Week 33 Overview
After Hillary Clinton’s comments about American mistakes in Iraq, it sounds logical that other countries are going to use her statement to position for increased influence the Middle East.
Amongst them, Turkey is clearly leading the way. With Tayyip Erdogan becoming President in less than two weeks, the 17th country in the world by GDP is stepping up diplomatic efforts to consolidate political and economic ties with Iraq. If Turkey will succeed in stabilising the Western Asian country, Erdogan will be able to praise achievements that stronger countries did not manage to achieve, either through the use of military force or by diplomatic means.
Given this aim, it comes as no surprise that the Turkish government started conveying a clear position on Iraq.
In the last week, the country released some clear statements: they openly criticised Iraqi Prime Minister Nouri al-Maliki’s declaration about the decision of President Fuad Masym not to give him the task of forming a new government. Turkey wants stability in Iraq.
‘In this extremely sensitive period Iraq is going through, it is of vital importance that all Iraqi leaders, particularly Prime Minister al-Maliki, adopt an approach that will clear the way for the country and that they avoid a fait accompli which will further deepen the chaotic environment in Iraq. In fact, we believe that first and foremost all of our Iraqi brothers will oppose the efforts in this direction,’ the Ministry of Foreign Affairs wrote on Monday.
The support to President Masym comes also with the clear intention of accelerating ties with the country.
‘Turkey will stand by the Iraqi people and democratic forces in this process as it has done in the past and will support the advancement of the political process without any disruption. Following the establishment of the Iraqi government, we hope to raise our bilateral relations to an exemplary level for our region throughy strengthening them befittingly for the historical friendship, brotherhood and kinship ties between our peoples,’ the Government wrote in a separate statement.
What does that mean for the gas industry? It means a lot, as Turkey is well intentioned to become a first-class energy hub. If Ankara manages to intensify cooperation with Iraq and it also manage to become a transit country for Iranian hydrocarbons, the mission is a done deal.
Ankara can capitalise on widespread criticism for others past diplomatic actions in Iraq that lead many oil and gas companies to leave the country.
For instance, Petroceltic and its partner Hess Middle East New Ventures decided to mothball operations in the Kurdistan Region of Iraq.
‘It has been decided, as a precautionary measure, to temporarily secure and suspend operations (including the drilling of Shireen-1 exploration well in the Dinarta licence) and to evacuate non-essential personnel,’ the company wrote on Monday.
UKRAINE - RUSSIA
Tension's remain at Ukraine's border with Russia.
‘Terrorists and Russian mercenaries continue making attempts to violate the territory of Ukraine and shoot the places of deployment of the border units,’ the Ukrainian government wrote on Monday.
Kiev published a detailed list of updates, referring to eight cases of military frictions.
Two days after, Ukraine’s Naftogaz said that European companies could end up bearing the brunt of the gas pricing row with Moscow.
"The company notes that the current situation can not be considered as stable. This situation can lead to a repetition of the gas crisis of 2009, when Gazprom stopped gas transit to Europe," Naftogaz wrote on its website.
There has been wide speculation about the impact of Ukraine's instability of the development of its hydrocarbon wealth.
Aleksey Pushkov, head of the Russian State Duma’s international affairs committee, stated that control of Ukraine’s east important for Kiev because of the shale gas deposits.
“Kiev is fighting in Ukraine’s east for the gas reserves, " he tweeted, pointing to the Yuzivska shale gas field at the border between the Kharkov and Donetsk regions, where resources are estimated at over four trillion cubic metres.
However, on Wednesday, good news for the domestic sector came from Serinus Energy, which reported a 56% production increase in the second quarter of the year compared to the same period of 2013.
The company, which maintains a focus on gas in Ukraine, started producing oil in the last months.
In this case, production does not seem much of a problem. However, tensions in Ukraine had consequences on its financial performance, proving that geopolitical risks impact on oil and gas companies in a string of ways.
‘Serinus recorded comprehensive net earnings of $6.7 million in the second quarter of 2014. Comprehensive earnings were impacted by a $2.0 million charge taken for unrealized foreign currency translation. This relates to the translation of the Ukrainian subsidiaries’ financial statements from UAH to USD, and the loss reflects the deterioration of the UAH.’
The deterioration came in a moment in which escalation seemed very possible. A few hours later, Kiev did indeed pass a bill on sanctions.
“In case of a threat to the national security of the Ukrainian state, the Ukrainian President through the National Security and Defense Council shall have the right to impose a range of sanctions such as those imposed by our Western partners, the EU, USA and G7,” Yatsenyuk said on Thursday.
The bill gives the Ukrainian President the power to approve sanctions against foreign states, business and non-resident individuals that are “under the control of these people.” The parliament also adopted a law to change the modus operandi of Ukrainian GTS.
IS POLAND STILL THE RISING STAR?
Despite the expectations, FX Energy’s gas production in Poland decreased over the last 12 months.
‘Total net oil and gas production of 2,332 Mmcfe during the first six months of 2014 was essentially unchanged compared to 2,372 Mmcfe during the same period last year. Natural gas production in Poland was 2,188 Mmcf during the first six months of 2014, compared to 2,228 Mmcf during the first half of 2013. But for the unexpected production curtailment at Kromolice-1, the Company would have posted record production during the first half of 2014,’ reads a note released on Monday.
The production patterns were not the game changer the company expected to completely reverse its financial results.
While FX Energy had problems in the upstream, PGNiG reported some problems in the downstream.
‘The key factors which impacted the Trade and Storage segment's performance in H1 2014 were a 0.6 bcm year-on-year decline in the volume of gas sales, and concurrent growth in off-tariff sales of gas on the Polish Power Exchange. The segment's revenue fell 4%, to PLN 13.3bn,’ the company wrote on Thursday.
As a consequence of the warm winter, slower gas sales impacted on the revenues for the first six months of the year.
ANY WAY OUT?
In this bleak scenario, European licences can become more competitive. Despite Norway’s production remained below the expectations also in July for the third consecutive month, Norwegian and Scottish licences might see their value increase.
It is not a mere coincidence that Aker Solutions is moving forward with its plan to expand in Scotland. The announcement to lease a new office complex in Aberdeen for 20 years came 36 days before the Scottish independence referendum.
"This move is a long-term investment for us and underlines our commitment to Aberdeen and our customers in the area," David Currie, Aker Solutions' regional head in the UK, commented in a note released on Tuesday.
The Norway-based oil services company did not disclose the total amount of its investment, but it simply said that total annual rent will amount to GBP 7.74 million over 20 years.
Also on Tuesday, Lundin Petroleum announced it entered into agreements to acquire a 35% interest in PL674 from Petrolia Norway and E.ON.
‘Lundin Norway will acquire a 15% interest in PL674 from Petrolia Norway AS and a 20% interest of a carve out area of PL674 from E.ON. The effective date for both transactions is 1 January 2014,’ reads a note released on Tuesday.
In the current geopolitical turmoil spanning from Nigeria to Iraq, European reserves seem relatively more viable. As a consequence, new portfolio adjustments could easily take place in the coming weeks.
A renewed interest for European licences is more than possible.
In this context, the focus remains on the United Kingdom, whose political class agrees on the need to support indigenous production. But, as said this week by BBC and anticipated by Natural Gas Europe, the political push for shale gas explorations could backfire. The 14th licensing round could come with some political problems for the country.
Inevitably, this would further increase risks for the European gas industry and for the population. Alternatives, including measures to increase energy efficiency and decrease energy demand, are needed soon. In the UK and in the rest of Europe.
Sergio Matalucci