European natural gas market wrap-up for Week 10

Week 10 Overview

The prospects of LNG and the future of TAP jostled their way to the headlines of the European gas matters over the last days. Meanwhile, tensions between Brussels and Sofia continued over the responsibilities of South-East European countries to promote infrastructures to increase energy security in the region.

During a conference on Thursday, Brendan Devlin, advisor in the Commission’s DG energy, and Bulgarian MEP Vladimir Uruchev exchanged views about the issue, with Devlin saying that the lack of interconnectors has to do with national and local governments (i.e. Bulgaria), which are allegedly unwilling to address the problem. According to Urechev, the lack of interest from companies coupled with limited public funds is the reason for limited investments in new infrastructures.

At the same time, while Statoil postponed its plans for Johan Castberg and Snorre, Europeans companies continue in complex ties with Russian companies.

On the one hand, Gazprom is strengthening its ties with Germany’s Wintershall, the European Commission confirmed that Russian companies could ship gas using TAP, and Serbia is voicing the need to cooperate with Moscow. On the other hand, Lithuania and the UK are taking decisions to minimise the negative repercussions on their economy in case of additional European sanctions against Russia.

Against this backdrop, Turkey remains on everybody’s lips.

LNG: LITHUANIA, SOME RELEVANT REPORTS, RUSSIA

Lithuania’s LITGAS has signed a Master Trade Agreement to enable purchases of LNG from Cheniere Marketing, a subsidiary of Cheniere Energy. The first LNG is expected to arrive in Lithuania as early as 2016.

The Lithuanian government spoke about the deals clinched by LITGAS with Cheniere and Delfin LNG. It underlined the geopolitical dimension of energy ties between Lithuania and the US.

European prices topped Asia as the world’s premium after 6 years, but a series of factors suggest that after a summer of lower prices in Europe. According to the last report by Wood Mackenzie, new Australian LNG supplies will bring Asian spot prices back to European spot prices.

According to BG Group’s Andrew Walker, the LNG market will be more volatile over the next years. The reaction of market players to the incremental supply in 2015 will be a key element for the future of LNG.

Nonetheless, US LNG is unlikely to drastically change Europe’s gas markets. According to Gazprom, a comparative analysis shows that US LNG delivered to Europe on a cost-plus basis will never be cheaper than gas on the British hub NBP.

Russia is trying to accelerate developments. Rosneft signed a Memorandum of Understanding with Golar to reduce CAPEX for LNG plants.

TURKEY AND THE TURKISH STREAM

European countries and authorities clearly disagree on the role of Ankara. In a meeting in Brussels, the European Commission welcomed Turkey as a positive partner, Bulgaria questioned the role of the 18th economy in the world.

Over the last years, Turkey has made some progress towards gas market liberalization, beginning with the privatization of gas distribution in 2003. Turkey could soon have a truly liberalized gas market when it passes a draft of the so-called “Natural Gas Market Law” (NGML).

Hungary stated that the country is in talks with Greece for bilateral gas plans. Budapest is very interested in securing a role in the transfer of Russian gas through a proposed spur of Turk stream from Greece, FYROM, Serbia and then to Hungary.

Coherently, Serbia could soon take an active role in order for the project “Turkish Stream” to be implemented.

RUSSIA, UKRAINE, UK, GERMANY

Gazprom claimed that Ukraine had not kept up pre-payments for Russian gas supplies as required by the October deal, but the move almost backfired on Moscow. According to Alan Riley, Gazprom is basing its calculations on gas supplied to Ukrainian territory under Russian occupation, and the calculation did not pay out.

Officials from Moscow, Kiev and the European Union met on Monday to discuss the deliveries of Russian gas to Ukraine. The parties agreed that only volumes supplied through gas collection points agreed with Ukraine’s transmission system operator Ukrtransgaz will be considered.

According to some academics, Europe’s leaders should crimp Russia’s ability to punish countries politically with its gas supplies. They argue that Brussels should outlaw clauses in Gazprom’s contracts that forbid the swapping of gas supplies among buyers.

Russian and Kazakh companies keep posting mixed figures for 2014, hinting at two simultaneous trends. On the one hand, they report an increase in sales. On the other hand, their profits keep going down due to significant impairment and the weakness of the ruble.

Not being able to decrease reliance on Russian gas, some European countries are at least trying to limit Moscow’s geopolitical clout.

Kiev issued a decree at the end of November forcing major industrial buyers to buy gas only from the state-owned Naftogaz for the following three months, but it now reversed it, giving the green light to other companies than Naftogaz for deliveries of gas to industrial customers. JKX Oil & Gas announced it returned all its fields in Ukraine to full production.

The UK Government has given seven days to Mikhail Fridman’s LetterOne to provide further explanations on the company’s plan for the recently acquired fields in the North Sea. The Secretary of State for Energy and Climate Change, Ed Davey, sent a letter to the company led by the Russian billionaire, hypothesising that Fridman could be soon forced to sell the assets.

But some European companies remain committed to cooperation with Russia.

Gazprom and Wintershall met on Thursday to discuss gas supply to Europe, considering alternatives to deliveries via Ukraine. They also discussed bilateral cooperation.

SOUTHERN GAS CORRIDOR

Trans Adriatic Pipeline AG (TAP) moves in progress forwards. It launched two pre-qualification contracts for the construction of the 105 km offshore pipeline section under the Adriatic Sea. Meanwhile Brendan Devlin, advisor in the Commission’s DG energy, has opened a potential avenue of intrigue with comments at a conference Thursday that Russia is not precluded from being a supplier to any TAP expansion.

The Czech Republic says it is keen to sign a long-term contract to receive Azerbaijan’s gas. Meanwhile, Bulgaria eyes the revival of the Nabucco pipeline project.

Similarly, Greece’s new energy team met with Azeri officials from the State Oil Company of Azerbaijan Republic (SOCAR) to reaffirm their support for the Southern Gas Corridor and discuss three requests which were subsequently brushed aside.

NEW PROJECTS: FRANCE-SPAIN, NCS-SCOTLAND, SLOVAKIA-HUNGARY; LESS UPSTREAM

The European Commission made available €100 million under the Connecting Europe Facility (CEF). It wants to trigger strategic trans-European energy infrastructure projects.

By the end of the year, gas will flow through a new 96 km long pipeline connecting Arcangues and Coudures. The goal of the pipeline is to increase transport capacity between France and Spain.

Gassco took over as operator of the Knarr pipeline. It said that the Knarr pipeline will transport gas from a field about 100 kilometres north of Statfjord in the northern North Sea to St. Fergus in Scotland.

Slovakia and Hungary will test an offer of gas transmission capacity at the Interconnector Veľké Zlievce (SK) – Balassagyarmat (HU) from the 10th of March till the 30th of April 2015.

Despite all these investments in new infrastructure, European production gives fresh signs of a looming decrease. Statoil postponed its plans for Johan Castberg and Snorre, with an investment decision for the first field expected in 2017, and a preliminary decision to implement (DG2) for Snorre scheduled for the fourth quarter of 2016.

SHALE GAS: THE ROLE OF RESEARCH

The future of shale gas has to do with scientific innovation. A new technology uses microbes to remove salt and organic contaminants from wastewater created by unconventional oil and natural gas drilling while simultaneously generating energy, say engineers at the University of Colorado, Boulder.

Some French MPs proposed to fund research to better understand fracking. Despite a partial change in the tones of the discussion in France, the Senate rejected shale explorations.

WE ALSO PUBLISHED

The Energy Island: Israel deals with its natural gas discoveries

British companies clinch deals for assets in Egypt, Italy

Wintershall completes takeover of Vega field on NCS

Naftogaz questions Gazprom daily transit order

Prospect of Caspian littoral states’ gas industry

The new Greek government implications for Azerbaijan’s DESFA purchase

Sergio Matalucci