Week 35 Overview
Oil and gas conferences are often viewed as way to get to know the right people (although my MD at Natural Gas Europe will tell you that value proposition for sponsors of such events is dubious). Attendees have the opportunity to hear about the agenda of the industry and the opportunities offered by specific geographical areas or increasingly relevant technologies. In other words, they allow people to understand the current problems and the possible solutions.
The 35th week saw a conference in Stavanger, which turned the spotlight on the Norwegian Continental Shelf. The coming weeks will probably focus on LNG opportunities, and conferences will follow suit. In those gatherings, market participants will speak about the current opportunities in the LNG businesses, well aware of the strong link between LNG in Europe and standoff over Ukraine.
LNG projects and developments in Norway are indeed set to become more likely in case of a deterioration of the ties between Kiev and Moscow.
NORWAY: ROSNEFT AND NEW INVESTORS
Norway’s Ministry of Petroleum and Energy confirmed its determination to stimulate additional activity, both in the mature and frontier areas on the NCS. Oslo is well intentioned to keep old investors and draw new companies, while strengthening its ties with Russia’s Rosneft.
The Scandinavian country wants to intensify its cooperation with the company led by Igor Sechin. Despite the sanctions and restrictions on the Russian company, including a ban on technology transfer for deepwater production, Minister Lien does not see any problem for joint projects on the NCS. In this sense, the future of European energy strategy will pass through Norway for two reasons. On the one hand, Norway can be a bridge between Russia and Europe. On the other hand, Norwegian gas will become even more necessary in case Moscow cut off gas supplies to Europe.
Keeping in mind a recent report by IHS that suggested that political uncertainties and geological difficulties could lead to a 21% decrease in NCS investment next year, it seems clear that any Norwegian project is valuable and important for European energy security. The Aasta Hansteen, the Johan Sverdrup developments and the Gundrun platform are example of key projects for Norway and Europe.
“Aasta Hansteen is one of the biggest and most complex industrial projects in Europe. With the Polarled pipeline we are taking the Norwegian gas infrastructure northward across the Arctic Circle for the first time,” Statoil’s Torolf Christensen commented during the conference in Stavanger.
Statoil is the main protagonist of this hunt for hydrocarbon on the NCS, but there are other important players involved. For instance, Aker Solutions’ interests and projects equally gained attentions over the week, as moving boundaries for technology is central to reverse the trend of decreasing production in Norway. That is also why, Schlumberger and Kvaerner are likely to be two central actors on the NCS.
Service companies will be the first to take advantage of the situation, followed by other market participants like Kassel-based Wintershall. The German company, which is the one that grew the fastest on the Continental Shelf in 2013, announced it is planning a further expansion in Norway.
“The North Sea – and particularly Norway – will be extremely important for Europe’s supply of oil and gas in future too. Norway has the resources, is politically stable and has very good infrastructure,” Martin Bachmann, Member of the Board of Executive Directors of Wintershall, said in Stavanger.
LNG: CYPRUS, BALTIC AND RUSSIA
Despite the uncertainties over the future of LNG in Europe, two potential protagonists of this business made the headlines on Monday.
Finland’s Gasum Energiapalvelut announced its intention to sell its assets in Estonia to Alexela Energia, explaining that the decision is part of its strategy to push forward with its plans to grow its gas business in the Nordic countries.
“This arrangement supports Gasum’s strategy of focusing on the development of the gas market in Finland and the Nordic countries,” Jarko Alanko, Gasum’s Vice President, said in a note released on Monday.
A few hours before, on Sunday, Cyprus gave the final green light to negotiations between the consortium ENI/ KOGAS and the team Noble Energy/ Delek Drilling/ Avner Oil. The country’s decision also paves the way to negotiations between France’s Total and the consortium made up of the American group and the two Israel-based companies. The Mediterranean country is well intentioned to progress with its LNG plans.
But that is not all. On Thursday, Skangass claimed some space on the newspaper too. The company did indeed win clearance from the Swedish Government to build and operate a new LNG terminal in Gävle, Sweden.
‘The planned LNG terminal is an important part of the expansion of LNG infrastructure in Sweden and the Baltic Sea. The environmental advantages of using LNG instead of oil based fuel within shipping, industry and heavy transportation are substantial. Sulphur and particle emissions are reduced to almost zero, nitrogen oxides (NOx) emission is reduced by 85-90 per cent and the carbon dioxide (CO2) is reduced by 25 per cent,’ reads the note released by the company.
In this context, it is worth mentioning that Russian companies equally see some room for expansion in the LNG business. For example, Gazprom and Sovcomflot expanded cooperation in the last days.
‘Today Gazprom and Sovcomflot named the new state-of-the-art 170,000m³ liquefied natural gas carrier (LNGC) Pskov, after one of the oldest Russian cities. The ship will be chartered to Gazprom Global LNG (GGLNG) under a long-term contract,’ reads a note released by Sovcomflot on Tuesday.
Russia is indeed such a central player that all eyes correctly are on President Vladimir Putin.
RUSSIA - UKRAINE: A TROIKA ANY TIME SOON?
The summer witnessed an escalation of accusations and events that is hardly compatible with a solution any time soon. Reading the website of Ukraine’s government, it seems like going through a war bulletin. The majority of the press releases are indeed about how to find a way out of the arm wrestling with Russia, how to fight Moscow back, how to minimise the consequences of the tensions and how to move closer to Europe and United States.
Two weeks ago, PM Arseniy Yatsenyuk pushed a bill intended to “modernise the GTS.” The measure comprises a participation of European and American capital up to 49% of the operator company. More recently, the Government unveiled it is working on a string of sanctions ‘aimed at those involved in military aggression against Ukraine.’ More importantly, this week, Kiev gave proof of its determination, of its intention to drift away from Russia. In a note released on Friday, Yatsenyuk said that "the principal and the sole objective of Ukraine's foreign policy is the acquiring of the European Union’s membership”.
But wait a second. Is the recent U-turn in Ukrainian politics compatible with Vladimir Putin’s mission? A person who said that “the collapse of the Soviet Union was a major geopolitical disaster of the century” cannot think that the direction taken by Yatsenyuk is anyhow sensible. It is illogical.
It comes as no surprise that, on Wednesday, Putin stated that “Ukraine is deeply integrated into the CIS economic space. Alongside Russia, Belarus and Kazakhstan, it is actually an inseparable part of the largest economic complex in the world, which took ages, rather than years or decades, to create.”
That is to say that a solution is not possible unless Russia, Ukraine or the West gave up some of their pride, expectations and intentions, as knee-jerk reactions relentlessly rhyme with escalations. And escalations, as deteriorations, represent a threat for everybody: for Russian economic stability, for Ukrainian security and for European economy. Brussels, Moscow and Kiev can lose a lot.
In this context, the three players have to take a step back, to meet halfway and find a common rhythm, a way to dance together. The only way out to the standoff is a coral approach, a troika, the Russian dance where a man dances with two women. The main thing left to understand now is who should be the man.
Recent events seem to indicate that Europe could take the lead. In the last days, Lithuania and Moldova moved towards breaking Gazprom’s monopoly. The contracts signed by Vilnius and similar deals clinched by Chișinău do indeed represent valid alternatives to Russian gas for the two countries. On the other hand, Europe’s economic weakness might suggest the opposite. If Germany loses further steam, Moscow could hope for a more favourable outcome.
Waiting for the outcome of the arbitration in Stockholm, the first indications will come with the definition of an interim price for the next months. Will this interim price be close to the $385 per 1,000 cubic meters offered by Gazprom? Or will it follow the market-based pricing mechanism asked by Kiev? This is likely to be the first sign, the first event to indicate who is the man in this indispensable troika.
Sergio Matalucci