Week 15 Overview
"Gas is no weapon, it's a commodity," Gazprom vice president Alexander Medvedev said this week. But the events unfolding in these days clearly suggest that the complex geopolitical equilibrium is somehow crumbling away. Gas remains the bone of contention between countries, and divergent interests emerged crystal clear. Medvedev’s statement was more a political message to Germany, rather than an ideological declaration.
It seems clear that Russia opted for a complex strategy, shifting its focus eastwards and sending mixed messages to Brussels and Washington. It also used Gazprom to confirm its clout in some of its neighbour countries.
On the other hand, European governments are trying to move on to diversify their energy portfolio. Things are changing in the whole continent. Italy’s Enel signed a long-term LNG contract with US-based Cheniere Energy. Similarly, Baltic countries are doing their best to avoid major backlashes, they are striving to find a way out of the current arm-wrestling and decrease their reliance on Russian gas. In this sense, diversification is the red thread; it is the common motto for the Old Continent, from the Baltic countries to Italy.
EUROPE – US
On Tuesday, Enel revealed that it signed two LNG supply contracts with Cheniere Energy, for gas sourced from shale gas fields. The two companies reached an agreement for a total of 3 billion cubic metres a year, of which almost a third for the Italian market.
‘The Enel Group has signed two 20-year contracts with the US company Cheniere Energy for the supply of LNG (liquefied natural gas) from shale gas fields in the United States,” reads a note released on Tuesday.
The cooperation between Europe and the United States could even get stronger. If European countries will go for shale gas, American companies could easily capitalize on their expertise. Economic ties could naturally step up. And this is the case in a moment shale gas seems more a reality than a pure speculation. Austria could soon join the list of countries betting on fracking.
In the aftermath of OMV’s investment in Lower Austria, the International Energy Agency said that Wien is not doing enough to use its domestic resources.
‘Austria can enhance its energy security by increasing energy efficiency and producing more gas domestically. For that reason, Austria should explore its shale gas potential,’ reads the report Energy Policies of IEA Countries – Austria 2014 Review.
Eventual political endorsements to shale gas in Europe remain uncertain, but the real story is that the European Union will not give North American companies the cold shoulder anymore. Cooperation is around the corner, in a way or another.
RUSSIA
While Enel clinched the LNG deal with Cheniere Energy, Moscow maintained its unflinching, unrelenting strategy. Russia’s path is bumpy, but the Kremlin knows how to be on a roll. Despite its decisions are nothing but risky, some already paid out.
Firstly, it is successfully looking for alternatives to cut its reliance on Europe. Gazprom said that it would soon come up with a pipeline gas supply contract with China National Petroleum Corporation (CNPC), reads a note about a meeting between the Russian giant and the Chinese company.
“At this round of talks we approved all the project-related technical matters. We advanced in our talks on the gas price. The parties agreed that the contract would come into force before the end of 2014 and that the next round of talks would take place in Moscow in late April,” said Alexey Miller, summarizing the results.
On Thursday, Gazprom’s management also signed a Sales and Purchase Agreement for a 100% stake in KyrgyzgazProm.
“The acquisition of KyrgyzgazProm is a natural follow-up of our long-standing relations with Kyrgyz partners. Gazprom receives a direct access to Kyrgyzstan's market, and the country has guarantees of reliable gas supplies as well as a sound investment in an extensive retrofit and upgrade of gas transmission and production capacities. Gazprom becomes a strategic investor in the Kyrgyz economy,” Gazprom Management Committee Chairman Alexey Miller said in a note.
The company is the sole importer of natural gas to Kyrgyzstan. It is the owner of the country’s gas transmission and distribution systems, and Gazprom’s acquisition prove that Russia will not easily give up its ambitions on countries that, till 1991, were part of the Soviet Union.
BALTIC COUNTRIES
Baltic countries share a common past with Kyrgyzstan. But similarities are probably not so many anymore. Unlike Kyrgyzstan, Baltic countries are now trying to decrease Russian dominance, with Latvia and Lithuania taking active steps in the last days.
Lithuania is stepping up its efforts to attract investors. Vilnius unravelled its strategy for the coming years, expressing its clear intention not to impose taxes on shale gas production for the first three or four years.
“Technically, we would be ready [to launch the tender] quite soon, but [...] we have to do our homework if we want not only to announce it, but also to have a real result after it, that is, an investor. Starting with preparing the general public. Work with potential investors. After this has been done, we can announce it. I cannot say when this will happen,” Environment Minister Valentinas Mazuronis said on Thursday.
In the while, Latvia is reportedly considering a significant investment in gas utility Latvijas Gaze. The Baltic country could soon buy E.ON’s 47.2% stake.
"We are considering all options, including the option for the state to buy E.ON shares... We would not want to see the shares to fall into Gazprom or some other, not so well known, buyer's hands," Economy Minister Vjaceslavs Dombrovskis told TV3 television channel, as reported by Reuters. According to the reports, the government could take a decision in early May.
In this sense, the 15th week of the year shed some light on the deep and complex geopolitical ties between Russia and Europe. All in all, it emerged clear that Russia and the West would maintain important relations. Their confrontation will take place on a financial battleground, rather than through military deployments. The winner will not be the bloc sending spaceflights to the Moon or to Mars, but the ones that will be more down-to-earth. Diplomatic changes require time and a pragmatic approach.
Sergio Matalucci