Week 40 Overview

The week started with news from the UKUkraineRomania and Russia. Eastern Europe, Russia and the UK resulted in being the main players of the week, along with Italy and Germany.

Next week, significant news is expected to come from Ukraine and France.

Main events from Russia 

Rosneft kept on its growth trend, investing in LNG plant in a Russia Far East project with ExxonMobil. Later last week, the company also clinched an agreement with Sweden’s Lundin Petroleum to buy a majority stake in PetroResurs, which holds exploration licenses for Lagansky offshore block in the North Eastern part of the Caspian Sea.

The company led by Igor Sechin is positioning itself to be ready for the forthcoming reform of LNG legislation in Russia. The overhaul would liberalize exports of LNG and allow companies other than Gazprom to sell abroad. Rosneft is walking in the right direction. 

On the other hand, Gazprom had a more challenging week.

On Monday, Alexey Miller, Chairman of Gazprom’s Management Committee, met with Yury Boiko, Vice Prime Minister of Ukraine. Gazprom proves to be still a pivotal player of Russian energy policies, addressing the issues of bilateral cooperation in the gas sector between Moscow and Kiev. Though facing internal challenges Gazprom remains the only Russian oil and gas company that can de facto represent the Kremlin.

Later last week, the company saw progress with its South Stream Pipeline project. Serbia and Bulgaria backed the pipeline project, paving the way for the project to be realized in line with the deadlines.

But bad news came on Thursday. EU Competition Commissioner Joaquin Almunia said that EU regulators are prepared to initiate formal legal proceedings against Gazprom, over allegation that the company abused its dominant position in the gas market.

With dominant market position, comes some backlashes. 

Main events from the UK 

Last week cooled down the expectations for a British shale gas boom.

At the beginning of the week, the former Energy Minister Chris Huhne slashed the hopes of British consumers, arguing that shale gas production in Britain could have limited effects on consumers’ bills. According to Huhne, the existing infrastructures enable local production to be exported to Continental Europe. As a result, shale gas production would just counterbalance reduced production in the North Sea. 

On Thursday, Bloomberg New Energy Finance (BNEF) published a report about production costs for shale gas in the UK. According to the evidence submitted by BNEF, the costs of shale gas extraction in Lancashire would be twice the costs in US fields such as Marcellus and Barnett.

Is shale gas in the UK losing momentum? With public support dropping, the British government maintains it support, but more negative news will undoubtedly slow the development of shale gas industry. Next months will paint a clearer picture.

Main events from Eastern Europe 

Completely different situation in Easter Europe. Shale gas is peaking up and regional markets are on their way to a consolidation.

Ukraine has been the rising star of the week. The country keeps swinging between Moscow and Brussels – a free trade agreement with the EU could come soon – but Kiev continues on it path to foster a national gas revolution.

On Thursday, it moved closer to the shale gas production-agreement with Chevron. It will be the second shale gas project, following an earlier agreement with Royal Dutch Shell.

Also on Thursday, another Ukraine’s region said that Eni should start shale gas exploration next summer. It is clear that Kiev wants to produce locally to ease dependence on Russia. Its plans are ambitious.

Other countries in Eastern Europe made the week. 

Mercuria Energy Group completed a $50 million investment in Amromco Energy, the largest upstream gas player in Romania, foreseeing a consolidation of the gas markets. Is Romania the next big thing? Bucharest could clearly become a regional gas hub. It all depends on the determination of politicians and the support of local population.

As indicated above, Serbia and Bulgaria backed the South Stream project. According to a note released on Wednesday, the commissioning for the first offshore section should take place by the end of 2015.

Last but not least, the relationships between Hungary and Croatia are still in flux. Croatia issued an Interpol arrest warrant for Zsolt Hernadi, MOL Group Chairman and CEO. The Hungarian company found some backing in the Prime Minister, who proposed Croatia to buy MOL’s stake in INA group to prevent damage to bilateral relations. MOL, the largest single stakeholder of INA, is accused of bribery.

Main events from Italy and Germany

Eni had a difficult start of the week, with gas flows from Libya into Italy halved on Monday from normal values. Protesters in North Africa affected the Greenstream pipeline to Sicily.

The company announced moving forewards in shale gas with Eni eyeing opportunities in Ukraine. It could be the second company to proceed with shale gas exploration in the country. It could find funds disinvesting from Germany.

The Italian company is intentioned to sell its stake in the German natural gas transmission networks.

Finally, Germany’s EWE is moving into other markets, betting on Turkey. The company aims to double the number of its natural gas costumers, taking advantage of the expanding retail sector in Turkey.

Coming week 

The coming week’s headlines could be dominated by France and Ukraine. 

France’s top court could take a decision on the Schuepbach Energy’s legal action the coming week. The ruling is expected on October 11. The French state could be called to pay the damages deriving from the revocation of exploration licenses granted for unconventional hydrocarbons. These licences were revoked following the adoption of July 2011 law, which prohibits the exploration and exploitation of hydrocarbons by hydraulic fracturing. 

Ukraine could be once more protagonist of the week, moving closer to other agreements for shale gas exploration and production. Its relationships with Russia and the EU are the ultimate question marks. Kiev could be the battleground for a standoff between Brussels and Moscow, or the place where Oettinger and Putin will finally find a middle ground. 

Sergio Matalucci

 


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