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LONDON (Reuters) - A British vote to leave the European Union next week would make UK energy infrastructure investment costlier and delay new projects at a time when the country needs to plug a looming electricity supply gap.

Energy has been far from central to debates about whether to leave the EU - a move dubbed "Brexit" - but the sector would still be impacted by a decision in the June 23 referendum to quit the 28-nation bloc.

After a Brexit vote, all EU laws apply in Britain until two years after London starts the process to leave. Then none would apply but Britain could try to stay part of some frameworks through negotiations, a process that could take years.

Uncertainty about the type of relationship Britain would have with the EU after Brexit would make energy investors demand higher returns for the risk of less favourable conditions.

Oil and gas majors BP and Shell are among several energy companies that say leaving the EU would affect them and the sector negatively.

"I can't see any upside for the energy sector of the UK coming out of the EU. The risk premium going up will increase the cost of capital," Ian Simm, chief executive of UK-based Impax Asset Management, said.

"We have mostly run our power assets down over the past 25 years. Therefore, we do need investors to be confident enough to put their hands in their pockets and commit to the next wave of power plants," he added.

UK-based consultancy Vivid Economics has estimated the cost of exclusion from the internal energy market, excluding impacts on investment, could be up to 500 million pounds ($708 million) a year by the early 2020s.

"The scale of planned infrastructure investment in the electricity sector over the next decade means that even small increases in the cost of financing could have large consequences for total investment costs," it said in a report.

"Further upwards pressure on costs would result from the likely devaluation of the pound, given the role imported goods and services play in UK energy supply."

According to a Reuters poll this month, the British pound would sink 9 percent against the dollar after Brexit. [GBP/POLL]

UK UNPLUGS

Britain faces serious energy supply difficulties over the next few years as coal plants have to close by 2025, the nuclear fleet is aging and weak economic conditions curb investment in new gas-fired power plants.

Renewable energy is growing, but more interconnections and energy storage are needed. The British government has estimated that the required energy infrastructure will cost 275 billion pounds by 2020-2021.

French utility EDF's plan to build two huge nuclear reactors at Hinkley Point in Britain would help plug the supply gap. The company's chief executive said earlier this year that Brexit would not change its plans, but it has not yet made a final investment decision.   

"The 3.2-gigawatt Hinkley nuclear project looks to be a financing headache in any scenario, given the parlous state of EDF's share price and balance sheet," Michael Liebreich, chairman of the advisory board of Bloomberg New Energy Finance, said in a blog post.

Investment in inter connectors is also important for Britain. UK wholesale power prices are higher than the EU average, partly because interconnections with other countries are able only to supply around 6 percent of peak electricity demand.

However, efforts to link the UK's electricity grid with other European power networks could be set back due to Brexit, with some projects likely to be put on hold because Britain would no longer automatically have a say in the formulation of EU energy regulations, Norton Rose Fulbright lawyers said.

Investment in renewables could be hampered. Changes by the government over the past couple of years to renewable-energy subsidies have already dented investment in clean energy.

"There is investor uncertainty already but the only thing that gives it any kind of framing is through the UK's obligations to the EU. If I was a cleantech investor I would be concerned," said Anthony Hobley, chief executive of think-tank Carbon Tracker Initiative.

Britain could also lose access to funding for renewables, particularly offshore wind, from EU institutions such as the European Investment Bank, said Charlie Thomas, manager of Jupiter Asset Management's Ecology Fund. Such assistance last year totalled around 7 billion euros.

"But at the same time, our view is that there is significant appetite from private-sector institutional investors to step in to any funding gap," he added.  

($1 = 0.7060 pounds)

By Nina Chestney

(Editing by Dale Hudson)

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BP & The Expansion of the Caspian

The vast Shah Deniz field in Azerbaijan’s portion of the South Caspian Sea marked several milestones in 2018. It has now produced a cumulative total of 100 billion cubic metres of natural gas since the field started up in 2006, with daily output reaching a new peak, growing by 12.5% y-o-y. At a cost of US$28 billion, Shah Deniz – with its estimated 1.2 trillion cubic metres of gas resources – has proven to be an unparalleled success, being a founding link of Europe’s Southern Gas Corridor and coming in relatively on budget and on time. And now BP, along with its partners, is hoping to replicate that success with an ambitious exploration schedule over the next two years.

Four new exploration wells in three blocks, along with a seismic survey of a fourth, are planned for 2019 and an additional three wells in 2020. The aggressive programme is aimed at confirming a long-held belief by BP and SOCAR there are more significant pockets of gas swirling around the area. The first exploratory well is targeting the Shafag-Asiman block, where initial seismic surveys suggest natural gas reserves of some 500 billion cubic metres; if confirmed, that would make it the second-largest gas field ever discovered in the Caspian, behind only Shah Deniz. BP also suspects that Shah Deniz itself could be bigger than expected – the company has long predicted the existence of a second, deeper reservoir below the existing field, and a ‘further assessment’ is planned for 2020 to get to the bottom of the case, so to speak.

Two wells are planned to be drilled in the Shallow Water Absheron Peninsula (SWAP) block, some 30km southeast of Baku, where BP operates in equal partnership with SOCAR, with an additional well planned for 2020. The goal at SWAP is light crude oil, as is a seismic survey in the deepwater Caspian Sea Block D230 where a ‘significant amount’ of oil is expected. Exploration in the onshore Gobustan block, an inland field 50km north of Baku, rounds up BP’s upstream programme and the company expects that at least one seven wells of these will yield a bonanza that will take Azerbaijan’s reserves well into the middle of the century.

Developments in the Caspian are key, as it is the starting node of the Southern Gas Corridor – meant to deliver gas to Europe. Shah Deniz gas currently makes its way to Turkey via the South Caucasus Gas pipeline and exports onwards to Europe should begin when the US$8.5 billion, 32 bcm/y Trans-Anatolian Pipeline (TANAP) starts service in 2020. Planned output from Azerbaijan currently only fills half of the TANAP capacity, meaning there is room for plenty more gas, if BP can find it. From Turkey, Azeri gas will link up to the Trans-Adriatic Pipeline in Greece and connect into Turkey, potentially joined by other pipelines projects that are planned to link up with gas production in Israel. This alternate source of natural gas for Europe is crucial, particularly since political will to push through the Nordstream-2 pipeline connecting Russian gas to Germany is slackening. The demand is there and so is the infrastructure. And now BP will be spending the next two years trying to prove that the supply exists underneath Azerbaijan.

BP’s upcoming planned exploration in the Caspian:

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  • Block D230, 2019 (seismic assessment)/2020 (drilling), targeting oil
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RAPID Rises

When it was first announced in 2012, there was scepticism about whether or not Petronas’ RAPID refinery in Johor was destined for reality or cancellation. It came at a time when the refining industry saw multiple ambitious, sometimes unpractical, projects announced. At that point, Petronas – though one of the most respected state oil firms – was still seen as more of an upstream player internationally. Its downstream forays were largely confined to its home base Malaysia and specialty chemicals, as well as a surprising venture into South African through Engen. Its refineries, too, were relatively small. So the announcement that Petronas was planning essentially, its own Jamnagar, promoted some pessimism. Could it succeed?

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RAPID Refinery Factsheet:

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  • Capacity: 300 kb/d CDU/3 mtpa olefins plant
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Forecasting Bangladesh Tyre Market | Zulker Naeen

Tyre market in Bangladesh is forecasted to grow at over 9% until 2020 on the back of growth in automobile sales, advancements in public infrastructure, and development-seeking government policies.

The government has emphasized on the road infrastructure of the country, which has been instrumental in driving vehicle sales in the country.

The tyre market reached Tk 4,750 crore last year, up from about Tk 4,000 crore in 2017, according to market insiders.

The commercial vehicle tyre segment dominates this industry with around 80% of the market share. At least 1.5 lakh pieces of tyres in the segment were sold in 2018.

In the commercial vehicle tyre segment, the MRF's market share is 30%. Apollo controls 5% of the segment, Birla 10%, CEAT 3%, and Hankook 1%. The rest 51% is controlled by non-branded Chinese tyres.

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It can be said that, the rise in automobile sales, improvement in public infrastructure, and growth in purchasing power to drive the tyre market over the next five years.

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