Week 29 Overview
There is little uncertainty over what was the most important news of the 29th week as Iran found a way out of its international profile stalemate. The country and the six world powers found a compromise, which set newspapers throughout the globe on fire. Everybody is looking at possible repercussions on (i) diplomatic equilibria, (ii) possible moves of neighbouring countries, and on (iii) Iran's next moves. Additionally, US President Barack Obama will be called on to avoid attempts by Congress to slowdown or to stop the foreign policy achievement. In this sense, reasons remain to be cautious.
TAP, IRAN, AZERBAIJAN, AND TURKMENISTAN
Iran and six major world powers reached a nuclear deal on Tuesday. The agreement could change the game for the European gas industry. Iran, which holds the second largest proven reserves of natural gas in the world after Russia, could soon benefit from the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions.
Anticipating the deal, Iranian companies signed a $2.3 billion agreement on Monday to build Iran Gas Trunkline-6 (IGAT-6), a 1,300 kilometers of pipeline which the country sees as its most important conduit for future gas exports to Europe.
Logically, countries are trying to reap the benefit of the developments. Azerbaijan is positioning itself to export not only its own natural gas to Europe, but Iran’s as well. Tehran sounds willing to consider the idea.
Azerbaijan is indeed a key player here.
Despite difficulties and European delays on the completion of SOCAR’s acquisition of 66% share in DESFA, the Azerbaijani company seems firmly committed to do all it can to gain a majority stake in the Greek Transmission System Operator. This is coherent with Baku's strategy, which hinges on tapping into this new long-term customer base in Southeastern Europe, and gain access to international LNG shipments through Greece.
As the spotlights turned to the region, Azerbaijan will have the additional role of eventually increasing ties with Turkmenistan, to eventually promote the Trans-Caspian line (TCP). Indeed, by 2016 Turkmenistan will technically be able to transport hydrocarbons from the east to the Belek compressor station, which is located next to the city of Turkmenbashi (where the TCP will presumably start).
Meanwhile, Norway’s Statoil is to leave Trans Adriatic Pipeline project (TAP) by selling its shareholding. The news was delivered by Rovnag Abdullayev, President of the State Oil Company of Azerbaijan Republic (SOCAR) during an exclusive interview to Azeri ANS TV on Friday.
Snam’s CEO Carlo Malacarne confirmed that there are TAP’s stakeholders willing to sell their shares to the Italian company. He said that a 20% interest would cost around 400 million euros.
UKRAINE: US AND EUROPE?
During a conference in Washington on Wednesday, Naftogaz signed a 2-year Memorandum of Understanding with Frontera Resources, a US oil and gas company. Frontera is interested in exporting LNG to Ukraine from Georgia.
According to Sputnik, Ukrainian Prime Minister Arseniy Yatsenyuk said on Friday that the US company Frontera Resources would build a liquefied natural gas (LNG) import terminal in Ukraine.
European banks are also increasing their efforts to stabilise Ukraine. The European Bank for Reconstruction and Development (EBRD) issued an official announcement on consideration of a gas purchase facility for Ukraine’s Naftogaz. ‘The trade finance loan of up to US$300m is to be used to bridge the gap between purchase and sale of natural gas’ reads a note released by Naftogaz on Thursday.
“We are considering aid of $250-300 million and actively cooperate on the issue so that there would not be problems in winter. It will be a credit instrument," EBRD Director in Ukraine Sevki Acuner.
Meanwhile, Naftogaz hopes that the collaboration with global law firm Baker & McKenzie and consulting firm PricewaterhouseCoopers will help it coming up with a plan meant to eliminate undue political intervention in the company’s business. The plan aims to set up a Supervisory Board of Naftogaz and gradually increase its independence, while proceeding with the unbundling of the TSO.
UK: MORE POLITICAL SUPPORT TO UNPOPULAR SHALE, CONVENTIONAL EFFORTS GO ON
On Thursday the British government proposed to change the rules for hydraulic fracturing in protected areas, in a U-turn that could pave the way to unconventional drilling in national parks and UNESCO sites. The previous outright ban would be then turned into a substantial green light to unconventional drilling operations in these lands.
While environmentalists complained about the decision, some opposing voices argued that shale gas could be useful for the United Kingdom and for Europe as a whole.
A few hours before, the UK’s Task Force on Shale Gas released a document recommending that the content of the additives being used across shale gas operations should be made public. The organisation launched in September 2014 also said that the Government should better define the responsibility for the continued monitoring and documentation of sealed-off sites.
This comes in a moment experts underline that more North Sea fields might cease production earlier than planned as a consequence of the low oil price environment.
Logically, many companies are trying to focus, at least for the moment, on less risky assets. UK-focused Centrica announced that work to tap into new reserves in the North Morecambe field off the coasts of North England will start this month. ‘A new project to boost gas production from Morecambe Bay is set to take Centrica Energy’s current investment in the region past the £100 million mark and unlock new gas reserves’ the company wrote on Friday.
Egdon Resources announced deals for two separate farm-outs of License PEDL005(R), located in Lincolnshire, UK, to Terrain Energy and Union Jack Oil. The British oil and gas industry keeps suffering, but some companies like Egdon Resources seem to be able to cope with the current uncertainties, which are both legislative and financial in nature.
NORWAY FAILS TO IMPRESS, BUT MAKES HEADLINES
Despite clinching a last-minute deal with workers associations earlier this month, Norway’s gas industry failed sending positive signals to markets. Det Norske announced in a note that it will appeal the recent decision on the ownership interests on Johan Sverdup field, while Germany’s Wintershall came up dry in Norway’s PL734.
On the other hand, Norway’s preliminary production figures for June 2015 showed an increase in gas production with respect to the same period of 2014. Figures for June also indicate that actual production is higher than expected.
At the same time, Norway-headquartered Höegh LNG sold the LNG Libra (built in 1979) to a Chinese energy company for around USD 20 million. The company committed to the FSRU and FLNG market, explaining that its focus will remain on new build FSRUs.
Finally, Norway’s Statoil and Russia’s Rosneft completed drilling works as part of the Pilot Project at the PK1 layer of the North-Komsomolskoye field in Purovsky and Nadymsky regions of Yamalo-Nenets Autonomous District. According to a note released by the Russian company on Tuesday, the joint operations indicate a strong resolve to work together in the long-term.
EASTERN EUROPE, BALKANS: GREECE, BULGARIA
European Commission’s hesitation to give clear support to a new LNG facility in Greece could be interpreted as another signal of growing disparities between the energy strategies of Brussels and Athens. According to some experts, though, a joint project of DEPA and Gastrade would offer strategic advantages for Greece and the region, and fits into the timeline of upcoming regional and mega projects as well as existing infrastructure.
Athens' proposal comes in a moment the industry is looking at LNG opportunities. In a sense, the project could haven't been put forward at a better moment. “We need to develop sweet spots on the demand side; that we need to do a better job of developing the market and demand for natural gas,” Michael Stoppard, Chief Strategist, Global Gas, IHS Energy, recently commented.
However, it is likely that, despite the possible interests of the industry, European funds will go elsewhere. Member States agreed on the Commission’s proposal to allocate €150 million to key trans-European energy infrastructure projects, confirming once more a strong focus on Bulgaria. In total, 20 projects were selected following a call for proposals under the Connecting Europe Facility (CEF), an EU funding programme for infrastructure. Of the 20 projects, 17 relates to studies and 3 to construction works.
OTHER NEWS: AFRICA, EASTERN MEDITERRANEAN, ITALY
Experts see a deterioration of the situation in Egypt, and the international community seems unable to find common ground to solve the situation in Libya. Against this bleak scenario, the EU welcomed the initialing of the political agreement in Misrata to promote a political settlement in the country.
The Eastern Mediterranean and its gas clearly have the potential of bringing significant changes to the region, and particularly to the parties directly involved. Such a scenario would therefore require important prerequisites: a friendly investment climate for investors in Israel, the discovery of additional amounts of gas in Cyprus and Lebanon’s passing of the pending pieces of legislation that would launch the country’s first licensing round and allow it to explore its hydrocarbon potential.
On the other side of the Mediterranean, in Italy, UK-headquartered Sound Oil received the award of the Casa Tonetto production concession (which includes the Nervesa discovery) from the Italian Ministry of Economic Development. Nervesa is a 21 billion standard cubic feet field discovered by ENI in 1985.
INTERVIEWS, VIEWS AND OTHER CONTRIBUTIONS:
Article by Elmar Baghirov on the Trans-Caspian pipeline
Article by Okan YARDIMCI: Energy cooperation in the history of Turkish-Russian relations
Article on Jean-Marie Dauger, Executive Vice President, Engie, about prospects of gas
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