TIRANA, April 25 – Domestic oil production dropped for the second year in a row following the mid-2014 slump in international oil prices, freezing new investment and employment and with a negative impact on the country’s poorly diversified exports.
Data published by the energy ministry shows domestic oil production, overwhelmingly dominated by foreign companies operating under concession contracts, was down by 18 percent to slightly above 1 million metric tons, equal to about 7.3 million barrels of oil for the whole of 2016.
Canada-based Bankers Petroleum, the country’s largest oil producer which in mid-2016 was fully acquired by a Chinese consortium, accounted for 95 percent of total domestic production for several consecutive years now.
Since 2004, Bankers Petroleum has been developing the Patos-Marinza and Kuà§ova heavy oilfields under a 25-year concession contract with the Albanian government, reviving the oil industry in the country following the collapse of the country’s communist regime in the early 1990s.
Located in southwestern Albania, the Patos-Marinza oilfield initially discovered in 1927 is the largest onshore oilfield in continental Europe, holding approximately 5.4 billion barrels of original oil in place. The Kuà§ova field has 297 million barrels of original-oil-in-place.
The departure of Canadian investors came in mid-2016 after a slump in international oil prices and tax and environmental disputes with the Albanian government, leading them to sell their operations to China’s Geo Jade for C$575 million (€392 mln).
Albania’s oil production peaked in 2014 just before the mid-year slump in international prices when the Bankers Petroleum-led domestic production hit a 35-year high of 1.36 million metric tons.
Albania’s highest oil production dates back to 1974 when the then-communist country produced 2.25 million metric tons equal to about 38,408 barrels of oil per day in an industry that involved 34 state-run enterprises and employed about 25,000 people.
State-run Albpetrol company which currently runs only 5 percent of the oil wells produced about 51,000 metric tons of oil in 2016. Albpetrol was the main producer until 2006 when companies operating under concession contracts overtook the traditional state-run producer.
In a December 2016 tender, the Albanian government collected about €45 million from the sale of some 167,000 metric tons of Albpetrol crude oil as oil prices slightly picked up to $55 a barrel.
Albpetrol, whose assets are valued at €95 million following a failed privatization in early 2013, has had its liquid gas operations split under the newly established Albagaz state-run company as the major Trans Adriatic Pipeline is already in its construction stage and scheduled to bring first Caspian gas flows to Europe by 2020.
The remaining companies involved in oil production in 2016 included U.S.-based TransAtlantic Petroleum, Switzerland-based Transoil, Bankers Petroleum’s Sherwood subsidiary and Albanian-owned Phoenix Petroleum, which a produced a total of 80,000 metric tons during 2016.
In its latest report, U.K.-based BMI Research, a unit of Fitch, says new investors and an improved price environment will see Albania’s oil and gas production stabilize by mid-2017.
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.
Crude oil Brent prices currently stand at about $52 a barrel, up from a 12-year low of $30 a barrel in early 2016, but yet almost half of the peak level of more than $110 in mid-2014 just before the slump. Mid-term prospects are not very optimistic as Brent oil prices are expected to fluctuate between $60 to $70 a barrel until 2021.
Refining
Domestic crude oil refining also suffered in 2016 when production at the Fier and Ballsh refineries was halted following the bankruptcy of ARMO oil refiner whose minority 15 percent stake is still held by the Albanian government following its botched privatization back in 2008.
Energy Ministry data shows Albania processed only about 170,767 metric tons of oil in 2016, almost half of the 2015 refining, accounting for only about 17 percent of its domestic production.
In September 2016, an offshore company based in the British Virgin Islands offered to reactivate domestic oil refining under a deal with Bankers Petroleum following the bankruptcy of Armo refiner which left hundreds of workers jobless for about a year.
The deal is already having an impact on curbing oil imports which suffered a sharp drop in the first quarter of this year.
While a major oil producer, Albania exports most of its domestic oil production due to its poor quality and heavy processing needs and imports the majority of its oil needs.
Due to the high tax burden on oil (at about €0.7/litre), the sharp cut in international oil prices has only been partly reflected on local fuel prices, one of Europe’s highest despite the country’s GDP per capita being among the region’s lowest.
