Week 26 Overview
The 26th week witnessed two key developments. Firstly, European Union leaders extended economic sanctions against Russia on Monday over its “destabilising role in Eastern Ukraine.” That triggered a strong reaction of Moscow. Secondly, despite the clear endorsement of the majority of national newspapers, shale gas in the UK registered unpredicted setbacks.
RUSSIA, UKRAINE AND TURKEY
Turkey issued a permit on engineering surveys for the offshore section of Turkish Stream, Gazprom confirmed on Monday evening. ‘The document stipulates that investigations will be carried out within the exclusive economic zone and territorial waters of Turkey in order to place the first offshore string of the gas pipeline’ reads a note.
Comments came then naturally. Russia’s Gazprom has enough funds to build the first line of the Turkish Stream project, Chief Financial Officer Andrei Kruglov said during a conference with Gazprom’s officials.
Nonetheless, uncertainties remain over the 15.75 bcm line. Apparently, Gazprom has not yet decided whether to build the pipeline by itself or in cooperation with other companies.
On Thursday, Russian Energy Minister Alexander Novak expressed interest in potentially increasing Russia's natural gas imports from Turkmenistan. The same day, the Kazakh parliament ratified an agreement on the delineation of the Caspian Sea boundaries between Kazakhstan and Turkmenistan. While seemingly mundane and unrelated, these two events are interconnected and reflect Turkmenistan's potential to fundamentally alter an important element of the standoff between Russia and the West.
But this is just one part of the story. The role of Ukraine is central too.
While Russia’s President Vladimir Putin was saying on Wednesday that Russia cannot provide Ukraine with the gas price discount it once had, Naftogaz tabled its requests to the European Commission, asking Brussels to take a more active role in the contracts involving Slovakian, Ukrainian and Russian companies. According to Ukrainian politicians and companies, the legacy contract between Slovakia’s Eustream and Russia’s Gazprom violates EU law.
On Friday, Ukraine’s Naftogaz then welcomed Eustream’s declarations reiterating that the present set-up of gas flows management ‘at one of the region’s most crucial interconnection points’ is not in line with EU standards. ‘Naftogaz … supports Eustream’s suggestion to engage the concerned parties in development of an action plan that would bring the situation in compliance with the EU rules that regulate gas network usage’ the Ukrainian company wrote on Friday.
Finally, Gazprom formed on Friday a new Board of Directors, formally confirming the Government’s role in the company through the appointment of Russia’s Energy Minister Alexander Novak. Apart from Novak, the new member - Martynov - is Rector of Gubkin Russian State University of Oil and Gas.
EUROPEAN STRATEGY: SANCTIONS, AND THEN WHAT?
As said, European Union Foreign Ministers agreed to extend economic sanctions against Russia on Monday over its “destabilising role in Eastern Ukraine,” triggering a strong reaction of Moscow. The Kremlin is more and more advocating the principle of reciprocity in foreign affairs.
Despite the uncertainties over European policies toward Russia, the European energy strategy is somehow coming together, with a mix of national decisions and interventions of European Commissioners around the continent. On Wednesday, while European Commission Vice-President Maroš Šefčovič was starting its two-day tour in Germany, Climate Action & Energy Commissioner Miguel Arias Cañete took part in a Parliamentary hearing in Rome.
Speaking of the Trans Caspian Pipeline (TCP), the financial issue is a key point to solve: technical support and economic investments of international energy companies will be required to build a 300 km undersea pipeline between Turkmenbashi and Baku port, estimated to cost US$ 5 billion. Given that Azerbaijani companies are already engaged to finance TANAP’s realization and Turkmenistan usually finances the realization of export pipelines up to national borders, the EU should take over the financial support to build the infrastructure, wires Fabio Indeo.
IRAN, AZERBAIJAN, GEORGIA AND SEE
Iran says it has reached an agreement with Turkey on increase gas export at a relatively modified price. Iran's Ambassador to Ankara Ali-Reza Bigdeli told reporters on June 23th that “Iran and Turkey have reached agreement in principle on increase in the amount of gas flow from Iran to Turkey as well as relative discount Iran gives to the country”.
Managing director of the Iranian Gas Transmission Company Mohammad Ali Emam recently announced that Iran has increased trans-country gas transition capacity by 100 million cubic meters per day (mcm/d) during last fiscal year, ended on March 20. The country also increased gas delivery to power plants by more than 17 percent during last three months.
Meanwhile, Azerbaijan, Georgia and Romania signed a Joint Declaration on Wednesday to progress with AGRI, the proposed project to transport Azerbaijani gas to Romania and Central Europe. During the meeting also attended by BP officials in Bucharest, ministers discussed the position of member countries, final results of the feasibility study, and financing opportunities for the project.
On the other hand, the Interconnector Greece-Bulgaria (IGB) has been postponed. The Final Investment Decision (FID) was supposed to be signed between Athens and Sofia in late June 2015. This is probably related to a possible GRexit.
After the recent agreement between Sofia and Belgrade for the construction of a 150-kilometre gas interconnection, Serbian Minister of Mining and Energy Aleksandar Antić said that the new project will also give Serbia the possibility of receiving certain quantities of the gas flowing through the Trans-Adriatic Gas Pipeline (TAP) and the Trans-Anatolian Gas Pipeline (TANAP), but also the liquefied natural gas (LNG) terminal in Alexandroupolis, which will be connected to TAP. “If needed, the two-directional interconnection will allow us access to gas supplies from Azerbaijan, Turkmenistan and Iran, or gas from Algeria or Qatar via the terminal in Alexandroupolis,” said Antić.
One last reflection. The country that will manage to take the first decisive steps towards the development of the right projects and infrastructure will probably be the one which will manage to lead as a key player in the regional gas trading zone. Competition could prove to have a positive effect in this process, or it might lead to the unharmonious development of a region, argues a pundit speaking about the “Europeanisation” of South-East European markets.
SHALE GAS IN UK: TWO STEPS BACK, ONE STEP FORWARD
British liberal media increasingly voiced their endorsement of shale gas in the country, calling the government to streamline regulation. ‘Perhaps the main reason that fracking has not yet flourished in Britain is that, despite Mr Cameron’s rhetoric, shale-gas companies still face a thicket of regulation’ The Economist recently wrote.
Companies focused on shale gas in UK reported two setbacks at the end of the week.
Lancashire County Council rejected an application by the leading UK shale gas explorer Cuadrilla to proceed with hydraulically fracturing at the Roseacre Wood site near Blackpool in northwest England. The application was rejected on the basis that the work being planned would create traffic disruption.
Earlier last week, Lancashire County councillors decided to postpone a decision on Cuadrilla's shale plan for Preston New Road in north-west England till Monday. ‘LancsDevCC meeting on Little Plumpton fracking application has been deferred until 10am on Monday 29 June’ the Lancashire County Council tweeted on Wednesday, after a a chaotic afternoon in the County Council room and on the UK-focused newspapers.
OTHER DEVELOPMENTS IN EUROPE: GENERAL PICTURE, NORWAY, NETHERLANDS, BP AGREES DEAL FOR LNG TO EGYPT
The combination of asset sell-offs by major European energy players and increased concern over energy supply security has served to bring back the decade-old utility privatization trend in Central and Eastern Europe. States are attempting to get their hands on long-term gas supply contracts with the Russian natural gas exporter Gazprom and pave the way for a multi-commodity energy supplier business.
As Statoil decided to cancel the contract with COSL Pioneer some 13 months before the expiry date of August 2016, a mixed picture for the Norwegian gas industry emerged on Wednesday.
A few hours later, though, some good news for the domestic gas industry. Industri Energi and Norwegian Shipowners’ Association (NSA) agreed a 1-2.33% wage increase in a last-minute deal, which averts a strike that could have had serious repercussions on Norwegian offshore activities.
Norwegian authorities granted Germany’s Wintershall Norge AS a drilling permit for well 10/4-1 in the south-eastern part of the North Sea. The area in this production licence lies in the south-eastern part of the North Sea and consists of the eastern part of block 10/4. Well 10/4-1 is the first exploration well in this production licence.
Dutch Economy Minister Henk Kamp reportedly decided to cap production at the Groningen gas field, Dutch news agency ANP wrote on Monday. Maximum production in the current year should be 30 bcm. The cap on the 10th largest gas field in the world will produce less than what said in January 2014, when the Dutch government said that production would be cut to 42.5 bcm in both 2014 and 2015.
UK-based BP and Egypt reportedly agreed a liquefied natural (LNG) supply deal through 2015 and 2016. According to Reuters, BP will supply 16 cargo units under a deal with the state-run EGAS. Previously, negotiations envisaged 21.
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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