian. The occasion is the Iran LNG & Gas Summit, meeting at the Kempinski Hotel in Frankfurt. On Wednesday, I’ll be addressing the plenary session. But the real action will be elsewhere… and so will I.

At many high-profile international meetings, next week’s included, the formal program provides cover for more important and specific “side-bar” meetings. These are where deals are struck, investments secured, strategies reached, and risk farmed out.

Managing this last matter – risk – is always important, but especially in this case. Much of the financial community that underwrites global energy projects needs to be able to spread out the risk of any undertaking.

But when it comes to Iran’s interest in expanding its influence in the international natural gas and LNG (liquefied natural gas) market, the risk calculation is even more crucial.

It’s that all-pervasive need to manage risk that I’ll focus on in my public presentation. In the private meetings, however, the emphasis is likely to be on how the risk will play out and the impact on securing outside finance.

Let me be clear here. I am not going to Frankfurt as an advisor to Tehran.

They requested, and I have agreed, to provide an objective viewpoint. I represent no projects or interests.

In other words, I have “no dog in this fight.”

On the other hand, I spend a lot of time analyzing what changes in the international energy markets mean for how one invests in them. That is, after all, one of the main reasons why Oil & Energy Investor comes your way twice a week.

On that score, what Iran is attempting to do with next week’s summit will have an impact on how you invest, and where the profit centers are likely to be…

The Threat of U.S. Sanctions Will be Looming Over the Summit

That’s why I’m there, and why I’ll be following up with the heavyweights attending upcoming sessions in other locations.

Whenever I give a risk management seminar someplace in the world, early on the main eight risk categories requiring management are laid out: operational; political/geopolitical; market; project infrastructure; taxation; regulatory; trade; and finance. How one weights these factors depends on the environment under review.

The geopolitical will certainly overshadow all others next week. Once again, acrimony is rising between Washington and Tehran. It will permeate the meetings in Frankfurt even though it’s not likely to be mentioned much in the overt proceedings.

French oil and gas major Total SA (TOT) acknowledged yesterday that the U.S. sanctions currently in place against Tehran would need to be rolled back, or the company would not fund a $2 billion proposed natural gas project in Iran.    

If the U.S. were to scrap the nuclear accord with Iran, most participants at the summit recognize little natural gas and LNG business will take place with the Iranians. What will ensue is another round of stiffening sanctions.

Here’s why I think that’s not going to happen…

The Nuclear Accord is More Entrenched Than it Looks

The nuclear accord is now far more difficult to unwind than some politicians realize. Bilateral relations will remain tense but the door is opening nonetheless – and with that comes opportunity.

Here is the relevant slide from my Frankfurt presentation on the perceived weighting of the eight elements appears when Iran is the subject.

Global-risk

My public comments in Frankfurt will be emphasizing how finance risk needs to be managed. It is hardly a new consideration. For some time now, lead banks structuring project finance (also sometimes called “book runners”) syndicate development loan exposure to other banks, thereby reducing the risk held by any one financing participant.

Much of that syndication will need to take place before there is any significant advance on the Iranian front. I will suggest initial steps to consider a “matrix” approach, one that places a greater emphasis on private investment in the finance of LNG projects and the delivery of product to end markets.

Therein lies the curious nature of the current situation in global energy politics.

As I noted in the last two Oil & Energy Investor briefings coming from my meetings in Paris, European and other sources of finance are prepared to move on several energy fronts without American involvement.

The Iranians clearly hope this increasing push back will facilitate project finance. What I will need to remind them is another emphasis. Investment will not come if the risk associated with it is not managed.

That requires Tehran to provide more substantive guarantees and protections to outside financing sources than it is used to offering.

This may not go down well and may create some friction, especially when it comes to the private meetings.

Well, it won’t be the first time I started a fire at an international gathering.

PS Stay tuned for next week, when I’ll be briefing you from the Frankfurt summit…

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  1. laurel weiner
    February 10th, 2017 at 16:31 | #1

    Just curious….if LNG is to be finanaced out of Iran will sanctions limit North American players have a go and also wont and LNG push out of IRAN be a problem for Russia /Crimia? Are China and India still their main target for customers? Who would finance this instillation and does China have the sufficient LNG receiving infrastructure?>

  2. Bob Schubring
    February 10th, 2017 at 20:49 | #2

    My view: Japan and China are the major import markets for highly-enriched uranium. What Iran lacks in nuclear power plants to consume the output of it’s enrichment plant, it must export for pay. Yes, the capacity to enrich uranium is useful militarily, if Iran ever wanted to fight a nuclear war. But no, the Ayatollahs aren’t stupid enough to expect they’d win one. Their bottom-line issue, is that the US denies giving nuclear weapons to Israel, and Israel denies having them, but almost nobody believes us about that. The fear that Israel already has a nuclear first-strike capability, is driving the neighboring nations to acquire one of their own. Iran is one of those countries. So Iran has painstakingly built an underground fortress in which it runs gas centrifuges to enrich uranium. It tunneled the chambers just deep enough, that the only Israeli aircraft capable of flying a bombing mission against Iran’s underground fortress, has to carry a nuclear weapon if it is to break through the rock and wreck the refining machinery. But Iran put those underground chambers near enough to the surface, that a US kinetic penetrator carried by the B2 Stealth bomber, could breach the chambers, using ordinary rocket fuel pushing on a very heavy and hard weight made of depleted uranium carbide, to get some momentum behind it The Obama Deal, essentially, positioned the US as guarantor that Iran could not continue refining more uranium, after it seriously started building atom bombs and got caught doing that, because we could wreck the fortress without setting off a nuclear bomb, and without Israel having to admit having a nuclear bomb, by the act of setting one off on Iranian territory.

    What’s not obvious is what the US receives as quid pro quo. We spent a great deal of money finishing a Cold War relic bomber, that’s thankfully not needed these days, because we lack nuclear-armed enemies unless we go out and make some, and then we gave said relic a purpose, as guarantor of this Iranian nuclear deal. However, we were the world leader in uranium enrichment for many years. How we benefit by setting a competitor up in business, isn’t clear. The UAE, in contrast, has been building a consensus for nuclear power for some years now. They avoided running afoul of the neighbors, by agreeing to import enriched uranium and export nuclear waste for recycling. With an abundance of low-grade solar heat available regularly, and a supply of petroleum coke from the refining business, it would not surprise me to see nodular cast iron machine parts, becoming a major UAE export soon…carbon and an electric-arc furnace are key production inputs to nodular iron, as is a heat source for annealing the molded parts as they cool. Doing that with passive solar heat could prove very profitable. What the UAE has not done, is make a nuisance of itself. This makes it easier for them to get a nuclear power plant financed and running.

    Iran’s prime argument to Europe for LNG development, is that the Euro/US trade sanctions on Russia, interfere with a Russo-Turkish plan to lay pipelines under the Black Sea and through Crimea, carrying Iranian and Iraqi gas to Europe. Russia would be paid a royalty for gas shipped across Crimea, which violates the sanctions regime. It’a been several decades since Iran did anything harmful to European interests, so conceivably, European investors see an advantage, in putting another LNG source in operation, in Iran, that also says NO to the Russian bear.

    Meanwhile, back in reality, the US is doing a miserable job of explaining any policy changes. Trump slapped an immigration ban on several countries that thanks to civil warfare, do a lousy job of recovering birth records and arrest records, the sort of information needed for vetting refugees seeking asylum here. And we did a horrible job of explaining what the immigration freeze was for. Thousands of leftists marched in the streets recently, assuming that the temporary ban would be made permanent, and further assuming that the things will also happen, that they can somehow prevent by marching around in the streets. So, whatever happens vis-a-vis Iran, the US is likely to react and there will be a street-level reaction, to the reaction. Under the circumstances, it’s just possible that Europe willl embrace the Iranian deal, because it’s not obvious what the US will do to them for taking it, and also because Europe is broke enough that they need the profits.

  3. laurel weiner
    February 11th, 2017 at 10:14 | #3

    laurel weiner :
    Just curious….if LNG is to be finanaced (BP?)out of Iran will sanctions by USA limit North American players to have a go ?Will the LNG development push out of IRAN be a problem for Russia /Crimia? Are China and India still the main target for customers? Who would finance this instillationin Iran and does China have the sufficient LNG receiving infrastructure?How will this affect other LNG projects around the world hoping to sell into Asia or Europe?Clarifying quote above
    >

  4. Samshul Amir Hanafi
    February 19th, 2017 at 17:44 | #4

    Hello dearest friend hopefully I will have a great knowledge from you all.

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