Week 44 Overview
The 44th week saw a new twist from the Mediterranean Sea.
Italy, Spain and Lebanon asserted their potentialities: Mediterranean countries are finally on a rise. Although it is difficult to foresee their ability to gain further momentum, they took the lion share for at least one week. Reserves in the Leviathan field and offshore Lebanon could be under-explored, Italy could be close to a energy market liberalization, while Spain is paving the way to shale gas exploration.
In this sense, the important fact is that last days showed that gas markets are not exclusive of countries from Northern and Eastern Europe. And this is the important lesson to learn from this week, while keeping in mind that European energy policies will continue to depend on Russia and Norway for many years to come.
RUSSIA – UKRAINE – EUROPEAN UNION
At a first glance, the bickering between Moscow and Kiev could seem nothing new. There are so many similarities with past events that it is even difficult to come up with a new catching headline about the present spat. But that is just one part of the story. There is something unprecedented going on.
The contention clearly stems from Ukraine progressively moving closer to European Union. Kiev could sign an Association and Free Trade Agreement with Brussels at the Eastern Partnership summit in Vilnius on November 28-29.
RUSSIA
A free trade agreement could harm Russian interests and the current spat could just be the introduction to a more complex story. Next years will tell if the present events will change the course of the relations between Moscow and Kiev, and more importantly between Moscow and Brussels.
In the while, Russia will keep teasing Ukraine. On Tuesday, for instance, Russia’s Gazprom said that Ukraine’s Naftogaz did not respect the deadline to pay for August gas deliveries, raising concerns over the ability of Kiev to honour its debt with Moscow.
At the same time, Moscow is trying to speed up the South Stream project. Construction works started in Bulgaria on Thursday.
In this sense, if Ukraine wants to reduce its reliance on Russia, Moscow is doing the same with Kiev. The LNG export liberalization promoted by Vladimir Putin aims at securing a footing in fast-growing Asian economies. The South Stream project is another way to diversify Russian portfolio.
UKRAINE
On the other hand, Ukraine will probably continue to strengthen its ties with European markets if negotiations with Russia on gas supply will not result in a compromise. The gas supply contract signed by DTEK Trading with PGNiG SA on Tuesday could be an indication in this sense.
Kiev tried to play also other trump cards. On Wednesday, it disclosed a $10 billion shale gas production-sharing agreement with US energy major Chevron. It is the second shale gas agreement signed by Kiev, following the one clinched with Royal Dutch Shell earlier this year.
Last week, Ukraine also signed a memorandum of understanding on cooperation in the gas and electricity sectors with EDF. It also reassured Eni, reiterating its intention to allow the oil and gas projects proposed by the Italian company.
All in all, it is plausible to foresee that a string of news will come from Kiev and Moscow in the near future. The bickering is likely to continue also in the next weeks.
NORWAY: WHERE MARKETS LIKE POLITICS
Equally easy to predict is the positive trend for Norway. Last week, market movements confirmed that investors see in the new government a precious ally.
On Monday, US-based ConocoPhillips and France’s Total announced first oil production from Ekofisk South development in the Norwegian North Sea, prospecting new projects in Norway in the next months.
On Thursday, Austria’s OMV clinched a deal with Statoil to acquire minority stakes in the North Sea. The company explained that the transaction is a key part of OMV’s strategy of focusing on exploration and production in politically stable markets.
MEDITERANNEAN COUNTRIES
As said, the unexpected twist came from Mediterranean countries. Spain, Italy and Lebanon showed that they have great potentialities.
On Wednesday, the Spanish government published ground rules for operators making use of hydraulic fracturing in the country, modifying the previous law to allow water-intensive drilling. According to the new law that became effective on Thursday, the shale projects across Spain will not have to go through the Environmental Impact Assessment.
Also Italy is stepping up its efforts to increase energy security and efficiency. On Monday, Italy’s Regulatory Authority for Energy (AEEG) signed a memorandum of understanding with MEDREG, the Institution of Mediterranean Energy Regulators created in 2007, looking for a stronger cooperation to promote investments in infrastructures in the Mediterranean Sea.
A central cooperation could well complement the intention of the Italian government to sell stakes in energy companies. A well-designed privatisation plan could re-energize the national energy market, while helping Italy to limit the rise in its public debt. Selling its 4.3% stake in oil and gas major Eni, Italy could kill two birds with one stone.
In Lebanon, Energy Minister Gebran Bassil said that offshore natural gas and oil reserves could be significantly larger than previously estimated. It is yet to be seen how it impacts the nation postponing several times the offshore gas licensing round,
In conclusion, the three countries showed what emerging markets have to do if they want to attract investors. They have to create enthusiasm, promoting business opportunities through a mix of well-structured privatization and regulation. New projects could follow. The recent attempts by Greek Prime Minister Antonis Samaras to revive the East Med Pipeline in cooperation with Cyprus and Israel would be the logical consequences.
Sergio Matalucci