European natural gas market wrap-up for Week 3

Week 3 Overview

The third week of the year has given some early indications of a troubled year ahead, both for the gas industry and the socio-economic life in Europe. Turkey-Cyprus, Russia-Ukraine were the two main confrontations that made the headlines, while recent news has been casting fresh doubts on the future of Norwegian Arctic.

It also became clear that the industry in Norway and the United Kingdom will need some form of public support, which will complement companies' decision to cut down their workforce. Meanwhile, the British shale industry showed some sings of progressing.

Georgia’s steps toward the west, and Bulgaria’s quests were significant events too.

RUSSIA-TURKEY-EU

It seems clear that Turkey’s growing role in the gas markets is an element of primary importance.

Russian authorities announced their decision to divert gas from the current infrastructure to a new pipeline to Turkey. According to Naftogaz’ CEO Andriy Kobolyev, Russian declarations are a political bluff without any economic sense.

The decision remains open to interpretation. Some said that South Stream is not dead – rather it has morphed into a new project which is part of a complex commercial power play on the part of Russia and Turkey.

The new route through Turkey to the border with Greece is likely to have repercussions also on other projects. For instance, some commentators see room a revival of the Nabucco West.

According to the leftist coalition holding its lead in opinion polls, Russia’s decision would allow Athens to become a new gas hub.

Meanwhile, European authorities expressed their commitment for new interconnections. In the same occasion, Prime Minister Borissov introduced the idea to turning Bulgaria into a common gas distribution center for EU Member States in the region.

Bulgaria also asked Commissioner for Energy Union Maroš Šefčovič to pay more attention to energy security issues in the Balkan country. While Bulgaria claims it will not become a "bargaining chip" in the West-Russia dialogue, that is exactly what it is positioning to do so to maximize it benefits.

Brussels’ strategy will also have to do with negotiations for the Caspian Sea. Indeed, Europe’s decisions will depend on Turkmenistan too.

UKRAINE

Ukraine is dependent on Russia for half of its own annual gas demand of around 50 billion cubic meters. It comes as no surprise that Moscow’s decision could have serious repercussions on Kiev.

Kiev has also to work on a new arrangement with Russia. In this context, Brussels’ role remains central.

The first pillar is integration into the EU so that Ukraine’s gas transmission system and the Ukrainian gas market become part of the European gas market, Naftogaz’ CEO Andriy Kobolyev stated.

In the meantime, Kiev is betting on measures to push down demand for gas. Kiev achieved some results in the last weeks. On Tuesday, Naftogaz said that Ukrainian natural gas usage fell by 19% in December compared to the same period in 2013.

TURKEY-CYPRUS

A Turkish government’s Navigational Telex confirmed its plan to conduct exploration activities offshore Cyprus.

As a consequence of the action and Cyprus’ reaction, the UN Secretary General’s Special Adviser Espen Barth Eide said that direct Cyprus peace talks are unlikely in the near future. Cyprus’ Anastasiades reiterated that natural resources will be managed by the central Government.

Ankara is turning the spotlight on its eventual role in the European Union, but frictions seem on the rise. German Chancellor Angela Merkel reinforced her support of the Republic of Cyprus, calling for the respect of the European country’s sovereignty over its territorial waters.

NORWAY AND the UK

Norwegian gas exports declined for the second consecutive year after the all-time high registered in 2012.

And prospects remain gloomy also for the years to come. Statoil followed GDF Suez and Dong Energy, giving clear signs of a decreased interest for exploration in the Arctic.

Investments in the upstream segment are said to support production patterns in the United Kingdom, with data released by Wood Mackenzie indicating that 2014 was a record year. But the increase in investments did not translate into a similar trend of exploration and appraisal activity.

In this context, it is clear that the public support is important too. Public investments could then translate into higher margins for major players, while smaller companies might be the last to reap the benefits of increasing public support.

Coherently, over the last days, Edison renewed its interest in the UKCS. The Italian company strengthened its presence in the Central North Sea.

On Thursday, the Total-operated West Franklin Phase 2 project in the Central Graben area of the UK North Sea was brought on stream.

The shale gas promoters an the onshore industry had some reasons to rejoice too. The UK’s Environmental Agency has granted Cuadrilla Resources the environmental permits for an exploration site in Lancashire.

Meanwhile, the UK government has agreed to exclude Scotland from impeding legislation that will making it easier for fracking firms to drill for shale gas.

OTHER STORIES

Shale Gas Technology: Lessons learnt in Poland

Baltic Countries Sign Declaration On Energy Security of Supply

Georgia Plans UGS Facility Construction in 2016

Georgian O&G Moves on with Rehab of Pipeline to South Georgia

EC Launches Consultation on Revision of Regulation Passed After Stress Test