Week 19 Overview
While Gazprom was announcing it started building the offshore section of the Turkish Stream, and the United States urged Greece to refrain from supporting the Russian project, the apparently neverending geopolitical drama continued in the 19th week. Two trends emerge.
Firstly, we are moving toward more liquid and flexible gas markets. For instance, trading platform PEGAS announced a 81% increase in trading operations in April over the same period of 2014, and LNG companies showed their great potentials tapping into niche markets.
Secondly, European diplomacy shows a degree of incoherence. After coming under growing pressure from German cooperation with US’ NSA and while a Berlin delegation was dealing with Iranians, Chancellor Angela Merkel met Russia’s Vladimir Putin. “We have learned lessons from our painful experience. We have learned that we must work together, cooperate, including in difficult situations, situations like the one we face now, and seek peaceful, diplomatic solutions together” Merkel said in Moscow on Sunday, while Berlin-led Brussels continued in its anti-Russian rhetorics.
The never-ending gas saga remains so arousing and dramatic also for these double-double bluffs, and U-turns. Adding to this moving developments, the United Kingdom forgot for once its “keep calm, and carry on” motto, with emotional tears and joyful jubilations for the results of the general elections, which unexpectedly gave an outright majority to David Cameron’s Conservatives.
Against this backdrop, it comes as no surprise that Russia is seeing in China the only real shoulder to push forward its plan to remain a key player in the world (note the attendance of China's President Xi Jinping at the ceremony marking the 70th anniversary of the victory in Europe). On Friday, this intention translated into a deal signed by Gazprom and PetroChina for the western route of the Russian system to export gas to China.
RUSSIAN SAGA MORE EXCITING THAN GAME OF THRONES
Ukraine will continue playing a key role for Europe’s energy security, Maroš Šefčovič, Vice-President of the European Commission (EC) in charge of Energy Union, said on Tuesday. He is basically explaining that Brussels does not want to drift away from Moscow, while strengthening its ties with Kiev.
During a meeting between Gazprom’s Alexey Miller and Turkish Minister of Energy Taner Yildiz, the parties sent a resounding message to gas markets: the Turkish Stream will be brought on stream in 19 months. In this sense, despite the recent tensions between the two countries, the Turkish and Russian delegations showed an unexpected pragmatic approach to their interests. The remarks also seem like a knee-jerk reaction to Šefčovič’s declaration.
Also countering Šefčovič’s claim, Russia said it will not extend its gas transit deal with Ukraine after the current contract expires in 2019, forcing European companies to get their Russian gas at the Turkish-Greece border. But there are some caveats to be made, as the decision could backlash on Russian ties with European companies. For instance, contracts between Italian Eni and Gazprom assume deliveries of Russian gas to the northern border of Italy until 2035. This is a clear source of risk for European companies.
Speaking about the Turkish Stream, Chairman of Petform Gas Group Arif Akturk said it is technically possible to finish construction within the agreed timeframe, as the bulk of the construction through the Black Sea can be finished within six months. However, the project's construction cannot begin prior to an agreement between the governments, and Turkey is called to officially define its terms before any real developments.
Athens, Brussels, and Ankara are playing at the same table. The Russian roulette started. All in all, though, the EU political and law enforcement institutions are on track to decrease Russian lobbying capacity in Southern Europe in order to establish solid cooperation framework among the member states. Still, this does not mean that there are any certainties on the Russian front.
LetterOne is reportedly ready to launch the sale of 12 oil and gas assets in the North Sea, ending the arm-wrestling with the British government, which wrote in February that additional sanctions could have had negative consequences on the company’s operations in the North Sea. The results of the British elections sounded the death knell for these LetterOne’s assets.
UK CONFIRMS CAMERON, PAVES WAY FOR SHALE GAS DEVELOPMENTS
In the aftermath of the shocking results of the British general elections that gave an outright majority to the Conservatives, shale gas’ prospects in the UK improved significantly. Unless there is extreme strong local opposition, the Conservatives will gladden shale enthusiasts and wind local communities up. However, it is clear that timing and the political strategy will much depend on the next hours.
Indeed, the Conservatives’ manifesto promised to "continue to support the safe development of shale gas”. In the Infrastructure Act passed earlier this year, the previous government was forcing the future Cabinet to dig deeper in the shale gas potentials, assessing how its development would fit with UK carbon targets. A renewed interest in CCS technologies cannot be ruled out either.
Meanwhile while British people were casting their votes, IGas completed the farm-out and purchase agreement with INEOS. As a result of the deal, the multinational chemicals company headquartered in Switzerland is now the third largest shale gas company in the United Kingdom, giving more financial backing to fracking in the UK and elsewhere (Germany).
SHALE GAS ELSEWHERE
The Danish government has imposed a halt to shale gas exploration in north Jutland, less than two days after Total started its campaign on Monday. According to local media, the French company used a chemical which was not authorised in the environmental guidelines defined by the municipality where the operations were taking place.
Shale gas could record another success in France. Former French Prime Minister under Jacques Chirac (1995-2007) Alain Juppé, who is also Nicolas Sarkozy's political foe and soon to be the UMP right wing candidate for the next presidential election, recently said that he is in favour of exploring potential shale gas resources.
MENA REGION, MEDITERRANEAN
Europe sees in stronger energy ties with the MENA countries a good opportunity to kill two birds with one stone - increase its energy security, and support power transition in the region. Coherently, European Commissioner for Climate Action and Energy, Miguel Arias Cañete met with officials from Morocco and Algeria,
Despite the limbo in which SOCAR found itself over the acquisition of 66% share in Greece’s DESFA for €400 million, the Greek company is getting ahead with an overall investment plan that will boost, in the mid and long-term, the usage of gas in the country. It is working on the upgrade of the Revythousa LNG terminal close to Athens, on ways to fund the Kavala underground storage facility, and new plans for pipeline route from the border with Turkey to the Ionian Sea.
DEPA’s proposal for a East Med pipeline connecting Cyprus to Greece via the island of Crete has recently been included in the list of Projects of Common Interest by EU authorities. Commentators said that the pipe’s projected annual flow rate could match the Russian gas volumes currently exported to the four largest Balkan markets combined (Romania, Greece, Bulgaria and Serbia), changing the competition pattern in the area and encouraging higher regional integration.
There are still good reasons to believe that there will not be an easy way out of the current muted tensions in the Mediterranean. The Turkish Foreign Minister Mevlut Cavusoglu declared the stronger energy and military ties between Cyprus, Greece and Egypt “invalid”. This indicates that a solution in the Mid East is still far down the road.
On the other side of the Mediterranean, Egypt is continuing its efforts to increase energy security, launching a tender to lease a second LNG import terminal and negotiating with regional players to buy more gas. The second LNG import terminal would follow the first import terminal, which arrived in Egypt from Norway’s Hoegh in April.
SOUTHERN CORRIDOR, AND SOUTH EAST EUROPE
The declaration of European Commission Vice President Maroš Sefčovič on Turkmen gas possibly reaching Europe by 2019 turned the spotlight on the country in Central Asia, triggering a frenzy of diplomatic activities and increased political interest. On Monday, while an Iranian MP said that a pipeline through Iran would be the best way to transport Turkmen gas to Europe, President of Turkmenistan Gurbanguly Berdimuhamedov met with Italy’s Prime Minister Matteo Renzi. The two heads of state discussed trade and economic ties.
Azerbaijan is promising to supply Europe with even more gas than already contracted - 10 billion cubic meters a year (bcma) from the Shah Deniz 2 field in Caspian Sea. The Caspian nation plans to increase natural gas output to 50-60 bcm per year. After hitting this target Azerbaijan will become one of the major gas exporters to the EU, said Energy Minister Natik Aliyev, speaking at the 3rd Global Shared Societies Forum in Baku.
Iran has its sights set on resuming economic ties, especially in the energy sector, with its number one European partner (Germany) after an increase in good imports. Germany has increased good exports to Iran by 30 percent in 2014 to $2.4 billion due to easing sanctions since Novermber 2013, when Iran and P5+1 (US, UK, France, Russia, China+German) reached an interim nucelar deal.
Iran and Turkmenistan backed the TAP project, and they apparently would like to move on. Still, problems persist. Iranian ambassador to Turkmenistan, Mohammad Musa Hashemi Golpayegani, told Natural Gas Europe that “Iran and Turkmenistan have not yet discussed in what direction the transit of gas will be carried.”
Turkey is planning to hold talks with new partner companies regarding Trans-Anatolian Pipeline (TANAP) project, which will enable Caspian gas to be shipped via Turkey's western borders. Turkish Energy Minister Taner Yildiz said that the country will talk with one or two international companies in order to make a partnership agreement for the TANAP project.
The revival of the Nabucco West is doomed to fail unless the Trans-Caspian Pipeline is realised. There is no sufficient amount of available gas for the pipeline, which primarily intended to transport Caspian gas. However, the project which was supposed to be dead long ago may become effective in a short period of time, if it is filled by Russian gas, built by other (than Russian) sponsor and accepted by Brussels.
Over the last days, several companies renewed their interests for investments in Romania and Bulgaria in both downstream and upstream segments. ExxonMobil, Statoil, and US-headquartered Andarko voiced their interest for deepwater oil and gas exploration in Bulgaria, reportedly preparing to submit their offer for Bulgaria’s Teres and Silistra perimeters.
After South Stream, Bulgaria seeks sucess also with interconnectors. According to Bulgarian Ministry of Energy official Veneta Tzvetkova, a pipeline to Romania should be finished by the end of this year, the interconnector to Greece should commence in March 2016, while some more difficulties hang over the gas infrastructures to Serbia.
LNG MOVES ON
Capitalising on these uncertainties, LNG is getting a firmer footing in Europe and elsewhere. BG confirmed it is content with Shell's $70 billion takeover, and Iran’s Oil Minister Bijan Namdar Zanganeh argued that LNG is an option for Iran’s gas export to the EU.
The LNG enthusiasts are probably also thrilled by some other opportunities emerging in Europe, where gas could be soon transported not only via road, but also via rail. On Thursday, Germany's VTG Aktiengesellschaft and Norway’s Skangass AS signed their first hire contract with the option to order LNG rail tank wagons.
While Lithuanian authorities give the green light to the merge of LITGAS and Lietuvos Duju Tiekimas, several companies registered progresses on the Norwegian Continental Shelf. Vilnius sees LNG from Norway as a key factor to increase its clout in the Baltic region. For this purpose, the state controlled energy company Lietuvos Energija decided to merge its two gas daughter companies.
Some critical voices are logical consequence of these significant, almost abrupt, changes. The head of Lithuania’s heat producers calls the country’s much-lauded liquefied natural gas facility in the seaport of Klaipeda “an expensive posh store where shopping is mandatory.” To bring ‘fairness’ to the situation, Vytautas Stasiunas, President of the heat providers association insists a single LNG facility maintenance tax should be imposed.
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Natural Gas Europe is pleased to support the efforts of The Lebanese Oil and Gas Initiative (LOGI) in promoting transparency, accountability, sound governance, and engagement with the public to ensure the interests of citizen stakeholders are preserved. The Lebanese Oil and Gas Initiative (LOGI) is a newly established non-governmental organization (NGO) based in Beirut, Lebanon, that promotes the transparent and sound management of the country’s hydrocarbon resources. Natural Gas Europe encourages the development of similar oil and gas non-governmental organisations.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci