Weekly Overview: Waiting for COP21 Deal, Gas Talks Accelerate
COP21 will soon come to an end on December 11. Miguel Arias Cañete tweeted on December 10 that EU ministers are evaluating a new draft climate agreement, explaining there is hope to reach a deal at the 2015 United Nations Climate Change Conference (COP21). Similarly, a few hours before, the German government wrote that a most ambitious coalition in Paris is gaining momentum in the final phase of the negotiations.
Expert sources tell Natural Gas Europe that the latest declarations could hint at a decrease in coal usage, paving the way for renewables and gas to play a stronger role in Europe’s energy mix.
Against this backdrop, increasing tensions between Russia and Turkey are triggering gas talks in Europe and beyond. The East Med, the Caspian and LNG were once again the week's most important topics.
EAST MED GAS, AND ITALY
ENI said on December 10 that Italy can capitalise on its strategic position to create an energy bridge between Europe and Africa, especially in consideration of the company’s discovery of the Zohr field in Egyptian waters. The move could help Rome create a gas hub in the Mediterranean and increase diversification in Europe.
Meanwhile, Egypt froze negotiations with Israel on December 6 after an ICC arbitration panel awarded Israel Electric Corp (IEC) compensation of $1.76 billion.
The collapse of the Israel-Egypt gas relationship (likely temporary), came at the right moment for Mehmet Öğütçü, a former Turkish Diplomat. Mr. Öğütçü unveiled the East Mediterranean Energy Community (EMEC), which is a new initiative aimed at improving natural gas opportunities in the East Med. The proposed organization would deal with highly pertinent subjects such as gas export, energy diplomacy, and energy investment.
Diplomatic activity in the East-Med region continued on December 9, when the leaders of Greece, Egypt and Cyprus met for their 3rd trilateral summit meeting. Their second summit of the year yielded a new paper, The Athens Declaration.
Previously, on December 7, the Cypriot Energy Minister Georgios Lakkotrypis said that Egypt is still interested in buying Cypriot natural gas. "Negotiations on the gas purchase are continuing on a commercial level," he was quoted as saying.
In light of Egypt’s move, Israeli plan to sell gas in the region could be challenging. Nonetheless, the United States’ Noble Energy said on December 9 that it expects to sanction projects to develop the Israeli Tamar and Leviathan gas fields by the end of 2016, starting production 3-4 years later. Noble seems confident.
TURKEY, RUSSIA (AND THE OTHERS): ROOM FOR NEW PROJECTS?
Tensions between Moscow and Ankara remain. Following the demise of Turkish Stream, another energy project is on the line. Russia's Rosatom halted construction work at Turkey's first planned nuclear power plant over the last few days. The project in Turkey seems to be an exception; Tomáš Vlček and Martin Jirušek argue that politically motivated delays of nuclear construction projects are atypical.
Meanwhile, the Turkish government has worked out a series of measures to reduce to a minimum its dependence on Russian energy sources. Ankara is expected to announce such plans in the near future. The plan of diversification of this so-called “energy basket” will take 2-2.5 years, according to government daily Sabah.
In this sense, Turkey’s latest charm offensive in Qatar and Azerbaijan was meant to reassure the population at home, writes Aura Sabadus. However, any projects that may have been discussed now could take off in 3-5 years, certainly not this winter when Turkey might shiver at the prospect of being left out in the cold.
SOCAR Turkey said on December 6 that Baku and Ankara will speed up the construction of the Trans-Anatolian Pipeline (TANAP) project. “We understand that the construction must be completed as soon as possible… We cannot lose a second,” SOCAR Turkey's CEO, Kenan Yavuz, told the Anadolu Agency. Following Sabadus’ argument, this will not be enough to secure the industrialised Marmara region, which remains vulnerable to reductions or total cuts.
Iran does not seem a short-term option either. Tehran denied reports claiming that the country has increased natural gas exports to Turkey in recent days. “If Ankara is willing to increase the import of Iranian gas, it will not be possible within the framework of the existing contract and a new contract should be concluded,” Sadeq Akbarpour, director of the gas measuring station at the Bazargan border, commented.
Russia was not waiting around, twiddling its thumbs.
The rift in bilateral relations between Russia and Turkey may have created a regional imbalance regarding impending projects. Seizing the opportunity, Turkey's neighbors, Bulgaria and Greece, appear to be interested in taking advantage of these developments and are proposing to strengthen ties with Gazprom and Moscow.
Gazprom’s officials reportedly said on Tuesday that the Nord Stream II project will be commissioned in the fourth quarter of 2019, in line with previous declarations that the new pipeline would be commissioned in 2019. These declarations came just a few hours after Ukraine voiced (once more) its concerns over the project.
Gazprom CEO Alexey Miller also met with Georgian Energy Minister Kakhaber Kaladze in Luxembourg on December 8. According to Russia’s news service Sputnik, Miller said that that the two countries discussed gas supplies from Iran to Armenia.
Meanwhile, Russia has continued its negotiations in Central and Western Asia.
Gazprom decreased the volume of Turkmen gas purchases from 10.5 billion cubic meters (bcm) in 2014 to 4 bcm in 2015. Though Moscow has an ongoing dispute with Ashgabat over the price it pays for Turkmen gas, it continues to purchase it.
EUROPEAN STRATEGY (AND THE NORD STREAM II)
The European Commission released a document saying it should adopt its revised “Security of Gas Supply Regulation” and its "Strategy for Heating and Cooling” in early 2016. It should also come up with its “Strategy for Liquefied Natural Gas & Storage" in the same period.
John Roberts, Director of Strategy at Natural Gas Europe, recently declared that LNG is becoming an insurance policy for Europe. “Insurance policies play a major role… Part of that policy is managing to create the infrastructure that can ensure diversification” he explained.
Romania is a possible contributor to the Energy Union project, but tapping into the country’s 3.7 trillion cubic feet of proved reserves requires numerous efforts that are not all contingent upon Bucharest. “Romania has a lot to offer to the European energy security strategy,” said one panellist during a conference at the European Parliament on December 9.
Diplomacy is and will remain a key element to realise the European energy project.
Lithuania is taking steps to strengthen ties with Hungary, while Hungarian officials are also in talks with Russia. Lithuania’s President Dalia Grybauskaitė said that the geopolitical situation remains tense in the region. The two countries also confirmed their strong opposition to the Nord Stream II project.
NORWAY AND UK: DIFFICULTIES, AND OPPORTUNITIES
France’s Total and Goldman Sachs don’t see oil prices recovering in 2016. Their declarations come at a moment when Brent crude fell below $42/barrel. Total’s CEO Patrick Pouyanne said on December 7 that he does not anticipate a recovery in 2016, explaining he expects supply to grow faster than demand. The current oil trend will have an impact on gas prices.
Norway’s Dolphin Group said on December 10 it could soon file for insolvent liquidation, explaining it has not yet reached an agreement with its main stakeholders. Dolphin Group is trying to find a solution to restructure its debt and capital structure.
Dolphin is not the only Norwegian company dealing with financial problems. Oslo-listed Prosafe completed a private placement of 23,597,300 new shares, which represents almost 10% of its current outstanding shares. It raised a total of $71 million. The firm said it will use the proceeds to strengthen its balance sheet and liquidity position.
Meanwhile, twenty-six companies applied for production licences in Norway’s 23rd licensing round, the Norwegian Petroleum Directorate (NPD) said on December 4. The number indicates a reduction of 28% with respect to the previous round. Mostly large and medium-sized companies comrise the list of 26 companies. However, two companies, INPEX and Kufpec, were newcomers.
Nonetheless, companies focused on the North Sea are showing signs of vitality with a flurry of statements suggesting that the region could maintain current production levels, and possibly increase them even further.
In the UK, the Competition Markets Authority (CMA) wrote a letter to energy secretary Amber Rudd saying that government’s plans to establish the Oil and Gas Authority (OGA) might result in a backlash. The CMA said that OGA should not act in ways that might encourage or facilitate breaches of competition law by others.
At the moment, there seems to be some interest in Irish assets.
Providence Resources announced on December 4 that it agreed to increase its equity stake to 100% in Standard Exploration Licence (SEL) 2/11 in the Irish Sea. “The planned increase in equity in SEL 2/11 demonstrates our ongoing commitment to the Kish Bank Basin,” Tony O’Reilly, Chief Executive of Providence, commented.
INTERVIEWS AND OTHER CONTRIBUTIONS:
Charles Ellinas on Turkey and East Med gas
Interview with Professor Rovshan Ibrahimov on Turkey’s diversification options
Julia Kusznir on Gazprom’s new strategy for Europe
Steven Conybeare on the outcome of Hungary’s 2015 Bid Round
Interview with Rokas Masiulis, Lithuania’s Energy minister, on the country’s LNG strategy
Interview with Giles Dickson, CEO of the European Wind Energy Association, on COP21
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci