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    Week 40 Overview



US Kerry's meeting with Greek PM Tsipras about TAP, and IGB proves Washington fears for the Balkans, and wants to step up cooperation with regional players.

by: Sergio

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Week 40 Overview

The evolving dynamic in Syria has been the global focus of the week, with Russia's increased (and controversial) involvement. Quite interestingly, German Chancellor Angela Merkel said a political solution to Syria's turmoil requires the involvement of the current regime of Syria. Could this play in favour of stronger ties between Germany and Russia in the gas industry, and an even stronger bargaining power of Berlin as the European decision maker?

Nonetheless, European Commissioners continue speaking about the negative repercussions of the Nord Stream II project, suggesting that there are some tensions simmering in the continent.

On more military matters and potential implications on energy, a recent article by Die Welt reported that Russia is building new military facilities on Arctic Ocean islands where it plans to deploy air defence units aimed at strengthening its position in the Arctic and gaining access to the region’s energy resources.

Finally, US Secretary of State John Kerry spoke of the key role of the Trans Adriatic Pipeline (TAP) and the Interconnector Greece Bulgaria (IGB) with recently re-elected Greek Prime Minister Alexis Tsipras, highlighting Washington’s worries for the Balkans and its intention to step up cooperation with countries in the region, in a moment when Moscow is increasingly looking at the Caucasus. 


Royal Dutch Shell was selected by Bulgaria to explore a 7,000 square km area of its Black Sea coast, Energy Minister Temenuzhka Petkova said on Tuesday, adding that the parties are expected to sign a contract in October"This is a very serious success for us and one of the most important steps towards diversifying our gas supplies," Petkova explained, as reported by Reuters

Shell is also pulling out of Bosnia, in a moment the Russian energy sector is actively cooperating in Macedonia. The Anglo-Dutch company said that its $700 million exploration program in Bosnia will come to an end because of a changed oil and gas environment, while Russia’s Stroytransgaz released an update about its work on a gas pipeline in Macedonia known as “Klechovtse – Negotino", claiming that its project is 1,5 months ahead of schedule. Against this backdrop, Serbia’s Prime Minister Aleksandar Vucic wrote an article in The Washington Times arguing that Serbia and the Western Balkans need a renewed political attention of the United States. 

It comes as little surprise that many are looking at the Ionian Adriatic Pipeline (IAP), which would involve Croatia and Montenegro. According to Fabio Indeo, its annual capacity of five bcm of gas would be allocated in the following way: for Albania one bcm/y, for Montenegro 0.5 bcm/y, for Bosnia and Herzegovina one bcm/y and for Croatia and neighbouring countries 2.5 bcm/y. This pipeline could be key part of the envisaged North–South Gas Corridor. 

European Commission Vice President Maroš Šefčovič emphasised the role of this gas project in connecting Central European markets, and increasing energy security in the region. Šefčovič already made it clear. His point is that the Nord Stream II project would have a negative impact on Eastern European countries, and Brussels has to do something; the North-South Corridor is one of his favourite options. 


Germany’s BASF and Russia’s Gazprom completed the swap of assets with equivalent value effective at the end of September 30, 2015, financially retroactive to April 1, 2013As a consequence, the gas trading companies WINGAS, WIEH, WIEE as well as the storage operator astora are an entirely part of the Gazprom group 

Though being a thorny trading partner, Russia is practically viewed as a good, if not the best, energy supplier for Europe, especially taking into account the costly alternatives currently under consideration. Logically, internal EU division and competing voices among Member States help Moscow maintain the status quo and undermine EU bargaining power. 

For instance, the Netherlands collected enough signatures to promote a non-binding plebiscite on the EU’s integration pact with Ukraine, casting doubts on Europe’s ability to create a common front to help UkraineAlthough it would be just “advisory” in nature, the referendum would indeed indicate that citizens across the EU could not be in favour of spending resources to assist Ukraine in its transition.

Despite the possible threat, Ukrainian state-run energy company Naftogaz posted a first-half net loss of 4.5 billion hryvnia ($214 million), less than one-seventh of the loss it registered in the first 6 months of 2014. According to the company, the losses were in part offset by profit from services related to natural gas transportation, and profits of subsidiaries and associated companies.   

Russia is not working just in the EU and in Ukraine. Moscow is also trying to increase or keep its influence in the Baltic and in the Arctic. 

For what concerns the Baltic region, according to Greta Monika Tuckute, Director at Center for Geopolitical Studies, Russia is still using this influence in order to strengthen its own political goals and influence in Lithuania, Latvia and Estonia. “However,” she said, “energy-wise, they're still kind of separate and they're dependent very strongly on one monopoly and one energy resource coming from Russia."

Speaking about the Arctic, Gazprom said it would continue in its efforts to minimise dependence on the foreign equipment supply, moving forward with its import substitution policy, while eyeing opportunities related to its Sakhalin-2 LNG plant and considering the possibility of returning to international capital markets next week. Indeed, the attempt to achieve technological independence does not translate into a financial independence as the state-run company could kick-start Russian Eurobond sales, looking to raise 1 billion euros in bonds with a 4-5 maturity.

On other hand, Anglo-Dutch Royal Dutch Shell announced that it would stop exploration off the coast of Alaska “for the foreseeable future”. The company, which holds a 100% working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea, expects to take financial charges as a result of this announcement

Shell’s decision seems not to have affected ENI, which committed to press ahead with oil production in the Arctic by the end of the year. 


Observers in Georgia pricked up their ears when Gazprom’s Chief Executive Officer Alexei Miller met Georgian Energy Minister Kakha Kaladze on September 25 in BrusselsTsibilisi has a separate arrangement with Azerbaijan, which supplies 90% of its gas imports.

Russia's Gazprom has started the supply of 6 million cubic meters per day of gas to Azerbaijan as of September 29, the Magistral Gas Pipelines Department of SOCAR told Natural Gas Europe. The source said that the total gas transit capacity of this pipeline is 12 mcm/d. "Currently, the Russian gas is transited through this 220-km pipeline to AzMeCo," he said.

The process of acquisition of a 66% stake in the Greece’s gas operator DESFA by SOCAR continues with little obstacles, Greek Energy Minister Panos Skourletis said, as reported by Greek and Azeri media. Is it true?

Waiting for the transaction, State Oil Company of Azerbaijan Republic (SOCAR) is entering a new stage of cooperation with Total SA in the development of Azerbaijan’s second largest natural gas field. Eric Meyer, planning development manager at Total Exploration & Production Azerbaijan B.V., announced on September 28th that the French company has completed the preliminary Front End Engineering Design (FEED) for the Absheron gas condensate field in the Azerbaijani sector of the Caspian Sea.

According to Gulmira Rzayeva, Visiting Research Fellow at the Oxford Institute for Energy Studies, SOCAR has big plans in Turkey too. Before the oil price crisis, SOCAR Energy Turkey planed to increase the total turnover in the country to USD15 billion by 2018. This would include constriction of oil refinery, container port, power generations etc. Current low price environment can affect these projects but in general this may remain the long-term SOCAR’s strategy towards Ankara.

Speaking about negotiations and future projects, Turkey’s Energy Minister Ali Riza Alaboyun has said that Turkish Stream negotiations will get a boost after the general elections on November 1st. At a press conference after the G20 Energy Ministers Meeting in Istanbul on October 2nd, Alaboyun said that both the Turkish and Russian sides may have enough common ground on Turkish Stream to start talks again. 

Turkmenistan is another country that could have interest in the Turkish market. According to a Alexander Kim, Ashgabat could pass a law to force domestic consumers paying a market price for their electricity, natural gas and water, reversing a practice in place for over 20 years. 

Turkmenistan delivered 125 billion cubic meters of natural gas to China from 2009 to August 2015. The Ministry of Oil and Mineral Resources of Turkmenistan issued a statement on September 28th saying that, leading among other gas suppliers, Turkmenistan has become a strategic partner for China. Chinese CNPC also develops Turkmenistan's Bagtyyarlyk gas field on the bank of the Amu Darya.


The Iranian cabinet approved the Petroleum Ministry’s draft for new international upstream oil and gas contracts by endorsing the documents known as Iran Petroleum Contract (IPC)According to a recent declaration of Minister of Petroleum Bijan Zangeneh, the new contracts will be more attractive. 

It emerges clear that, despite substantial divergences, Iran is trying to move closer to Europe, and Turkey. Italy is in the right condition to benefit from a thaw in Western ties with Iran. That is for several reasons other than technology: politics, Eni’s discovery off the coasts of Egypt are key factors too 

Iran’s archrival, Israel, is considering building a second offshore LNG terminal in order to reduce risks to local power generation and increase its energy security. According to the business daily Calcalist, the idea was floated last week at a meeting headed by Energy Minister Yuval Steinitz. The Energy Ministry is interested in doubling the number of LNG cargo Israel can receive. 

Israel also started negotiations with Cyprus and Egypt earlier this year.

Cyprus President Nicos Anastasiades met Egypt’s President Abdel Fattah el-Sisi in New York on Monday. The two leaders discussed regional cooperation on the sidelines of the UN General Assembly. 

Apart from geopolitics, the gas industry is also about economics. 

San Leon Energy announced that the Laayoune-4 well onshore Morocco has encountered gas, adding it intends to apply for a new eight year exploration licence with ONHYM. It seems clear that the company wants to send a message to its possible buyer. In its interim results, it indeed confirmed it has been approached for a possible buyout

Speaking about other minor fields, Rockhopper Exploration explained on Monday that ENI found more gas at the sidetrack well in the Guendalina gas field, which the major operates in the Adriatic Sea offshore Italy, adding  that production should commence in October. The field is off the coast of Italy. Rockhopper owns a 20% interest, while ENI controls the remaining 80%.


While Italy's Saipem is working on a restructuring plan to raise more than 3 billion euros ($3.4 billion), a Milan judge ruled that the oil and gas service company should stand trial on charges it bribed official in Algeria to win contractsSaipem, which has debts for 5.5 billion euros, is also continuing talks for its cap hike and a deal with Italian state lender Cassa Depositi e Prestiti (CDP).   

The other European news are all about Statoil. 

Statoil laid the final pipe in the Polarled Pipeline at the Aasta Hansteen field at a depth of 1,260 metres in the Norwegian Sea, saying that the 482.4 kilometre long Polarled is the first pipeline on the Norwegian continental shelf that crosses the Arctic Circle and opens up a brand new highway for gas from the Norwegian Sea to EuropeStatoil also said that it is concluding the project with a 32% saving on the initial investment levels

After coming up dry at wildcat well 13 kilometres south of the Grane field in the North Sea, Statoil announced an agreement on research funding with the Norwegian University of Science and Technology (NTNU), suggesting that innovation and research are likely to play a key role. 

Statoil also acquired First Oil’s 24% equity share in the Alfa Sentral field in British waters for USD 15 million. “The acquisition of this Alfa Sentral licence increases the resource base and strengthens our efforts to further develop the Sleipner area towards 2030” the company commented


We are delighted to announce that Mr. John M. Roberts has joined the Natural Gas Europe team as Director of Strategy and Chief Analyst. He is currently researching European energy security in the light of the Ukraine crises; the role of the Caspian in global energy security; gas development in Iran; Sino-Russian energy relations; hydrocarbons development in the Eastern Mediterranean; and shale gas in China

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