Week 20 Overview
It is highly unlikely that the meeting between Germany’s Chancellor Angela Merkel and Russia’s President Vladimir Putin last week did go as the Germans expected. The devil is in the detail. Russia-owned Sputnik clearly spoke about the end of Merkel’s era, hinting at a worsening of the ties between Berlin and Moscow. If a clash of interest is a pure guess (the relations between Germany and Russia are always really difficult to read), it is clear that Putin is putting some pressure on Merkel.
Against this backdrop, while Berlin stumbles upon probably unexpected resistance, Norway raised its voice. Oslo is increasingly raising its geopolitical profile, through a mix of political firm positions and global commercial developments. Doing so, it threw the gauntlet in the Kremlin’s two backwards - influence and hydrocarbons.
So here comes the message of the 20th week. Let (some of) the EU politicians pat each other on the back in the occasion of the Charlemagne Prize award ceremony for this year’s laureate, and leave Oslo come to Europe’s rescue. This seems the lesson to be learnt in the last days, both in the gas industry and in the related geopolitics.
After this foreword, it comes as no surprise that UK’s Centrica extended gas supply contracts with both Statoil and Gazprom. The extension indicates that, at the moment, Russian and Norwegian gas are the only two available options on the table.
NORWAY INCREASES PRESENCE IN BRUSSELS, AND ELSEWHERE IN EUROPE (AND US)
As said, Norway is trying to increase its geopolitical status, combing a reorganisation of its hydrocarbon industry with a stronger international profile.
On the one hand, Statoil announced changes in its corporate structure, and in its management team. The Norwegian company is intentioned to increase international assets, betting on shale formations in North America and renewable energy in Europe.
On the other hand, after Foreign Minister Børge Brende’s sixth visit to Ukraine in less than a year, the Norwegian cabinet increased its support to Ukraine by almost 30% to NOK 310 million.
“We have introduced a new form of reverse shipments and will not allow anyone to use gas supply as an instrument of imposing pressure on Ukraine in the future” Ukraine’s Petro Poroshenko said after the meeting with Brende.
RUSSIA AND EUROPE: PACIFICATION AWAITS IN THE WINGS
Gazprom announced South Korea’s Hyundai Heavy Industries has won the Gazprom Flot tender for the construction of the Kaliningrad floating LNG terminal. The news has left many experts scratching their heads. According to the Russian company, the $294.77 million Kaliningrad facility may be the first gas provider for the region, but will be “subsequently replaced by the Baltic LNG project in Leningrad.”
The announcement could be a bluff or not, but it is such a new idea that could possibly change feasibility studies of new LNG projects in the Baltic region.
The real revolution on the Russian side would imply a change in Gazprom’s business model. According to Andreas Goldthau, if the Kremlin depoliticised gas and cooperated more with European institutions, Gazprom would be meant to remain the main player in European gas markets forever.
Beyond any doubt, despite the long-term pacification option, tensions between Russia and the European Union could emerge soon, from Western closer ties with Georgia, Bulgaria and Ukraine.
Despite conciliatory remarks made by US Secretary of State John Kerry during his visit to Moscow, NATO Secretary General Jens Stoltenberg spoke about options to deepen the partnership between the US-led organisation and Tbilisi. "There has been a Russian build-up, both along the borders between Russia and Ukraine but also inside eastern Ukraine, with a steady flow of heavy equipment, tanks, artillery, ammunition, air defense systems and a lot of training," the Norwegian politician said on Monday.
According to commentators, Russia is trying to stir up anti-EU frustration in Bulgaria. The resentment has to do with Sofia's withdrawal of other initiatives backed by Russia (Belene and the BurgasAlexandroupolis oil pipeline) under Western pressure.
MENA REGION, AND SOUTH-EASTERN EUROPE
Iran is following in Russian and Norwegian footsteps. Teheran does not want to miss its gas chance, and it is looking to achieve a balanced portfolio of costumers, where Europe could play a (minor) role.
President Hassan Rouhani said Bulgaria enjoys an excellent geographical location in southeast of Europe. He said Sofia can become a link for gas from Iran to Europe.
But this is only one part of the story. According to reports, Iranian authorities have signed the licence for Iranian private companies to export to foreign countries, and Abu Dhabi should be the next recipient of Iranian gas, after Iraq, Pakistan, and Oman. Iran and the United Arab Emirates reportedly reached a final agreement for CNG containers.
Iran is also stepping up efforts to create ties with Turkmenistan. President Rouhani met a delegation from Turkmenistan, and signed 19 documents on mutual cooperation.
Meanwhile, the Cyprus issue is back in the headlines, as the talks between the Greek Cypriot President and the Greek Turkish leader officially resumed on Friday. Turkey will be key to achieve a positive result.
Ankara is paying careful attention to the developments in the region. For instance, the pledge of the leaders of Cyprus, Greece and Egypt to cooperate in the fields of finance, security and energy spurred Turkey’s discontent. But, as far as gas exports from Aphrodite to Egypt are concerned, the ongoing discussions at this stage are confined to MoUs, declarations, and pre feasibility studies.
Tensions in the area could cast further doubts on the region, as there is not yet a country aptly pushing forward with the adjustments needed to start production in the medium term. Israel is another example of these uncertainties.
The last solution to overcome the Noble-Delek ‘cartel’ seems to be a deal with the Israeli authorities that would allow the two companies to retain their ownership in the Leviathan. Delek would be forced to sell its stakes in the Tamar within six years, and limit its shares to 45% in the Leviathan. Noble Energy would be allowed to retain shares in both fields, however it would be forced to reduce its Tamar stake from 36% to 25% and sell its share in the Karish and Tanin fields.
But in the area there is one more untold story, which sometimes we all forget about. The Palestinians have gas too. UK-based BG discovered a field in 1999 estimated at 1 Tcf and located 30km off the coast of the Gaza Strip at a water depth of 603 km. 'The reason why the Gaza Marine field has not been developed to date is because BG failed to find a buyer for the Palestinian gas,' a source told Natural Gas Europe, adding that Israeli discoveries made Gaza Marine field’s prospects even bleaker.
It comes as no surprise that the European focus remains on demand and infrastructures, and not on the downstream. Europe, especially South Eastern countries, should optimise existing assets.
Michael Thomadakis, Member of the Board of Greece’s Regulatory Authority for Energy (RAE) recently said that it is important to “think small” by completing important gas interconnectors for small gas markets. “We need to exploit existing infrastructure, which, in most cases means we only need to remove legal obstacles.”
In addition to existing infrastructures, medium projects have an important role too - the interconnectors between Hungary and Romania, Eurostream’s Eastring, the Tesla project involving Hungary, Macedonia, Serbia and Greece are some possible examples. We believe that small steps and inter country cooperation are the way forward, Janos Feher of Hungarian TSO FGSZ confirmed.
LITHUANIA AND POLAND: SOON INTERCONNECTED?
Lithuania reiterated it will try to “remove its dependency from Russia”. It plans to do so, integrating its energy markets with the electricity and gas markets of the European Union. According to the Lithuanian government, Poland is the only possible gateway.
Against this backdrop, the European Union granted maximum financial assistance to the Spatial Planning and Engineering Design Works of the Poland-Lithuania Gas Interconnection project, Lithuania’s natural gas transmission operator Amber Grid wrote on Wednesday.
Meanwhile, Poland’s PGNiG filed a lawsuit against Gazprom before the Arbitration Court in Stockholm. Submitting the dispute for resolution by the Arbitration Court does not preclude further negotiations with the trading partner, the company wrote.
AZERBAIJAN: WORKS ON SOUTHERN GAS CORRIDOR FASTER THAN EXPECTED
Works on the Southern Gas Corridor project are proceeding faster than expected, Azerbaijan’s Energy Minister Natig Aliyev said on Wednesday. According to Azernews, the project is 30-32% ahead of schedule.
Meanwhile, production figures from Azerbaijan depict a mixed picture. State Oil Company of Azerbaijan Republic's (SOCAR)'s gas production reached 1.67 bcm in 1Q15, while Azerbaijan's total gas output stands at 7.415 bcm, says the Azeri company in its official statistics.
SHALE GAS IN EUROPE: SLOW, BUT TANGIBLE DEVELOPMENTS
During the week, some developments gladdened shale enthusiasts’ hearts across the continent.
British Prime Minister David Cameron decided to appoint Amber Rudd, a former investment banker, as secretary of state for the Department of Energy and Climate Change. Rudd recently threw her politician weight to support shale gas developments in the United Kingdom.
Total SA has received approval to recommence its search for shale gas in Denmark following a suspension ordered by the Danish Energy Agency (DEA). After a provisory halt to exploration due to the use of a chemical not authorised in the environmental guidelines, Total detailed its plans to increase transparency and avoid erroneous handling of chemicals.
Despite the chances of developments in France before presidential elections in 2017 are almost null, local politicians are also trying to keep the shale gas debate alive. Socialist Christian Bataille argues in a new congressional report co-sponsored by his UMP right wing colleague from Strasbourg, André Schneider, that shale gas developments could boost job creation, allow Europe to become less dependent on the Russian gas and ultimately reshuffle foreign diplomacy often driven by energy resources.
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Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci