Week 16 Overview
The 16th week wasn’t marked by any drastic changes in the gas industry, but this does not mean that the last days have been insignificant. They did indeed witness a flurry of diplomatic activities and minor movements, which hinted at imminent developments soon to boil to the surface.
While Statoil committed to ending the practice of routine gas flaring at oil production sites by 2030, Norwegian companies tried to invest in their future, increasing production and proceeding with geological surveys in unexplored areas. Similarly, Russian players are trying to forge strategic ties, and increase production - Novatek and GazpromNeft launched the Yaro-Yakhinskoye field, which is expected to produce 7.7 billion cubic meters of natural gas per annum from 2016.
Finally, Royal Dutch Shell began exporting gas to Ukraine, with supplies expected at 120-130 million cubic metres in April.
NORWAY: PRODUCTION AND NEW PROJECTS
TGS signed a joint venture agreement with Dolphin Geophysical (DOLP) to acquire 4,500 km2 3D multi-client seismic survey in the western part of the Hammerfest Basin, in the attempt to trigger developments in the Barents Sea. According to the Norway-based company, the new project announced on Wednesday will allow the industry to have a 3D survey spanning from the Gotha survey to the Finmark Platform. Also on Wednesday, Norwegian Energy Minister Tord Lien opened the Valemon gas and condensate field in the North Sea.
Statoil made a gas discovery in the Roald Rygg prospect at the PL602 in the Norwegian sea, arguing that this is the second discovery in the Aasta Hansteen area in spring 2015. Statoil estimates the volumes in the range 12-44 million boe.
A few days after, the Norwegian Petroleum Directorate (NPD) released preliminary figures for March 2015, showing that gas production in Norway was higher than forecasted for the second consecutive month this year. As in the previous two months, production was stronger than in March 2014.
RUSSIA IS MOVING TOO
NOVATEK announced that Arcticgas - its joint venture with GazpromNeft - has launched its third field into commercial production. The Yaro-Yakhinskoye field is expected to produce 7.7 billion cubic meters of natural gas per annum from 2016.
Meanwhile, it became clear that Gazprom wants to avoid any Ukrainian gas transit in 2020 and may not renew the transit contract that will expire on 31 December 2019, with significant implications for Europe and for the role of LNG. Mr. Bros said that Russia could be tempted into a price war. According to Bros, the final price for American LNG to Europe could go down to the Henry Hub price plus $2/MMBtu.
As said, Royal Dutch Shell began exporting gas to Ukraine. Meanwhile, the Ukrainian government took active steps to decrease gas consumption in the country.
The move from South Stream to Turkish Stream will not change Russia’s energy market, as the latter might be extended into Greece or Bulgaria via different pipelines. Russia is seeking either to target potential markets (Central and Eastern Europe) for Azerbaijani gas, or to use the additional capacity of Azerbaijan’s gas export routes.
Russian-Greek gas cooperation might have an impact on the political and geostrategic relations of the two players (and on that of other countries), but it will surely not have a direct structural impact on the Greek economy. The impact of the "Russian gas package" on the country's total annual government spending would be limited, at 0.5 percent.
Against this backdrop, Russia’s Gazprom and the Netherlands’ Gasunie are considering stepping up cooperation in the LNG sector. The two companies agreed on the need to create additional gas supply routes to Europe, in an apparent thaw of ties between Amsterdam and Moscow.
The last days also marked an increase in violence in Eastern Ukraine ahead of trilateral gas negotiations to be held later this month. At the same time, Gazprom publicised its activities in the Yamal Peninsula, and Rosneft announced the completion of the ‘world’s longest well at the Chayvo field’, part of Sakhalin-1 project.
Russia, Ukraine and the European Union made progress during their technical meeting in Brussels on Thursday, the European Commission said on Friday. It also explained that no date has been set for the trilateral negotiations that should have originally taken place this week.
European Commissioner for Competition Margrethe Vestager reiterated on Thursday that Brussels will continue its crack down on energy companies that stifle competition or use gas as a geopolitical weapon. Her remarks seemed targeted to Gazprom and, more outspokenly, to Google.
The fact that there is this crisis between Russia and the EU, combined with other crises, like the one between the EU and Turkey, pushes Turkey into the arms of Russia and Russia into the arms of Turkey. Perhaps things could escalate a little bit further, but eventually they are not expected to escalate beyond repair.
In the short term, TANAP and Turkish Stream aren't in open competition. However, competition will grow, as the capacity of both pipelines increases. The real battle will lie in which pipeline can overcome regulatory hurdles to satisfy growth in both the Turkish and European markets at a price acceptable to consumers.
AZERBAIJAN AND TAP
The growing cooperation between Azerbaijan and Italy should culminate with the Italian government granting final authorisation for TAP by the end of next month, Italian Minister of Economic Development Federica Guidi said on Wednesday. She gave the remark on the sidelines of a ceremony for a new polypropylene plant project in Azerbaijan, in which SOCAR will work with Italy’s Maire Tecnimont.
Good signs for the pipeline did not come only on a diplomatic level. A few hours before Guidi’s remark, Trans Adriatic Pipeline AG (TAP) awarded a contract to an Albanian and an Italian company for the construction of Albanian access roads and bridges, calling it ‘the first major contract.’ Gener 2 Sh.p.K and Sicilsaldo S.p.A. should start activities in the second quarter of 2015.
OTHER REGIONS, AND MORE ANALYSIS
After a flurry of diplomatic activities over the last weeks, Lithuania’s Minister of Energy Rokas Masilius said that regional energy projects will allow the realisation of the EU internal market for energy. According to the Minister, the Baltic region needs more active cooperation in order to develop a regional gas market and to synchronise the Baltic States with the continental grid of Europe.
A Dutch court issued a preliminary ruling on the requests brought forward by locals, saying it would order a halt to production around the village of Loppersum in the province of Groningen. Doing so, it dismissed a complete halt in the entire region, and gave politicians room for manoeuvring.
Roy Franklin, who worked at BP for 18 years, has been appointed the new Chairman of UK-focused Cuadrilla Resources. Also on Wednesday, Europa Oil & Gas said it was ‘poised to see an increase in production, revenue and cashflow’, indicating that small players are trying to get their slice of the cake and reap benefits of the renewed interests for onshore developments in the United Kingdom.
BASF’s subsidiary Wintershall said it intends to speed up works at its oil and gas discoveries in the southern North Sea. It explained it will continue its 2015 drilling campaign in the Netherlands (8 wells), the UK and Denmark (four operated wells).
The revelations made by The Figaro, France's main conservative daily paper, that the government buried its own report underlining the benefits of shale gas for the economy in a much safer way than the controversial fracking technique raised questions. Critics say François Hollande is concerned about his re-election prospects.
Eleven countries in Eastern Europe, the Caucasus and Central Asia share the same approach to development - they just focus on short to medium policies with no long-term vision, wrote the International Energy Agency (IEA) in its report released on Monday. It called on the 11 countries to implement measures toward stronger rule of law, increased conventional and unconventional production, energy market liberalisation.
Iranian Oil Minister Bijan Namdar Zanganeh announced on 14 April that Tehran offered Ankara a doubling of Iranian natural gas imports for getting a discount in gas prices. Ankara rejected the offer, as there is not any ready infrastructure neither in Iran nor in Turkey’s territory for a significant gas delivery increase. At the same time, Teheran continued negotiations for 260km offshore pipeline to carry Iranian gas to Oman. Oman’s Minister of Oil and Gas, Mohammed Al Rumhy, said that the two countries have yet to agree on the route.
After Israel approved gas exports from the Tamar field to Jordan last week, negotiations in the Middle East continue in their momentum. Egypt is eyeing LNG imports for $3.55 billion in the 2015-2016 financial year, while the Tamar partners keep looking for a way to monetise their gas.
Finally, low oil prices could trigger large-scale M&A, consultancy Wood Mackenzie wrote on Monday, a few days after Royal Dutch Shell’s decision to make an offer for BG Group. The new report also argues that low oil prices pushed companies to cut expenses so that the price required for companies to be cash flow neutral in 2015 has dropped by over $20 per barrel to $72.
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Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci