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Beyond Ratings Weekly Digest

Your briefing on augmented financial risk analysis

N°134 ▪ 22th February 2018



Intense news flow over energy resources in international relations calls for upgrade of risk methodologies

With the current international relations news flow particularly rich, and in view of the growing tensions in several regions of the world, we identify two cases that we think should be compared. On the one hand, the region of the Levant, which, while the Syrian domestic situation seems to be calming, is now the scene of open tensions amongst countries with a seafront on the Mediterranean. The point of contention is clear: the claim of disputed areas in the exclusive economic zones (EEZs) of Cyprus, Turkey, Lebanon and Israel, which are estimated to harbour significant potential hydrocarbon resources following the major gas discoveries in Egyptian and Israeli waters at the end of the 2000s. On the other hand, the West Africa region, with Senegal and Mauritania as the key stakeholders. One of the largest hydrocarbon discoveries in the world in the last five years is located along the border between the two countries’ maritime domains. A very recently signed agreement (February 9, 2018), formalizes the framework for the joint exploitation of these resources.

These two regional cases have obvious common features: countries characterized until recently by the weakness or absence of domestic (fossil) energy resources and a consequent significant dependence on international trade for their energy supply; the sovereign decision to exploit fossil energy resources, regardless of any national or supranational climate policy considerations; an opening to international investments. But it is also clear that two prime factors shape two diametrically opposed situations in terms of context and perspectives. The first factor relates to historical legacies. While the historical relationship between Mauritania and Senegal has not led to any insurmountable litigation, the East of the Mediterranean remains defined by multi-century legacies, singularly exacerbated by the advent of the nation-state in the twentieth century, synonyms of unresolved disputes of different natures, territorial, political, confessional. The second factor relates to the degree of integration, voluntary or coerced, in global strategic issues. From this point of view, the Levant is a paroxysmal case: rivalry for the regional leadership between Saudi Arabia and Iran with the issue of influence over the entire Muslim world, permanence of US and British influences, regional and extra-regional alliance games, concentration of most of the world’s oil resources, issues of geographical continuity of land and maritime trade routes between Europe and Asia. In comparison, Mauritania and Senegal appear preserved and particularly less exposed to the risk of being involved in conflicts contrary to their interests.

The contrast between these two cases appears even more compelling considering the developments over the past few days. Senegal and Mauritania have agreed on an initial 50/50 split of revenues from gas exploitation with a subsequent adjustment mechanism based on technical operating data that will specify the respective shares of each country in total production. In addition, converging positive signs suggest that the authorities of both countries are reviewing their development strategy to integrate the opportunities and risks, but also the temporality, of their new status of hydrocarbon-producing or, possibly, hydrocarbon-exporting countries. Precisely at the same time, in the Mediterranean, Turkey has crossed a threshold in the strategy of intimidation towards the Cypriot authorities and their resource exploration initiatives by sending its navy to block the operations of the ship of one of the main geophysical studies and offshore drilling companies (SAIPEM). A few weeks earlier, at the beginning of January 2018, the tone between Lebanon and Israel deteriorated following Lebanon’s allocation of an exploration license, in a zone of the maritime boundary challenged by both countries, to a consortium consisting of the companies Novatek, TOTAL, and ENI.

From our perspective of innovative analysis of sovereign risks, these facts support us both in substance and in method. On substance: first, international relations are marked by a general rise in tensions over access to energy resources, in complete contradiction with the dominant, naive prediction that hydrocarbon resources will exceed future needs; second, the positive signals from Senegal and Mauritania contradict the simplistic argument of “resource curse” so often linked to fossil resource exploitation. A cooperative, non-predatory framework for the exploitation of these resources can be a powerful lever for innovative economic development strategies. On the method, the analysis of sovereign risks and, particularly, the integration of energy risks, shall not be limited to a series of quantitative indicators and must integrate factors related to national, regional and global historical contexts.

Olivier Rech, Head of Energy-Climate Research



Sovereign Risk

Venezuela is making a daring bet with its new oil-backed cryptocurrency: the petro!

On Tuesday February 20th, the Venezuelan authorities officially started the pre-sale of 38.4 million petros, a new sovereign cryptocurrency based on the country’s oil reserves – the largest in the world. The price of the petro, which represents a barrel of crude from a specific division in the country’s Orinoco oil belt, is set to USD 60. Investors will then have tokens at discounted rates that they can exchange for petros during what is being dubbed an Initial coin offering (ICO) in March. This price, however, will be subject to fluctuations according to the Observatorio Nacional de Blockchain, a public entity under the Ministry of Education, Science and Technology.

On Wednesday February 21st, President Nicolás Maduro announced that the petro cryptocurrency had raised USD 735 million in sales intent, i.e., more than 12 million petros. Venezuela wants to sell 100 million petros. 38.4 million are already on sale for the ICO. In a month, the country intends to sell 44 million petros and keep the rest – 17.6 million – for its own. Venezuela hopes to raise more than USD 5 billion in total thanks to the petro.

All in all, this fundraising attempt looks like a desperate effort to regain confidence from foreign investors. We have many doubts that the currency will thrive, mainly because of the lack of trust in a government whose debt is being renegotiated and whose policies have brought skyrocketing inflation. The official currency of Venezuela, the bolivar, lost almost all of its value against the USD last year and the petro should not affect the price of the official currency. To be continued…

Sources: Beyond Ratings, National



Will springboks be thirsty?


South Africa water context

The South African city of Cape Town is facing its worst drought period and residents are being asked to limit their water consumption. Households are expected not to use more than 50l per day, per person and any single resident consuming more than 10,500l per month will be fined. The spectre of “Day Zero” is effectively used to intimidate the population and the usage reduction has been efficient enough to push back the day running water will no longer be available from June 4th to July 9th.  This situation results from severe drought in the last months and climate change could increase these dry periods to the west and south coasts of South Africa. This suggests improving water infrastructure to limit water loss, increasing storage capacities and raising awareness to fill the gap between future supply and demand.

Sources: Beyond Ratings, WWF ZA


Carbon/Climate Change

Record high temperature in France in January

8.4°C… Not a very high temperature, you may say. And you would be right, however it was also a record in France in January 2018. Not only was it 3.4°C above the 1981-2010 average, but it was also the country’s highest January temperature since the beginning of national records in 1900. France was not the only country to beat its January temperature record this year. It was also the case of New Zealand (since national records began in 1909), and Austria and Austria had its third warmest January based on a 251-year temperature records period (only 2007 and 1796 were warmer). This might seem anecdotal, but as the NOAA Global Climate Reports show, significant climate anomalies and events can be observed every month. Just two other interesting facts in last January: (i) the Arctic sea ice extent was 9.4% below the 1981-2010 average, reaching its smallest level since 1979 (when satellite records began), and (ii) the Antarctic sea ice extent did not beat its record low for January, but it reached its second smallest January extent based on available records, no less than 17.4% below the 1981-2010 average.

Sources: Beyond Ratings, NOAA





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Photo credit via Visualhunt/CC BY-SA or other: Front page ▪ Credit 1: CECAR – Climate and Ecosystems Change Adaptation R; Credit 2: Tony Webster; Credit 3: Kiefer.; Crédit 4: NASA Goddard Photo and Video / Research notes ▪ Credit 1: DnDavis (via; Credit 2: zhu difeng (via Fotolia); Credit 3: Mny-Jhee (via Fotolia); Credit 4: xmentoys (via Fotolia)


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