Week 36 Overview
On Sunday afternoon, Reuters, Bloomberg, the New York Times and the Guardian gave absolute priority to how Europe is coping with migration. Clearly, this is the hot topic of the week, and other news are relegated to a secondary role. Nonetheless, also the gas industry witnessed relevant changes over the last days.
Once more, Russian companies proved that they know how to make money, consolidate alliances and buy strategic assets. Gazprom, Novatek and Rosneft showed that they could soon be even more influential, as they can take advantage of the Kremlin’s intent to strengthen cooperation with Beijing, and put pressure on Europe. Some experts even said that Germany could use its weight to force the European Commission to take decisions favourable to Russia.
Speaking about game changers, Eni’s discovery offshore Egypt is the other news of the 35th week. The discovery is relevant because it is likely to force neighbours - Israel in primis - to change their gas strategy. Logically, it could also have major geopolitical consequences.
RUSSIA FLEXES MUSCLES: IT PROCEEDS WITH NORD STREAM II, ALLIANCE WITH EUROPEAN AND CHINESE PARTNERS
Russia’s Gazprom reported a 1.4% increase in sales and a more significant 48.6% increase in profit for the first six months of the year compared to the same period of 2014. On Monday evening, the company also wrote it registered a 7% increase in net sales of gas to RUB 946,620 million for the six months ended June 30, 2015.
Gazprom scored some goals also on Friday. In a few hours, it signed Shareholders’ Agreement on the Nord Stream 2 project; agreed with Austria’s OMV over the importance of long-term cooperation; and more importantly, it signed an agreement to close the deal on the exchange of assets with BASF’s subsidiary Wintershall Holding.
According to Minister Wolfgang Schäuble, the European Commission is more politicized and its powers to fight against monopolies could be taken over by a new office, similar to the Federal Cartel Office. If it had a German boss, we could expect other decisions favourable to Russia, wrote Wojciech Jakóbik, adding that Nord Stream 2 project would match the Berlin’s plan, assuming that Germany would become a new gas hub. The extension of the pipeline from Russia to Germany would allow Moscow to bypass other transit countries and Berlin to earn from transit through their territory. The topic will be thoroughly discussed during post-holiday meeting of the EU Council in the configuration of Ministers of Finance on 11 and 12 September 2015.
At the same time, Russia’s Energy Ministry expects that an intergovernmental deal on the Turkish Stream gas pipeline will be signed after a new government is formed in Turkey, Minister Alexander Novak said Friday, as reported by Sputnik.
If the alliance with Turkey remains a bit of a question mark, cooperation between Russia and China is a certainty.
Russia and China continue walking hand in hand toward stronger energy cooperation, with several Russian companies - Gazprom, Rosneft and Novatek - signing documents with Chinese partners over the last days. Alexey Miller, Chairman of the Gazprom Management Committee, and Wang Yilin, Chairman of the CNPC Board of Directors, signed a Memorandum of Understanding on the project for pipeline gas supply to China from Russia’s Far East. Almost at the same time, Novatek and China’s Silk Road Fund (SRF) concluded a framework agreement on the acquisition by SRF of a 9.9% equity stake in the Yamal LNG project.
Similarly, Russia’s Rosneft strengthened ties with Italian and Chinese partners, closing acquisition with Italy-based Pietro Barbaro S.p.A and signing a contract to increase cooperation with China Oilfield Services Limited (COSL). ‘The acquisition of a logistics asset will allow Rosneft to strengthen its positions in the river transportation market and enhance the efficiency of operations, including that in the area of oil and oil products trading, and secure tanker fleet transportation’ reads Rosneft’s website.
More generally, the Kremlin learnt the lesson. It understood it has to diversify its investments, looking both north and south. On Friday, for instance, Argentina’s YPF SA and Russia’s OAO Gazprom signed a deal that could lead them to jointly develop unconventional gas projects in the South American country.
In the other hemisphere, melting permafrost caused by rising global temperatures has made the once impenetrable Arctic Circle increasingly accessible, sparking intense competition between Russia, the United States and China to assert control over an area that it is thought may hold as much as 40 per cent of the world’s oil and gas resources, the Telegraph reported.
Over the last week, Shell resumed operations after bad weather conditions north of Alaska's northern coast put a temporary stop to exploratory drilling in the Arctic Ocean. Russia could soon take decisions in this direction.
UKRAINE: MORE PROBLEMS?
Ukrnafta failed to fulfil its obligations to pay out dividends for 2011-2014, Naftogaz reported, suggesting that the two Ukrainian energy companies might soon collide. They disagree on the proper execution of transfer and payment for 10.1 bcm of commercial natural gas extracted by Ukrnafta and consumed by households in 2006-2011.
ISRAEL AND ENI’S DISCOVERY OFFSHORE EGYPT
Eni is allegedly open to selling a stake in its "supergiant" Zohr gas field discovery off of Egypt, its chief executive said, as the state-controlled energy company looks for funds to bankroll development without sacrificing dividends, Reuters wrote.
The announcement of ENI’s giant discovery offshore Egypt has spurred fears that Israel may no longer be an attractive supplier of natural gas for Egypt. Some experts have even warned that the new discovery might even impact Israel’s exports to Jordan.
Indeed, as confirmed by Hamdy Abdel Aziz, director of the Egyptian Petroleum Ministry’s information department, the entire production from the new field will go toward domestic consumption. “The field’s reserves can meet Egypt’s needs for more than 10 years,” said Aziz.
Zohr’s entry into the scene delivers a painful blow to both the Israeli and Cypriot economies and more specifically to the gas partners. The finding will essentially annul the MOUs Israel and Cyprus recently signed with Egypt to supply gas to the domestic Egyptian market, wrote Gal Luft.
Against this backdrop, it comes as no surprise that Noble Energy piled further pressure on Israel to approve the regulatory framework meant to facilitate the development of its Tamar and Leviathan discoveries. According to the note published by the Houston-based company, regional demand supports the further development of the two fields.
Meanwhile, Israel is also considering transporting Leviathan gas resources to international markets via Turkey as the normalization process between Ankara and Tel Aviv continues, Daily Sabah reported.
OTHER BIG NEWS: SHELL-BG, LNG, TAP, AND NORWAY
European authorities approved under the EU Merger Regulation the acquisition of BG Group by Royal Dutch Shell, explaining that Shell would not be able to influence prices and that oil and gas markets would remain competitive after the transaction. ‘The Commission concluded that the takeover would not lead to Shell benefiting from market power in a number of markets, namely oil and gas exploration, the liquefaction of gas and the wholesale supply of liquefied natural gas (LNG)’ the European Commission wrote on Wednesday.
Wood Mackenzie said that despite the outlook for global demand looking increasingly subdued, the number of LNG projects proposed to take a Final Investment Decision (FID) in 2015 and 2016 has not reduced significantly, in contrast to the 45 upstream oil & gas projects which have been postponed FID so far in 2015.
Speaking about pipelines, Italian gas infrastructure company Snam said it will decide by the end of 2015 whether to invest in the project to build the Trans Adriatic Pipeline (TAP) that will carry gas from Azerbaijan to Europe, its chief executive said on Friday, as reported by Reuters.
Snam is not the only company eying the investment. Malaysia’s state-owned energy company is considering acquiring Statoil ASA’s stake in a gas pipeline into Europe from the Caspian basin, two people with knowledge of the matter told Bloomberg.
Norway is moving too. The Ministry of Petroleum and Energy gave the green light to Wintershall, and its partners Petoro and Centrica for development and operation (PDO) of the Maria development, offshore Norway. Under the approved development solution, the Maria reservoir will be linked via a subsea tieback to the Kristin, Heidrun and Åsgard B production platforms.
After winning a key platform construction contract from Statoil in June, Norway’s Kvaerner is reportedly working to enter into the LNG business with floating near-shore liquefaction barges designed for operations in the Arctic. Doing so, Kvaerner could increase its clout in Russia.
Norway’s Statoil made the headlines, and its stakes gained ground over the last hours. On Thursday, the company wrote on Twitter that it had delivered the largest APA license application in the last 10 years for acreages in Norway. Also on Thursday, Statoil made a strong case for an impact assessment study off Norway's Lofoten islands.
But life isn't a bed of roses, not even in Norway.
Aker Solutions notified its employees on Tuesday that it will reduce the workforce capacity in its Norwegian subsea business, explaining that the decision has to do with a continued market slowdown. About 500 permanent positions at facilities in Fornebu, Stokke, Moss and Tranby in Norway may be affected.
WE ALSO PUBLISHED:
- The Lithuanian Energy Ministry has begun to expedite its Natural Gas Capacity Model (NGCM), which aims to shift more LNG terminal costs from government to consumers. The governmental policy on the terminal located at the Port of Klaipeda triggered opposition. “Before only heat producers were supposed to support the LNG terminal and now the burden is to fall on the shoulders of all heat users, even those who do not use gas. I don’t think this is fair,” said Vidmantas Jankauskas, deputy director of Lithuania’s Industrialists Confederation.
- Faroe Petroleum announced on Tuesday the conditional acquisition of Roc Oil (GB Holdings) Limited, which holds a 12.5006% interest in the Blane Unit in the UK North Sea and a 12.00% interest in the Enoch Unit in the UK North Sea from Roc Oil (Europe) Limited, a subsidiary of Roc Oil Company Limited. The acquisition is expected to complete before the year-end.
- Laurenţiu Pachiu and Irina Zamfir on Romania’s tax system
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci