Week 14 Overview
Apart from the standoff in Ukraine and despite UN Intergovernmental Panel on Climate Change’s warnings of rising risks, the 14th week of the year has been smooth enough to dispel many doubts about the centrality of gas in the European energy mix. Coherently, Russia is moving even closer to Brussels, hinting at a clear role for Europe. Rather than a wrestler, the Old Continent is more likely to be the referee of the competition between Russia and the United States.
In this context, the renewed diplomatic ties between Moscow and Brussels come as no surprise. As recent notes clearly suggest, the Kremlin is intentioned to expand its bilateral cooperation with France and Germany. And other countries are similarly trying to take advantage of the situation.
EU – RUSSIA
As usual, the UK is the first country trying to capitalize on European changes. On Monday, BP announced the appointment of David Campbell as President of BP Russia, indicating the company’s interest to reap the benefit of the current situation.
“He has significant experience of working in Russia and will play a central role in shaping BP’s future and activities in one of the world’s most important oil and gas regions,” Bob Dudley, BP Group Chief Executive, commented in a note released on Monday.
On Wednesday, Russia’s interests equally came to the surface. Gazprom openly stated it would try to maintain its business ties with Europe.
‘The parties confirmed their interest in maintaining the mutually beneficial relationship built over the decades of successful collaboration,’ reads a note released by the top global gas producer on Wednesday.
A few hours later, South Stream Transport clinched a new deal with Germany’s Siemens on electrical systems for the offshore section of the South Stream project, confirming Gazprom’s ability to play a crucial role in the diplomatic game, as more joint business activities immediately decrease the possibility of serious confrontations between Russia and Europe.
‘The document stipulates that Siemens will supply telecommunication equipment and automatic process control systems for the Russian and Bulgarian landfalls along with the equipment for the Central and Backup Control Rooms of South Stream Transport,’ reads the document.
RUSSIA
But the diplomatic moves did not slow down the on-going internal reorganization, which abundantly continued over the 14th week.
On Tuesday, Gazprom Neft increased its stake in the SeverEnergia joint venture, buying 9.8% equity from Novatek for USD 980 million cash payment. After the transaction, Novatek and Gazprom Neft will each hold 50% equity stake.
Gazprom is not the only company opening the wallet. Rosneft did buy shares in a service company and invested in a group controlled by Igor Makarov.
On Monday, seven months after gaining full control of the independent gas producers, the company had reportedly added 4.19bn rubles to Itera’s statutory capital. Almost simultaneously, it also completed acquisition of 100% share in Orenburg Drilling Company from universal bank VTB-Leasing Group.
But that is just one part of the story. Russian authorities’ role is far more extensive than coordinating companies’ strategic decisions. Moscow is actively seeking to maintain a centrality in Europe and in the world also through other means. For instance, the Kremlin is relentlessly playing its cards to extend country’s continental shelf, with an eye wide open on opportunities in the Arctic.
‘Vladimir Putin held a working meeting with Natural Resources and Environment Minister Sergei Donskoy to discuss the inclusion of an enclave in the Sea of Okhotsk in Russia’s continental shelf and application to the UN Commission on the Limits of the Continental Shelf (CLCS) to extend Russia’s continental shelf in the Arctic,’ reads a note released by the Kremlin on Friday.
According to Donskoy, the UN Commission on the Limits of the Continental Shelf approved Russian application concerning the enclave of international water in the Sea of Okhotsk, putting an end to the 13-year legal arm-wrestling with Japan.
Russia is also working on a second application concerning its territory in the Arctic, which is considered “bigger and more important.” Moscow should translate its plans into action by the summer of 2015. The Minister expects to file the Arctic application in spring 2015.
EUROPE
Despite the relative calm week, Brussels perfectly knows that there are no available short-term measures. Logically, it is mainly hoping for long-term investment decisions to diminish its reliance on Russian gas. Poland, Italy and Croatia are the countries that registered significant steps in this direction.
On Monday, Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) and Chevron Polska Energy Resources signed a collaboration agreement for shale gas exploration in south-eastern Poland, surfing the wave of a revived optimism about unconventional gas in the country.
‘Under the agreement, the companies will collaborate in appraising shale gas deposits in four exploration licence areas in south-eastern Poland - two owned by PGNiG (Tomaszów Lubelski and Wiszniów-Tarnoszyn) and two belonging to Chevron (Zwierzyniec and Grabowiec),’ reads a note released on Monday.
At the same time, Italy is trying to secure long-term gas supplies.
On Monday, Eni signed a final agreement with Norway’s Statoil on revision of terms in long-term gas supply contracts, concluding the arbitration proceedings.
‘The agreement with Statoil, which is particularly important considering recent international political developments, is part of Eni’s effort to renegotiate all third-party long-term gas supply contracts, with the target of achieving a competitive portfolio by 1 January 2016,’ reads the note released late on Monday.
Rome is also trying to diversify its supplies. Enel is close to clinching a 20-year supply deal with US liquefied natural gas (LNG) producer Cheniere Energy. According to Enel CFO Luigi Ferraris, the deal could be extended for a further 10-year term.
On the other side of the Adriatic Sea, Croatia launched an international tender for offshore exploration blocks. The tender announced on Wednesday includes 8 block areas in the north, 21 in central and southern Adriatic.
"We have been underexplored for the last 20 years, particularly offshore," Economy Minister Ivan Vrdoljak said during a conference with several international oil and gas companies, stating his intention to go all the way to offshore exploration and production.
It seems logical that Brussels has now the big incentive to tap indigenous resources, especially in underdeveloped areas. Spain, Italy, Balkan countries could be the next protagonists. But France could easily outshine them. The recent cabinet reshuffle indicates that Paris could open the doors to gas and fracking. The lack of any ministers from the Green party could be a first signal towards a more business friendly approach to energy issues.
Sergio Matalucci