TIRANA, April 13 – New investors and an improved price environment will see Albania’s oil and gas production stabilize by mid-2017 after a downward trend since mid-2014 following a slump in international oil prices severely affecting the country’s oil and mining industry and poorly diversified exports, according to a report published by U.K.-based BMI Research, a unit of Fitch, one of the global leaders in financial information services.
“A swathe of mergers and acquisitions activity in the Albanian oil sector will create more stability in production from 2017. Stronger oil prices and the results of Shell’s Shpirag-3 well will be key to encouraging new investment into exploration and production,” says the BMI report.
Last year, Canada-based Bankers Petroleum, the country’s biggest oil producer, was fully acquired by a Chinese consortium led by China Everbright Limited producer for C$575 million (€392 mln) after more than a decade of operations in Albania.
Earlier in 2016, U.S.-based TransAtlantic Petroleum announced the sale of its loss-making Albanian unit to a company named GBC Oil, but retained its interest in the southern Albania Devlina gas project.
The acquisitions came after a sharp drop in international oil prices putting new drilling to a halt and tax and environmental disputes with the Albanian government.
The Fitch unit expects the drop in production of crude and natural gas and other liquids to slow down to 17,600 barrels of oil per day (bopd) in 2017, down from 18,100 bopd in 2016 and a record high of 27,500 bopd in 2014 when oil prices were at their peak levels.
BMI Research expects Albania’s oil production in the next five years until 2021 to remain stable at about 17,700 bopd, depending on the results of new drilling by Shell oil giant in southern Albania.
In mid-2016, the Albanian unit of British-Dutch oil giant Royal Dutch Shell spud the Shpirag-3 well, which due to geological complexity will take around one year with results expected in mid-2017.
Shell Upstream Albania, a wholly-owned subsidiary of the giant Royal Dutch Shell, bought a 25 percent stake from Canada-based Petromans Energy for US$45 million in 2016, becoming the sole shareholder in the Albanian oil exploration and production operations that the joint venture had been engaged since 2012.
The Fitch Unit expects international oil prices to considerably recover to $57 a barrel in 2017, up from a record low of $45 a barrel in 2016, but yet almost half of the peak level of more than $110 in mid-2014 just before the slump that took them to a 12-year low in early 2016, halting new investments and significantly affecting Albania’s poorly diversified exports and underperforming government revenue. Mid-term prospects are not very optimistic as Brent oil prices are expected to fluctuate between $60 to $70 a barrel until 2021.
Gas production depends on a joint venture U.S.-based TransAtlantic made in late 2016 to resume production and develop the Delvina gas field in southern Albania.
Albania is expected is expected to turn into a major hub by 2020 when first gas sales are expected from the Trans Adriatic Pipeline bringing Caspian gas to Europe through Albania.
Greek/Italian risks
In its country risk report on Albania, BMI research identifies a possible shock to either the Greek or Italian economy, Albania’s main trading partners, investors and sources of remittances, as one of the key risks facing the Albanian economy. The two neighbouring countries, host to about 1 million Albanian migrants, have been struggling with protracted recession since the outbreak of the global financial crisis in 2009.
“A shock to either the Greek or Italian economy in 2017, would lead the lek [national currency] to sell off more aggressively than we currently anticipate given the remittance and export revenues from each country. This would lead to higher inflation and raise the risks to private consumption,” says the Fitch unit report.
BMI Research expects Albania’s growth to remain at 3.3 percent for 2017 and 2018, 0.5 to 0.8 percent lower compared to the Albanian government’s more optimistic forecasts.
