Week 41 Overview
Directly or indirectly, Turkey was the protagonist of the week. It is not only because of the two bombs that exploded near the main train station in Ankara on Saturday morning, killing at least 95 people. Turkey is the major player of the 41st week for another reason: it warned that Russia’s military involvement in Syria might endanger the energy cooperation between the two countries.
Especially at a moment of rising tensions ahead of November’s elections, Turkish President Tayyip Erdoğan could resort to playing the nationalist card in order to gain the upper hand in Turkey's politics. The implications on the gas industry remain unclear. For the moment, Gazprom said it sees delays in the project, adding that Turkish Stream's capacity will be halved because of the Nord Stream II project.
Meanwhile, two events in Russia - a deal with Ukraine for gas supplies, and Russia’s ruble climbing to its highest level since July - indicate that Moscow could get out of its financial problems, freezing, for now, its operations in Ukraine. Among experts in Brussels, the idea that tensions in Ukraine might slow down is increasingly recurring.
“Ukraine is likely to become a frozen conflict, like many others around Russia” an expert on condition of anonymity told Natural Gas Europe.
RUSSIA - TURKEY: WHAT’S NEXT?
As said, Turkish President Recep Tayyip Erdogan stated on Thursday that Ankara could rethink its energy cooperation with Russia, in a moment the two parties are struggling to mend strained ties in the aftermath of the diplomatic row over Russia’s role in Syria.
In the gas industry, things are not going well either.
Gazprom may delay the launch of the first line of its Turkish Stream project until the end of 2017, Alexander Medvedev, the company's deputy CEO, reportedly said in St. Petersburg on Wednesday. “This time frame is being postponed now. It depends on how quickly the intergovernmental agreement will be signed. Nothing terrible would happen if it is postponed by one year,” Medvedev said as reported by Reuters.
Gazprom also said it plans to halve the capacity of its Turkish Stream gas pipeline project to 32 bcm, explaining that the change of mind has to do with the expansion of its Nord Stream gas pipeline from Russia to Germany.
It comes as little surprise that several European PR companies are working to promote the image of Gazprom. South Stream Transport opened a 'Senior Communications Expert Turkey' position in Amsterdam. ‘Communications in Turkey are a key factor in the success of this multibillion euro project, and the job therefore offers the opportunity to contribute directly to the implementation of the biggest energy infrastructure Project in the world today’ South Stream wrote on its website, referring to the Turkish Stream.
RUSSIA - UKRAINE - GERMANY: KIEV WANTS A CLEAR ROLE IN EU ENERGY STRATEGY
Russia’s top gas producer said on Friday it has reached a deal with Kiev on the prepayment of gas, adding it would resume supplies to Ukraine on Monday, conditionally to the counterpart’s payments. Naftogaz reportedly made the prepayment for gas supplies from Russia. News agencies reported on Friday that Ukraine intends to buy 2 billion cubic metres (bcm) in October, bracing for the looming winter.
Miller also met with Sigmar Gabriel, German Vice-Chancellor and Federal Minister of Economics and Energy, to discuss energy cooperation. Despite the fact Gabriel is not a politician representing EU institutions, the two reportedly spoke about Europe’s energy security with Gazprom. It is likely that the meeting also addressed cooperation opportunities between Germany and Russia, with particular attention on the Nord Stream II project.
The Russian energy minister believes the Nord Stream-2 project would increase Europe’s energy security and the only obstacles that can get in the way are political, RT wrote.
Eastern European countries continue displaying a clear position against the project.
Polish President Andrzej Duda said Wednesday that he believes that the construction of the Russia-initiated Nord Stream-2 gas pipeline should be stopped. "We must do everything to stop the additional branches of the pipeline from being built," Duda said in an interview with the Hungarian MTI news agency.
Ukraine sees possibilities for the integration of its gas and electricity infrastructure, integrating it with the corresponding EU infrastructure, Oleksandr Dombrovskyi, First Deputy Chairman of the Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety, Supreme Council, Ukraine, recently said. “We would like a clearly defined place which we will occupy in the hierarchy of the energy structure in the EU.”
At the moment, Serbia is supporting the Nord Stream II project.
Serbian Minister of Mining and Energy Aleksandar Antic said that “major gas projects” lay before Serbia and that the expansion of capacity of the only gas storage facility in Serbia, Banatski Dvor, will be discussed with Russian Gazprom in October. The facility is to be doubled, i.e. its capacity raised to one billion cubic meters of gas. In this sense, Belgrade confirmed that Russia will remain the key partner in the field. Currently, Gazprom is Serbia’s sole gas supplier, shipping gas through Ukraine and Hungary, but the country expects new quantities from the North Stream 2 pipeline.
RUSSIA AND OIL PRICES: WHAT ABOUT NEW PROJECTS?
Oil prices are key for Russia and its ability to proceed with its projects.
Developments in both supply and demand are likely to depress prices for some time, perhaps until the end of the decade, Rem Korteweg wrote, reporting that on average US shale oil becomes economic to produce at $58 per barrel. ‘So increased US supply could slow global price rises above that level. In addition, in mid-2016 sanctions on Iran’s oil sector will end; as it attempts to win back market share it could soon add one million barrels per day to global output, increasing the world’s excess capacity.’
Shell is planning for a longer period of low oil prices and extended uncertainties, adding that the push toward low-carbon energy will be the real game changer of the oil and gas industry. Shell CEO explained that there are no signs that OPEC’s leading producer Saudi Arabia will change its policy any time soon, contributing to the bearish prospects. Additionally, shale production continues at unexpected levels.
Nonetheless, Russia gave signs of optimism.
Alexander Medvedev, Deputy Chairman of Gazprom, recently said that all the companies’ projects are competitive and going to be implemented. In particular, Sakhalin II will go on. “The project is scheduled to come into operation in 2021 and will allow us to get 20,6 bcm of gas per year,” added Mr. Medvedev.
Privatisation seems another option on the table for some Russian energy companies.
Indeed, Russia’s Eurasia Drilling Company (ECD) is trying to leave the failed deal with US-headquartered Schlumberger behind, announcing that its managers and core shareholders filed a Merger Proposal with an offer consideration of $10 per share. The Board formed a special committee to negotiate the terms of the potential merger, claiming that the privatisation would help the company undertaking rationalisation of the business.
Some Russians are also looking at opportunities to diversify their portfolio too.
LetterOne, the international investment vehicle based in Luxembourg and controlled by Russian Businessman Mikhail Fridman, is in advanced talks to acquire assets in the Norwegian North Sea. According to the Financial Times, LetterOne could buy stakes in big oil and gas fields from Germany’s E.ON for a deal of at least 1 billion dollar.
IRAN: PAY ATTENTION BEFORE INVESTING THERE, SAYS US
The U.S. State Department delivered a warning to its embassies, calling on American investors to be cautious with Iran, saying that the deal reached in July will not translate into an easing of sanctions till Tehran fully complies to the agreed conditions.
On the other hand, Hamidreza Araqi, managing director of the National Iranian Gas Company, said that Teheran is interested in exporting gas to Europe, either through pipelines or as LNG. “It is economical to export gas to the neighboring countries. Following the nuclear agreement, it is possible to export gas to Europe through Turkey too” Araqi said on Monday.
According to Reuters, an official in the oil ministry confirmed on Saturday that Iran will present its new oil and gas contracts on November 21-22 in Teheran. A second round of meetings with investors will take place in London on February 22-24, trying to capitalise on draft document changing the conditions for foreign investors.
MORE FROM THE EASTERN MEDITERRANEAN: EGYPT, ISRAEL
Egypt’s state gas company EGAS has awarded four new licenses to BP, Edison, a consortium involving BP and ENI’s Egyptian subsidiary and a consortium involving ENI, BP and France’s TOTAL. Other rounds could follow in the coming years.
Independent Resources said on Tuesday that its joint venture with Nostra Terra reached a deal with TransGlobe Energy Corporation for the acquisition of a 50% interest in the East Ghazalat concession in Egypt, confirming the growing interest in the North African country. TransGlobe should maintain a 50% interest, and should receive US$1.0 million in cash at legal completion, and a loan note for US$2.5 million to be paid within two years of legal completion.
Meanwhile, DKL Investments, a wholly owned subsidiary of Delek Group, has acquired a 19.9% stake in Ithaca Energy for US$66 million. After the discoveries of Tamar and Leviathan, through the acquisition, Delek is developing a diversified portfolio of exploration, development and production assets.
It is now assumed that if Israel’s Natural Gas Framework will not be approved during the coming few weeks, Noble Energy will freeze indefinitely the development of Leviathan field and will turn to arbitration. The arbitration at the ICC could last a few years. Israel's Ministry of Justice has hired the services of an American law firm to represent the state in the event that Noble Energy sues Israel for damages.
EUROPEAN DEVELOPMENTS: NORWAY BETS ON DEFENCE
Norway’s Conservative-led minority government said that its minor tax reform will help oil and gas operations in the country, at a moment when production is expected to decrease despite the attempts of Oslo to keep a leading role in the Arctic. The Scandinavian country intends to reach its ‘top foreign policy priority’ also flexing muscles in the defence sector. Norwegian Minister of Defence Ine Eriksen Søreide was indeed in the spotlight for her proposal to increase the defence budget for 2016 by 9.8% in real terms.
At the same time, Norway released its petroleum industry investment forecast, saying that it should decrease by almost 10% in 2016 to NOK 167 billion. According to the Oil Ministry, Aasta Hansteen could be postponed to 2018 due to delays in constructing its platform. The field was previously expected to start in the last quarter of 2017.
Lithuania is preparing for the new gas pipeline between Lithuania’s Baltic seaport Klaipeda and Kursenai (Kiemenai), which is expected to be launched at the end of the year. Amber Grid, the pipeline administrator, will be able to start supplying LNG 24-hours a day. However, Lithuanian officials seem reluctant to speak of pricing.
Italy’s Saipem has been awarded new E&C offshore contracts cumulatively valued at more than 600 million euro. This comes at a moment when the company is in need of increasing its credibility to proceed with its restructuring plans.
According to some Italian newspapers, relations between Azerbaijan and SNAM are progressing well, as proven by the Memorandum of Understanding signed last month by SOCAR and the Italian natural gas infrastructure company. Despite SNAM’s attempts, Euractiv wrote that Baku might lose interest in major investments in the Old Continent like DESFA and TAP.
Finally, the Scottish Government announced a crackdown on unconventional gas on Thursday, putting in place a moratorium on underground coal gasification (UCG) in Scotland. The wide-ranging research process into the potential impacts of such onshore techniques adds to the moratorium on onshore unconventional oil and gas announced by the Energy Minster Fergus Ewing in January.
INTERVIEWS ABOUT EGYPT, RUSSIA, UKRAINE AND NORD STREAM II
Four views on companies potentially interested in buying a stake in ENI’s Zohr field
Interview with Alan Apter, Chairman of the Board of Directors at Ukraine-focused Burisma
Interview with Jean-François Cirelli, Vice Chairman and President of GDF Suez, about Nord Stream II
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