Iraq Agrees To Hold 30% In TotalEnergies' $27 Billion Iraqi Project

By Charles Kennedy - Apr 04, 2023

The Iraqi government has agreed to have 30% in a major $27-billion project to be developed by supermajor TotalEnergies in Iraq, down from the 40% stake Baghdad had wanted previously, industry sources told Reuters on Tuesday.

In September 2021, TotalEnergies signed multi-energy agreements in Iraq for the construction of a new gas network and treatment units, the construction of a large-scale seawater treatment unit, and the construction of a 1 gigawatt (GW) photovoltaic power plant in the southern Iraqi region of Basra. TotalEnergies signed the agreements with the Iraqi Ministries for oil and electricity, and the country's National Investment Commission.

The French supermajor proposes to invest in installations to recover gas that is being flared on three oil fields and, as such, supply gas to 1.5 GW of power generation capacity in a first phase, growing to 3 GW in a second phase, and also develop 1 GWac of solar electricity generation capacity to supply the Basra regional grid.

The initial investment in the project is estimated at around $10 billion, TotalEnergies said back in 2021.

However, the project has seen setbacks due to the turbulent Iraqi domestic politics and Baghdad's initial insistence that Iraq holds 40% of the project.

The high stake Iraq wanted was one of the key sticking points toward structuring the deal.

Now it looks like a deal has been reached, with Iraq agreeing to take a 30% stake in the project after meetings in Baghdad in recent days, one industry source told Reuters.

A senior official with Iraq's oil ministry told Reuters, "The deal should be activated within days."  

Three weeks ago, TotalEnergies CEO Patrick Pouyanné said at the firm's climate investor meeting, referring to the Iraqi project, "We have many discussions: we have expressed our views, we are waiting for the answer."

"So that's where we are, and I hope we'll find a common ground. I worked on it in the last month. But again, we need to have this political answer," Pouyanné added.

Commenting on the potential agreement, TotalEnergies' top executive also said, "Iraq is not the easiest place to invest."  

By Charles Kennedy for Oilprice.com

Western Oil Companies Are Not Welcome In Iraq But Russian And Chinese Ones Are

By Simon Watkins - Apr 03, 2023

Last week’s banning by the Baghdad-based Federal Government of Iraq (FGI) of oil sales made independently by the government of the semi-autonomous region of Kurdistan (KRG) in northern Iraq should be seen in the context of the Saudi Arabia-Iran relationship resumption deal done on 10 March. And that context is more easily explained if the deal is written not as the Saudi Arabia-Iran deal, but rather as the Saudi Arabia/OPEC-China/Russia/Shia Crescent of Power deal. The Shia Crescent of Power comprises most notably Iran, Iraq, Syria, Lebanon and Yemen. Turkey (25 percent Shia and still furious at not being accepted fully into the European Union) is on the periphery of this group. The last part of the jigsaw was revealed exclusively by OilPrice.com just after the Saudi Arabia-Iran deal in a comment made by a very high-ranking official from the Kremlin that: “By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis - the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.” Before the Saudi Arabia-Iran deal, everything the China-Russia axis had been doing in the Middle East had been to manoeuvre itself into a better position to usurp the influence of the U.S. and its allies in the oil and natural gas centre of the world, the Middle East. After the Saudi Arabia-Iran deal, China and Russia are where they want to be, and it is gloves off time. In terms of building up to this moment – that will see all powers of the northern region of Kurdistan gradually subsumed into those of the south to create one unified country again, governed out of Baghdad – Russia was the one who laid down the operational strategy in northern Iraq that was then replicated by China in southern Iraq a little later. More specifically, as analysed in depth in my latest book on the global oil markets, after the overwhelming vote in Iraqi Kurdistan in September 2017 for an independent Kurdish state there were huge protests when the vote was ignored by Baghdad. These were violently subdued by forces from Iran and Turkey (both of which have their own sizeable Kurdish populations) and southern Iraq, at which point of chaos Russia moved in to take over Iraqi Kurdistan’s oil sector. It achieved this by three methods. First, it provided the KRG with US$1.5 billion in financing through forward oil sales payable in the next three to five years. Second, it took an 80 percent working interest in five potentially major oil blocks in the region. And third, it established a 60 percent ownership of the vital KRG oil pipeline running into Turkey through a US$1.8 billion investment to increase its capacity to one million barrels per day (bpd). 

It was then Russia that fomented discord between the KRG in the north and the FGI government in the south, principally by exploiting existing discontent on both sides with the budget payments-for-oil deal that had been agreed between north and south Iraq in 2014. This deal – which forms the basis for last week’s banning of independent oil sales from Iraqi Kurdistan - was that the KRG would export up to 550,000 barrels per day (bpd) of oil from the Kurdistan oilfields and Kirkuk via the FGI’s Baghdad-based State Organization for Marketing of Oil (SOMO) in the south. In return, Baghdad would send 17 percent of the federal budget (after sovereign expenses) - around US$500 million at that time - per month in budget payments to the Kurds. This deal never worked properly, and Russia from 2017 sought to exacerbate this to create much greater discord between north and south Iraq through several methods also analysed in depth in my latest book on the global oil markets. 

At the end of 2020/beginning of 2021, China decided to use the same strategy in southern Iraq that Russia had used in the northern Kurdistan region. The Russians had used a massive flow of financing, through a huge prepayment deal for oil, as the first step in effectively taking control of the Iraqi Kurdistan oil industry. Mirroring this, China’s Zhenhua Oil signed a US$2 billion five–year prepayment oil supply deal with the FGI in Baghdad. This development was extremely troubling for Washington for three key reasons. First, the deal was obviously straight out of the playbook that Russia had used to gain control over the Iraqi Kurdistan oil industry in 2017, as analysed above. Second, it was clear Russia and China were working closely together in Iraq in a manner not seen before there. Specifically,  a key reason why Baghdad had so welcomed China into its southern oil and gas fields was because China had said that it might be able to ease tensions over the budget payments-for-oil deal by liaising with Russia. But it had been Russia since 2017 that had been firing up the Kurds to inflame these tensions. The third reason was that it was that in addition to the military elements that Russia had brought to its activities in the Iraq Kurdistan region, the huge new Chinese deal in the south was being done by Zhenhua Oil, an arm of China’s huge defence contractor Norinco.

For a long time, it suited China’s and Russia’s purposes to keep the north and the south of Iraq in a constant state of economic conflict centred on the 2014 budget payments-for-oil deal, as it was unwinnable from a legal perspective and could therefore be dragged out forever. According to the KRG, it has authority under Articles 112 and 115 of the Iraq Constitution to manage oil and gas in the Kurdistan Region extracted from fields that were not in production in 2005 – the year that the Constitution was adopted by referendum. The KRG also maintains that Article 115 states: “All powers not stipulated in the exclusive powers of the federal government belong to the authorities of the regions and governorates that are not organised in a region.” As such, the KRG argues that as relevant powers are not otherwise stipulated in the Constitution, it has the authority to sell and receive revenue from its oil and gas exports. However, the FGI in Baghdad and SOMO argue that under Article 111 of the Constitution oil and gas are under the ownership of all the people of Iraq in all the regions and governorates. Consequently, they believe that all oil and gas developed across all of Iraq should be sold through official channels of the central Federal Government of Iraq in Baghdad.

Now, though, with Saudi Arabia now firmly added to its sphere of influence after years of building up the relationship with Riyadh, as also analysed in depth in my latest book on the global oil markets, the China-Russia axis feels sufficiently emboldened to signal its true purpose: it is taking full control of the Middle East. Any choice cuts it wants from the best oil and gas reserves from anywhere in the region – across all countries with an allegiance to Sunni Islam leader Saudi Arabia or to Shia Islam leader Iran, which together is every country – are to be offered to Chinese and Russian companies in the first instance. There is no problem shipping or selling any of the oil and gas that China itself does not want, as sanctions currently are only on Iran, not Iraq, and these can easily be circumvented anyway, through methods also analysed in depth in my latest book on the global oil markets. 

The ultimate aim of China is as it has been since it began its economic growth spurt in the 1990s – to overtake the U.S. as the world’s largest economy by nominal GDP by 2030 at the latest – despite already being the world’s largest economy by purchasing power parity, the largest manufacturing economy and the largest trading nation. At around the same time, China needs to ensure that it has all the energy resources it needs to withstand any sanctions that may be imposed should it make good on President Xi’s instructions to the Chinese military to be ready to invade Taiwan by 2027. Helpfully as well from its perspective, having watched Russia’s invasion of Ukraine, China knows what not to do. Whether this particular ban of independent sales by Iraqi Kurdistan remains in place or not, China and Russia have laid down the marker that whatever happens now across all of Iraq will only happen with their blessing.

By Simon Watkins for Oilprice.com

EXPROPRIATION BY THE STATE IS SOCIALISM
Seize property to build wind and solar farms, says JP Morgan chief

Simon Foy
Tue, 4 April 2023 

Jamie Dimon - Marco Bello/Bloomberg

The chief executive of JP Morgan has suggested that governments should seize private land to build wind and solar farms in order to meet net zero targets.

Jamie Dimon, the longstanding boss of the Wall Street titan who donates to the Democratic Party, said green energy projects must be fast-tracked as the window for averting the most costly impacts of global climate change is closing.

In his annual shareholder letter, Mr Dimon said: “Permitting reforms are desperately needed to allow investment to be done in any kind of timely way.

“We may even need to evoke eminent domain – we simply are not getting the adequate investments fast enough for grid, solar, wind and pipeline initiatives.”

Eminent domain is when a government or state agency carries out a compulsory purchase of private property for public use and compensates the asset holder.

The proposal is unusual, especially coming from the longest-serving chief executive of a Wall Street bank, and could stir controversy as states in the US seek to crackdown on seizure orders.

In Iowa, state legislators on Monday passed a bill that aims to protect private property owners from eminent domain use by carbon pipeline companies.

Mr Dimon said the war in Ukraine was redefining the way countries and companies plan for energy security.

He added: “The need to provide energy affordably and reliably for today, as well as make the necessary investments to decarbonise for tomorrow, underscores the inextricable links between economic growth, energy security and climate change. We need to do more, and we need to do so immediately.

“To expedite progress, governments, businesses and non-governmental organisations need to align across a series of practical policy changes that comprehensively address fundamental issues that are holding us back.

“Massive global investment in clean energy technologies must be done and must continue to grow year-over-year.”

In the UK, reforms to Solvency 2 rules are expected to unleash a wave of investment in renewable energy projects after insurers and pension funds complained that EU-era regulations obstructed their ability to invest in infrastructure.

Mr Dimon’s comments also come as tensions between investors grow about how to tackle climate change.

In December, Vanguard, the world’s second largest asset manager, pulled out of Mark Carney’s global climate change alliance, saying the group’s full-blooded commitment to tackling climate change resulted “in confusion about the views of individual investment firms”.

Mr Dimon said: “Polarisation, paralysis and basic lack of analysis cannot keep us from addressing one of the most complex challenges of our time. Diverse stakeholders need to come together, seeking the best answers through engagement around our common interest.

“Bolstering growth must go hand in hand with both securing an energy future and meeting science-based climate targets for future generations.”

The banking chief also hit out against regulators in the wake of the banking crisis last month triggered by the collapse of Silicon Valley Bank (SVB).

He said the collapse of SVB and the government-engineered takeover of Credit Suisse by its biggest rival risked undermining confidence in the sector.

He added: “Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements.”

Mr Dimon also warned regulators against tightening rules for lenders following the recent market turmoil.

He said: “It is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended.

“Now is the time to deeply think through and coordinate complex regulations to accomplish the goals we want, eliminating costly inefficiencies and contradictory policies.

“Very often, rules are put in place in one part of the framework without appreciating their consequences in combination with other regulations.”

The Case For Nationalizing American Solar Energy Supply Chains

By Haley Zaremba - Apr 04, 2023, 

• The need for clean energy transition is urgent and requires a massive increase in green energy production capacity and infrastructure.
• 
  
• The current energy crisis in Europe as a result of Russia's invasion of Ukraine highlights the vulnerabilities of global supply chains and necessitates a focus on short supply chains.
• 
  
• Nationalizing solar energy supply chains could reduce emissions and lower energy consumption and pave the way for increased use of renewable power.

Meeting global climate goals will require a massive increase and acceleration of green energy production capacity and infrastructure. The scale of this challenge is unprecedented, and we have a lot to lose by getting it wrong. Changing the basis of the global economy – carbon-based fossil fuels – is scary and will inevitably have hiccups. Finding the right balance between decarbonization and energy security will therefore be essential to a successful clean energy transition. 

Right now, the climate for energy security is particularly tricky. Years of volatility from the Covid-19 pandemic have been compounded by Russia’s illegal invasion of Ukraine. Europe’s dependence on Russia to keep the lights on has plunged the European Union into an energy crisis as the war in Ukraine rages on and the flow of energy from the Kremlin (or lack thereof) becomes a strategic bargaining chip. 

And in our globalized and interconnected world, a crisis in Europe is actually a global crisis. Both Covid-19 and the current energy crisis have thrown the vulnerabilities of global supply chains into a harsh spotlight, and global geopolitics are shifting accordingly. We are increasingly seeing a move away from globalization and free trade toward nationalism, protectionism, and “friend-shoring,” in which countries limit their economic and trade partnerships to countries with similar values and strong alliances. 

There is now a renewed focus on the relative resilience of short supply chains, both in policy and research circles. And some of the arguments for keeping supply lines short and simple are compelling. In one example, a new study from Cornell University finds that nationalizing United States solar energy supply chains would greatly reduce their carbon footprint and energy use. 

In a study published in Nature Communications, a team of researchers from Cornell Engineering found that if the U.S. were able to transition to manufacturing all of its own solar panels by 2035, this would cut emissions by 30% and reduce energy consumption by 13%, compared to 2020 when imports were at an all-time high. Producing solar panels on its own hom turd would reduce cost and emissions of shipping the panels from overseas, and will reduce lag times as well. Working within a smaller geographic area with fewer middle men will allow solar panels to get connected to the grid faster. And the timing has never been better for beefing up domestic green energy manufacturing, as Biden’s Inflation Reduction Act has put forward billions of dollars of subsidies and incentives for doing just that. 

Fengqi You, a co-author of the study, explained in a press release that “the US will see a larger share of renewable power accounting for primary energy consumption and an overall lower primary energy consumption over the years for solar panel manufacturing.” And lower greenhouse gas emissions in the United States is good news for everyone, everywhere. The United States is the second-largest greenhouse gas emitter in the world, behind China. Together, China, India, and the U.S. contribute  42.6% of total emissions, while the bottom 100 countries (that’s more than half of all countries in the world) account for just 2.9% all together.

The authors also contend that re-shoring solar panel supply chains would help to rectify some of the significant setbacks that the solar industry is currently facing. These hurdles include massive delays thanks to supply chain bottlenecks, trade tensions, bureaucratic red tape, securing sufficient land tracts, and delays in connecting to the grid. Furthermore, the U.S. currently relies on China for at least 80% of its solar panels, which is frightfully reminiscent of the European Union’s reliance on that other volatile authoritarian regime. And we’ve all seen what can happen when diplomatic relations fail and a tyrant holds all the supply chain leverage. 

By Haley Zaremba for Oilprice.com

 

CRIMINAL CAPITALI$M

Three Former Austal USA Execs Indicted on Accounting Fraud Charges

USN file image

PUBLISHED APR 3, 2023 12:51 AM BY THE MARITIME EXECUTIVE

 

The U.S. Securities and Exchange Commission has indicted three former executives of naval shipbuilder Austal USA on charges of accounting fraud. One was a current employee until the charges were announced on Friday, according to the Australian Financial Review. 

The accused include the former director of Austal's Independence-class Littoral Combat Ship (LCS) program, William Adams; former president Craig Perciavalle; and director of financial analysis Joseph Runkel. The company's then-CFO 

The three men stand accused of manipulating an accounting metric known as “estimate at completion” (EAC) for multiple LCS ships that Austal USA was building in 2013-2016. According to charging documents, reducing this metric inflated the reported earnings (EBIT) of Austal USA's publicly-listed Australian parent company, Austal Ltd. 

The SEC contends that the three executives did this in order to "meet or exceed analyst consensus estimates for EBIT," mislead Austal Ltd.'s shareholders about the U.S. unit's financial performance, and thereby boost or maintain the value of Austal's stock. All three men received performance bonuses tied directly to EBIT numbers. 

In mid-2016, at the end of the period of alleged fraud, Austal USA admitted that it had underestimated the cost needed to build the LCS early in the program, forcing it to write down the value of its work in progress. This led to an unexpected full-year loss of $120 million, down from a profit of $86 million the year before. 

In February 2021, Austal USA announced that the SEC and Department of Justice had launched an investigation into the 2016 write-down. Perciavalle resigned shortly after, then took up a new role as VP and general manager at a competing U.S. shipyard.

Perciavalle, Adams, and Runkel have each been charged with five counts of wire fraud, two counts of wire fraud affecting a financial institution, and two related conspiracy charges in connection with the accounting scandal. If they are convicted, the charges carry maximum penalties of 20-30 years per count.

Previous investigation found fault at home office

Australian authorities have scrutinized parent company Austal Ltd.'s shareholder disclosures about the costs of the LCS contract during the same time period. Austal USA's naval shipbuilding contracts provided about 80 percent of Austal Ltd.'s total revenue, and the performance of the American subsidiary was key for reportable financial numbers.

 In June 2021, Australian corporate regulator ASIC launched enforcement proceedings against Austal Ltd. and its former CEO, David Singleton, for allegedly failing to disclose LCS-related losses to investors for several weeks in mid-2016. In October 2022, Australia's Federal Court ruled that the company had violated continuous public disclosure laws in connection with the 2016 loss, and ordered the firm to pay a penalty of AUD$650,000. The court found that Singleton was knowingly involved and ordered him to pay a fine of AUD$50,000. 

"Investors who bought shares in the period of misconduct did not know the unfavorable information about Austal’s FY2016 earnings. This information was likely to have informed their decision to buy or sell Austal shares during the relevant period," said ASIC Deputy Chair Sarah Court last October.

 

Allision Damage Forces Indonesian Ferry to Intentionally Run Aground

Mercandia VIII, a sister ship of Labitra Karina (file image courtesy Sinikka Halme / CC BY-SA 4.0)

PUBLISHED APR 3, 2023 6:55 PM BY THE MARITIME EXECUTIVE

 

On Sunday, a ferry struck an anchored ro/pax off the northwestern tip of Java, Indonesia, prompting the crew of the stricken vessel to intentionally ground their ship. 

At about 0700 hours on Sunday morning, the ferry Mabuhay Nusuntara approached the ro/pax KMP Labitra Karina (ex name Superflex Mike) as the latter vessel lay at anchor at the port of Merak, Banten province. The crew of the Labitra noticed that the Nusuntara was on a collision course, and they attempted to contact the approaching ship multiple times over VHF, a regional transport safety official told Detik News. 

The Mabuhay did not respond to the VHF calls and continued to approach until she struck the Labitra, causing multiple hull penetrations and flooding. Realizing the risk of sinking, the crew of Labitra started the engine, heaved anchor and ran their ship aground in shallow waters off Hotel Marak Beach, the official said. A spokesman for the Labitra's operator confirmed that the master had been instructed to intentionally ground the vessel. 

The crew of the Labitra successfully evacuated, except for a small number who stayed behind to manage the casualty response. No passengers were aboard at the time, and no injuries were reported. 

It was the second allision involving the Mabuhay Nusuntara in as many months. In February, the ro/pax ship struck a car loading ramp at a pier in Merak, damaging the ramp. 

Top image: Mercandia VIII, a sister ship of Labitra Karina (file image courtesy Sinikka Halme / CC BY-SA 4.0)

Captain Lost “Situational Awareness” Causing $7.7M Damage to Ferry

Ferry suffered $7.7 million in damage when the captain lost awareness the structure approaching the dock (Washington State Ferries)

PUBLISHED APR 3, 2023 4:36 PM BY THE MARITIME EXECUTIVE

 

An initial report has been released detailing the July 2022 allision of Washington State Ferries’ vessel that caused an estimated $7.7 million worth of damage after it struck a piling as it approaches its pier near Seattle. The report concludes it was human error but can not provide details because the captain at the helm has refused to cooperate and instead resigned from the company. The Washington State Department of Transportation however proceeded with a series of safety upgrades in advance of separate reports which are still pending from the U.S. Coast Guard and National Transportation Safety Board.

The incident occurred on July 28, 2022, as the ferry Cathlamet was approaching the Fauntleroy Ferry Terminal near Seattle after a trip from the Vashon Island Ferry Terminal.  The weather was clear with negligible wind and an ebbing tide when at 8:13 a.m. the vessel struck the south dolphin as it was approaching its berth at the end of an approximately 10-minute trip. There was one minor injury to a passenger, however, one vehicle was extensively damaged in addition to the structural damage to the ferry. The dolphin it hit was sheared off with additional damage to the surrounding structure.

Washington State Ferries launched its internal investigation in addition to the USCG and NTSB. They interviewed the crew and report that in addition to the crew on duty a second captain and crew were aboard who provided additional information. One of the challenges for the investigation was that the vessel at the time lacked a Voyage Data Recorder.

Piecing together the details they report “the Cathlamet had an allision with the south dolphin at FAU dock at approximately 15 knots.”  The captain on duty assumed direct control over the maneuvering of the vessel in preparation for the landing at a position approximately 0.5 nautical miles off the terminal which was customary and up to that point all the settings were found to be as they should have been on the equipment and position of the rudder.

“The Cathlamet did not slow its speed as it approached the FAU dock per the Safety Management System and prudent navigation,” WSF writes in its report. After the allision, the Quartermaster reports the captain asked, “what happened?” 

The second captain aboard the vessel who was due to take command shortly after the accident was in the cabin at the time of the accident and told investigators, “When the allision happened, I knew immediately that it wasn’t just a bump off a wing wall.” He rushed to the bridge where he found the captain attempting to back the ferry out after it had briefly grounded. The second captain relieved the captain and maneuvered the vessel to the dock.

“It can be concluded that the captain lost situational awareness while standing at the helm landing the vessel,” the WSF report resolved. They have been unable to determine why, noting that the unnamed captain resigned the next day and has not provided an explanation as to what happened. They also found that the Quartermaster was distracted from his primary responsibility of acting as a lookout because he was reading a report and that the captain failed to log actions that were part of the docking procedure.

Drug and alcohol tests were conducted and came back negative and the vessel which was built in 1981 was found to functioning normally with no mechanical issues meaning the cause of the accident is currently subject to speculation. The USCG and NTSB reports expected at a later date might provide additional details.

Washington State Ferries however did find that cost-cutting had reduced some non-mandatory training which shall be reinstated starting in the summer of 2023. As a result of the internal investigation, additional policies and training are under development, while a safety notice reinforcing landing procedures was immediately sent following the event. In addition, “black box” data recorders have been installed aboard the Cathlamet and will become standard equipment on all Washington State ferries.

 

Uruguay's New Offshore E&P Leases Overlap Proposed Marine Parks

Experts are perplexed that areas designated priorities for protection overlap with offshore oil concessions

Isla de los Lobos, one of eight proposed marine protected areas off Uruguay (Jimmy Baikovicius / CC BY SA 2.0)

PUBLISHED MAR 26, 2023 1:40 PM BY CHINA DIALOGUE OCEAN

 

[By Lucía Cuberos]

Uruguay’s coasts are valuable for its tourism, fishing, shipping and trade. But, in a country whose renewable energy efforts have seen it dubbed an environmental “success story”, marine conservation remains a challenge.

Back in 2016, under the UN’s Sustainable Development Goal 14, the Uruguayan government committed to protecting 10% of its coastal and marine area by 2020. Yet less than 1% are protected today.

It would seem difficult for Uruguay to contribute its share of the global target, established at the recent COP15 biodiversity talks in Canada, of protecting 30% of the ocean by 2030.

Uruguayan authorities are, however, working on plans to ensure the percentage reaches double digits soon. If realised, these plans could see Uruguay improve on its position as a marine protected area (MPA) laggard.

But just as it looks to boost conservation, the government has also authorised fossil fuel companies to explore for oil offshore, in areas that overlap with priority areas for protection. Environmental organisations and experts have described this move as a contradiction; as have members of the administration itself, who argue it goes against the country’s climate commitments.

Protect and exploit?

In 2022, the state hydrocarbons company, ANCAP, awarded six offshore concessions to explore for oil and gas in Uruguayan waters to private international firms including subsidiaries of Shell.

The news was poorly received by the environment ministry. Gerardo Amarilla, the ministry’s undersecretary, said the initiative “seems a contradiction in terms in the 21st century”, with fossil fuels something “that humanity is trying to leave in the past”.

In order to establish what needs protecting from possible offshore oil activity, two environment ministry bodies began a two-year study of the country’s waters in 2020. They then prepared a report which identified eight marine sites of priority for conservation.

Uruguay’s priority areas for marine conservation overlap with offshore oil concessions. Data source: Uruguay Ministry of Environment / ANCAP

In the document, published in December, the experts described the country’s progress on MPAs to date as “scarce”, highlighting that just 0.7% of its aquatic territory is currently protected under the National System of Protected Areas (SNAP), and that these are exclusively coastal areas.

“We want to have clear rules in advance,” Amarilla said of the report and the country’s offshore exploration plans. He said the idea is for the document to be the starting point for Uruguay to reach 10% of its waters under protection, by limiting activities that could harm these ecosystems. However, he acknowledged that the ministry is still seeking international support and funding, so while there are hopes to make considerable progress, it cannot guarantee all plans will be realised by the end of 2023.

“This technical report and the ministerial decision to authorise it are a clear signal from the Uruguayan state to companies interested in offshore exploration that there are environmentally fragile riches [in the seas] that the country is willing to protect from future operations,” Amarilla said.

Alicia Torres, an environmental advisor to the National Energy Directorate of the Ministry of Industry, Energy and Mining, told China Dialogue Ocean that the situation need not be a case of either/or. She said oil exploration and the creation of new MPAs “can coexist”, and claimed that the government’s offshore intentions “do not contradict” its policies to promote green energy.

Oil exploration “provides information on the resources we have, even if they do not end up being used,” she said. “These are studies that involve huge investments and that would be paid for by the companies.”

The advisor was keen to highlight that although Uruguay generates the vast majority of its electricity from renewables, the world is on the whole still consuming oil: “If there is still a long way to go [in the transition from fossil fuels] and the country has a resource it can use, would it give up using it when it could generate greater benefits for its society?”

Offshore oil plans

Uruguay’s offshore oil concessions have been awarded to a range of international firms: Block 6 is in the hands of US-based APA Corporation; British-Dutch giant Shell was awarded blocks 2 and 7; London-listed Challenger Energy Group will focus on Block 1; Block 4 was awarded to a consortium of Shell Group companies, APA and BG International Limited; and Block 5 went to Argentina’s state energy company YPF.

Speaking to China Dialogue Ocean, ANCAP’s general manager, Ignacio Horvath, claimed that there is “no dichotomy between renewable energies and those of fossil origin”, but rather it is a process of energy transition between them. He reported that currently 42% of the energy consumed in Uruguay comes from hydrocarbons, which are used mainly in transport; at the global level, about 80% of energy is supplied by fossil fuels. Although the goal is to reduce the use of carbon-intensive sources, Horvarth said “it is not possible to stop using them in an instant.”

Horvath explained that the Uruguayan government is proposing to start producing this resource instead of importing it. “Crude oil has to come from somewhere,” he said, so it is better to ensure that it is produced in, he claimed, a “sustainable, responsible and controlled” way, while seeking to reduce emissions.

“This does not go against the efforts that Uruguay is making in terms of renewables, nor does it go against environmental agreements,” Horvath claimed, but he acknowledged that it is still necessary to adapt to demand.

The International Energy Agency (EIA) has said exploitation and development of new oil and gas fields must stop now if the world is to stay within safe limits of climate change and meet the targets of the Paris Agreement.

Horvath said that MPAs in Uruguayan waters “can coexist without problems” with seismic exploration for oil and gas. Some evidence suggests that the seismic method, which uses sound waves, can be harmful to species such as whales and dolphins. For the ANCAP manager, “it is natural” that certain parts of Uruguay’s sea should be protected. The important thing is that there is clear regulation on how such areas are to be treated, he added.

Southern right whales in the Valdes Peninsula, Argentina. Sound waves from seismic exploration may be harmful to cetaceans like these. (Image: Alamy)

“Exploration can be done in a responsible way, in compliance with all the regulations and with all the environmental precautions, which is what has been done in previous explorations,” Horvath said. “If all precautions are taken, there is no need to interfere with marine fauna.”

Proposed MPAs

According to the Ministry of Environment’s report, the eight potential MPAs have been proposed because they include “unique species that make them a priority for conservation.” The areas are also said to be associated with oceanographic and ecological processes “of great ecosystemic relevance”.

The first proposed site is Banco Inglés, a shallow sandy formation 40 kilometres south-east of the capital Montevideo. It constitutes a habitat for molluscs, and food and shelter for deep-dwelling fish, the report states.

The second is Isla de Lobos, an island eight kilometres south of the resort city of Punta del Este, and its surrounding waters. Covering some 44 hectares, this area is home to one of the largest permanent colonies of sea lions and fur seals on the continent. In addition, it contains mussel beds that provide habitat for invertebrates and fish, and is an “important part of the migration route of the southern right whale,” the report adds. The area has already been proposed as an MPA by civil society organisations, and the SNAP’s National Advisory Commission started discussing it in December 2021.

Colony of sea lions and fur seals at Isla de Lobos, home to one of the largest permanent colonies of these species on the continent (Image: Jimmy Baikovicius / Flickr, CC BY SA)

The third proposed site is the “Restinga del pez limón”, an area of seabed formations located at depths of 20 to 40 metres at the mouth of the Río de la Plata, where fish species of “ecosystemic and commercial importance” seek refuge and food.

The fourth site is El Pozo de Fango, which is located on the coastal shelf near Punta del Este and is particularly important for sharks and rays.

The fifth is described only as “Mollusc beds of special interest”, where shoals of mussels, oysters, octopus, snails, squid and hermit crabs can be found. It is also a site of special relevance for sharks including the angel shark, bull shark, catshark and copper shark, the report says.

The sixth is described as a “nursery area”, considered a “habitat of ecological relevance” for hake and other species, given the pressures on their numbers from fishing.

The seventh is the “continental slope and its deep-sea corals”, another area that has been studied for conservation since 2021. It extends from 200 to 1,000 metres below sea level and includes seven submarine canyons that have not yet been explored. In turn, they contribute to the formation of coral mounds, which serve as refuges and nursery grounds for many species. Lobsters, orcas, swordfish and blue sharks have been identified in their vicinity.

The importance of these areas has garnered international attention. National Geographic, through its Pristine Seas programme, has carried out two expeditions in Uruguayan waters to document biodiversity there. The first, in March 2021, carried out along with Uruguayan researchers, the national navy, civil society representatives and government authorities, focused on the area of the continental slope; the second, took place at the end of the same year around Isla de Lobos.

Alex Muñoz, Pristine Seas director for Latin America, told China Dialogue that “both places proved to be of enormous ecological relevance at a global level.” After the expeditions, the team submitted two reports to government authorities to promote the prioritisation of these areas.

In recent years, Muñoz said, “the whole world has realised that the sea is in crisis”, and that the creation of MPAs is necessary “to restore the ocean to its former productivity”, given the effects of overexploitation. There is increased awareness of the need to protect biodiversity in the face of accelerated species extinction, and to mitigate the effects of climate change on the ocean.

“Uruguay has been one of the countries that has made the least progress in the world in the creation of MPAs,” Muñoz said.

He welcomed the Uruguay Azul 2030 (Blue Uruguay 2030) plan released in 2022 by the national government, which outlines a marine spatial planning process for the coming decades.

However, Muñoz said it is essential that any MPAs created have significant restrictions “so that they are not just lines in the water”. These sites, he added, should be protected so that species can reproduce and thus become more abundant. “There is no need to be afraid of MPAs. These areas are seedbeds where species can recover and thus give more vigour to the fishing sector outside their boundaries.”

On ANCAP’s offshore oil plans, Muñoz commented that the world needs to move away from fossil fuels as soon as possible: “It is hard to understand why Uruguay is still betting on offshore hydrocarbon exploration when the entire international community is trying to find alternative sources of energy to move the economy.”

Several of the proposed MPAs are located in areas where ANCAP has authorised offshore oil exploration. Muñoz explained that the offshore exploration and exploitation of hydrocarbons often has very serious environmental consequences, due to accidents and poor risk management.

Andrés Milessi, a marine biologist and coordinator of the Un Solo Mar (One Sea) project, which promotes MPAs in Uruguay, echoed Muñoz’s points. While he welcomed the Uruguay Azul roadmap, he said that some of the areas suggested – such as El Pozo de Fango, Restinga del pez limón and mollusc beds – “fell short” in terms of their size, and that more research is needed. “There is a lack of long-term studies, of sampling maintained over time,” he said.

Expectations for the future

Although Uruguay has backed the goal of 30% of the global ocean being protected by 2030, the environment ministry’s Amarilla claimed that “the country has not formally committed itself” and is not obliged to reach that percentage in its seas.

Mariana Ríos, head of the Marine Coastal Management Department of the Ministry of the Environment, told China Dialogue Ocean that conservation in Uruguayan waters is to be done via marine spatial planning. This allows for the identification of the most fragile sites in ecosystemic terms, the composition of their biodiversity, the services they provide and the oceanographic characteristics they possess, as well as their link with socio-economic activities.

The aim, Ríos added, is to evaluate all of Uruguay’s marine as a basis for designing a network of MPAs, but also for the evaluation of new projects in the marine space, including for example hydrocarbon exploration activities. In this way, the impacts of projects could be mitigated and biodiversity could be managed sustainably, she said.

Lucía Cuberos is a journalist based in Uruguay. She writes for Búsqueda magazine

This article appears courtesy of China Dialogue Ocean and may be found in its original form here.

Top image: Isla de los Lobos, one of eight proposed marine protected areas off Uruguay (Jimmy Baikovicius / CC BY SA 2.0)

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.