Week 3 Overview
According to dictionaries, the antonym of eventful is boring. But this is not the case for the gas industry in recent times. Despite major events, the third week of the year was somehow stodgy.
The only major event for the industry was the European Commission’s decision to abandon its original idea to introduce binding rules for shale gas.
Through its draft recommendations, the EC indicates its inclination to build up a two-step process: a first phase based on non-binding principles, a second phase that could open the doors to legally binding laws in case of defiance to the non-binding rules. The EU would indeed review its rules on 22 July 2015.
Apart from this news from Brussels, the week simply confirmed what we all know. As any person reading newspapers acknowledges, the UK is desperately trying to foster a nascent unconventional hydrocarbon industry, Poland staggers in its shale gas hunt, Brussels and Moscow keep bickering and North European countries see a production slow down in the coming years. There is little thrill in something already crystal clear. It is like proving a stereotype. In this sense, the many events of the week only reminded that new solutions are needed and that the process could be difficult. But this is like reinventing the wheel. We all know this.
UNITED KINGDOM: INCENTIVES FOR SHALE GAS
As happened last week, the United Kingdom got the cake. London was the main actor of the week. But its problems remain around the corner. The government confirmed its intention to foster the shale gas industry, but the population remains sceptical about Prime Minister David Cameron’s push for shale gas.
Cameron welcomed the announcement of European Commissioners that decided to shelve building rules for shale gas. He has been lobbying for this and he got what he wanted, and his approach would seem to pay out.
On Monday, Total confirmed it acquired a 40% interest in two shale gas exploration licences in the United Kingdom, strengthening the cooperation between the UK and France in the energy sector and boosting expectations on the nascent British shale gas industry. According to a note released by IGas, the French group committed to an investment up to US$46.5m.
The announcement brought a heavyweight into a sector dominated by small companies, but the investment remains tiny for a company spending billions of dollars every year.
Also on Monday, the government offered 100% of the local levy collected by the councils that allow shale gas developments.
“Shale gas … will mean more jobs and opportunities for people, and economic security for our country,” Prime Minister David Cameron commented.
Nonetheless, the dash for gas remains pretty difficult. As said by IGas’ CEO community benefits will not be a “game-changer” for swinging public support. The payment of almost £1 billion will not be enough to change protesters’ mind.
It comes as no surprise that for any person that would be happy to see shale gas developments within 10 miles of their home, there are more than three people that would not.
The new poll by the Institution of Mechanical Engineers (IME) published on Wednesdaysimply confirmed that population sees shale gas differently. Britons are scared to have shale gas wells in their backyard.
All in all, the week for the British industry was good. But enthusiasm will be grounded only if/when the population will endorse unconventional hydrocarbons.
Conventional energy seems to have an easier life.
On Monday, US-based Chevron announced that is UK subsidiary Chevron North Sea has reached a final investment decision on Alder Field. After receiving approval from the British government, it decided to proceed with the development of the field located in the Central North Sea.
POLAND
Polish operators had a more complicated week. Eni showed it is giving up about Polish shale gas. Two of its three shale gas exploration licences have expired and the company confirmed it is not willing to renew them.
After the exits of ExxonMobil, Marathon Oil and Talisman Energy, the decision will further reduce majors’ presence in Poland. Chevron and ConocoPhillips will be the last two big companies committed to a shale gas industry in the Eastern European country.
Despite all the doubts about Polish ability to shape an efficient legislation, Warsaw keeps hoping for a shale gas revolution. Some newspapers even hypothesized a final regulation in the coming weeks. However, it is not the first time newspapers seemed (wrongly) confident about Polish ability to push forward with explorations. Just 12 wells were drilled in 2013, half of the ones completed in 2012.
RUSSIA
On the other side of the wall, Russia maintains momentum and keeps its high profile with Brussels and Europe.
Lukoil’s positive results and Novatek’s expansion confirm the intention of Vladimir Putin to remain committed to using its hydrocarbon resources to increase soft and hard powers.
Other companies are coherent with this project.
On Tuesday, Director General of Gazprom Export Alexander Medvedev spoke about the future incorporation of Wingas into Gazprom Group, betting on cooperation in transportation and storage in Europe.
On Wednesday, Yamal Development, joint venture between Novatek and GazpromNeft, completed the acquisition of a 60% equity stake in Arctic Russia from Eni. The sale price is 2.94 billion dollars.
Companies are buying Russian assets to take advantage of the LNG export liberalization that took effect in January. At the same time, Putin’s euphoria can be explained by recent bilateral agreements.
On Tuesday, Putin met Hungary’s Prime Minister Viktor Orban to promote common interests in the energy sector.
On Thursday, Russia strengthened its relationship with Armenia, through the acquisition of the remaining 20% of ArmRosgazprom.
In this sense, Moscow definitely makes use of the confidence that Brussels does not have. Russian consistent policies should be an example for the European Union. But now the two “blocs” have two different tasks. Moscow has to make the most of the Olympic Games, Brussels has to cope with potentially challenging elections in May.
In both countries, gas industries could remain in the wings for a few weeks. In the while, some merger and acquisitions could make the headlines of newspapers. For instance, bids for RWE Dea are expected on Monday. A temporary truce between Brussels and Moscow could come soon. Consolidations would then take the lion's share.
Sergio Matalucci