Week 18 Overview
Sometimes it is just a matter of wrong timing, while sometimes measures are taken at the very last useful moment. Business ties between Ukraine and the European Union are walking this thin line.
The coming months will tell if the steps forward registered in the 18th week are enough to promote an inclusion of Kiev in Europe and a simultaneous integration of the European energy markets. The outcome is still uncertain, but the attempts have been clear. The main doubt remains the role of the future European elections.
UKRAINE AND EUROPEAN INTEGRATION
Last week, US President Barack Obama announced new sanctions against influential Russians to ‘decrease the risk of rebellion in eastern Ukraine.’ That is a sign of the fact that the situation is clearly escalating and European authorities and companies are trying to react as fast as they can. But is it enough?
After signing a Memorandum of Understanding with Ukraine’s Ukrtransgaz, Slovakia’s Eustream promised to attain a volume of 8-9 billion cubic metres of gas a year as soon as possible.
‘Existing spare capacity of the domestic gas transmission system creates all the prerequisites for the development of a hub that will enable Ukraine to become a full-fledged player in the European gas spot market,’ reads a note released by the Ukrainian company on Wednesday.
European institutions welcomed the deal, saying that the agreement will contribute to Ukraine’s integration in the EU.
"It is important that Ukraine makes speedy progress in unifying its legal and regulatory framework with the energy legislation of the EU. This increases the trust of investors and helps the country modernise its energy sector”, European Commissioner for Energy Günther Oettinger said in Bratislava on Monday.
Also on Monday, Uktransgaz clinched a one-year deal for scientific and technical cooperation with Germany’s E.ON.
"The scientific and technological cooperation between our companies in Ukraine promotes a progressive attention on the gas transmission companies,” Miroslav Khimko, Deputy Chairman of the Board of Ukrtransgaz, said in a note.
The cooperation is focused on underground gas storage, gas measuring, safety and efficiency of the GTS. The deal seems a step forward to promote efficiency, a long-term measure to help decreasing Ukraine’s dependency on Russia.
But the real wake up call for Kiev arrived on Thursday, a few hours after the Executive Board of the IMF approved a two-year Stand-By Arrangement amounting to US$17.01 billion. As written by the International Monetary Fund on Thursday, Western economic intervention is too small in scale to substitute Russian ties in Ukraine.
‘A long-lasting disruption of relations with Russia that depresses exports, investment, and growth or loss of economic control over the east that reduces budget revenue would require a significant recalibration of the program and additional financing, including from Ukraine’s bilateral partners,’ wrote the fund on Thursday.
Moscow’s centrality is undeniable. Coherently, European authorities are trying to come down together.
"We want a uniform gas price in the European common market," EU Energy Commissioner Guenther Oettinger said in Warsaw.
“The game of 'divide et impera' (divide and rule), or a game of this type proposed by Moscow, cannot be and will not be accepted by EU member states," Oettinger added during the joint conference with Poland’s Prime Minister Donald Tusk.
But doubts are more than legitimate. Is the timing the right one? Can these words promote energy integration right before the imminent shakeup due to European elections? How consistent will European policies be? Will the future decisions follow today’s declarations? The answer is probably yes. But nobody knows to what extent and in what way.
The only certainty is that the situation is not getting any better. The week did indeed finish as it started - with a threat. Obama and German chancellor Angela Merkel warned of new sanctions.
NORWAY, UNITED KINGDOM
In this context, the revival of offshore projects in Norwegian and British waters is completely normal.
On Friday, Statoil concluded its 2013-2014 exploration programme around the Johan Castberg field.
“Over the past year we have made a significant exploration effort in the Johan Castberg area. Five wells have been drilled back-to-back, giving us important subsurface information and a good understanding of the total resource base in the area”, Irene Rummelhoff, Statoil senior vice president for exploration on the Norwegian continental shelf, said in a note released on Friday, announcing a oil and gas discovery in the Drivis prospect in the Barents Sea.
But the results were not as good as expected.
”We are certainly glad to have an oil discovery in Drivis. However, the exploration programme as a whole has not delivered on volume expectations. Out of the five wells drilled only two have resulted in oil discoveries,” Rummelhoff added.
A few hours later, the Norwegian Petroleum Directorate (NPD) said it would map the subsurface on the Mørerand High and Gjallar Ridge South in the Norwegian Sea in the coming months, explaining that it aims at acquiring knowledge about unexplored acreages.
In other words, despite the problems, Norwegian gas is more valuable than ever. It comes as no surprise that companies like Poland’s Lotos are in talks to acquire upstream assets in Norway.
The same applies to British hydrocarbons. On Wednesday, Faroe Petroleum announced the conditional acquisition of a 60% operated interest in the Ketch Field and a 53.1% operated interest in the Schooner Field in the UK Southern North Sea gas basin (the “Interests”) from a subsidiary of Tullow Oil. The initial consideration was of £35m.
Coherently, investors have British shale gas in their sights. Coherently, shale gas in the UK and oil shale in Russia are the only two investments listed amongst Total’s priorities for the coming months.
Q1 RESULTS
The French company reported a 10% decrease in adjusted net income for the first quarter, confirming the difficult business environment that had similar consequences on Italy’s Eni. UK-based Royal Dutch Shell reported an even more dramatic 44% plunge in its current cost of supplies (CCS) earnings. The financial results for the first quarter of the year show that depreciation, higher costs and write-offs have a significant effect on the bottom line. The current geopolitical is not of any help.
Not even Russian companies can benefit of this situation. Despite a boom in gas production, Rosneft’s net income for the first quarter registered a 13.7% year-on-year decrease. The negative financial result is indeed due to forex losses caused by Rouble’s fall to an all-time low against US dollar.
At the moment, the only companies reporting strong results are Statoil and some utilities betting on renewables like Dong Energy.
“We are pleased to present strong financial results for the quarter. Higher prices and good results from our US gas value chain contributed to a 9% increase in adjusted earnings, compared to same quarter last year,” Helge Lund, Statoil's president and CEO, said in a press release.
In this sense, Statoil results show that some companies could benefit from the current situation, despite geopolitical uncertainties and a ferocious business environment.
Sergio Matalucci