Week 33 Overview
The 33rd week witnessed major gas players flexing muscles.
Moscow remains committed to its plans in the Arctic, while looking for partners backing its plans; Norway’s production seems heading toward an eight-year high; Iran continues negotiations with German, Italian and Spanish entities. In other words, while Europe is closed for summer holidays, major events continue and are making headlines.
At the same time, European energy companies could stumble upon fresh problems in relation to their assets and operations in America. A judge on Thursday found that BP manipulated the natural gas market as alleged by the US energy regulator, while Saipem found itself embroiled in proceedings concerning a contract that the Brazilian company Petrobras awarded to Saipem SA (France) and Saipem do Brasil (Brazil) in 2011.
RUSSIA: GAZPROM, ARCTIC AND PARTNERSHIPS
While Ukraine was applying for pumping 1,963 cubic meters of natural gas from Hungary, Russian state owned gas giant OAO Gazprom reported a 71% increase in net profits to 382 billion rubles (5.97 billion USD) in the first quarter of this year. According to company filing, Gazprom revenue increased 6% to 1.65 trillion rubles despite a 10% fall in sales volume, while sales to Europe fell 16% to 39.1 billion cubic meters (BCM) in the same period.
Despite the good results, problems for Russia remain around the corner and Moscow’s strategy seems increasingly hinging on the Arctic and stronger ties with possible partners.
Nonetheless, the Arctic remains a big question mark. While former BP boss John Browne said that costs associated with exploration in the Arctic are a source of risk, Shell and Russian companies voiced their intention not to lose the Arctic battle. Lukoil has been awarded the right to develop the Vostochno-Taimyrsky block, which is located in the Taimyr Dolgano-Nenets district of the Krasnoyarsk region.
Meanwhile, India’s Oil & Natural Gas Corp.(ONGC) is reportedly negotiating with Russia’s Rosneft to purchase a share of the Vankor oil field in East Siberia, indicating that the increase in production wanted by the Russian company could come hand in hand with stronger ties with foreign companies. Meanwhile, Rosneft said on Thursday it increased technical drilling volumes at its production assets by 27% in the first 7 months of 2015.
European partners showed their interest too. Austria's integrated explorer and producer OMV Aktiengesellschaft (OMV) contended the extension of the Nord Stream pipeline, “Nord Stream 2,” will receive European Commission backing and that the project will play a key role in Europe's energy future. The project, he added, will increase the capacity of the Baumgarten hub by 20%.
In addition, Nord Stream AG is trying to prove the project is feasible and manageable also on an environmental level. It published the 2014 annual monitoring report, saying that the construction of the Nord Stream Pipeline has not had any adverse on the environment.
MIDDLE EAST: IRAN AND ISRAEL
The International Energy Agency acknowledged the potential of Teheran. On Wednesday, the Paris-based organisation said that Iran could raise its oil output by as much as 730,000 barrels per day (bpd).
Logically, everybody is now trying to understand which European company and country will be the first to capitalise on the latest developments in Iran. The last hours seems to indicate that German and Spanish companies could be unexpected winners, while Rome is trying its best too. "All European delegations (Italy, France and Germany) were serious about resuming cooperation with Iran after the lifting sanctions, but it seems Germans overtake others,” Zamaninia told ISNA.
Israel is moving too.
Israeli leaders keep sending message in support of gas projects in the country, with Bank of Israel Governor Karnit Flug backing the government’s plans for economic reasons. The Governor said that, by the nature of negotiations, the outline does not achieve the ideal result, but it can still positively contribute to the economy of the country.
Israeli Prime Minister Benjamin Netanyahu said on Thursday that the country signed a deal with Noble Energy and Delek Group for the development of the Leviathan gas field. Delek Group will have to divest its holdings in the Tamar, Karish and Tanin gas fields within six years; Noble Energy will have to gradually reduce its stake in Tamar to no more than 25% within that same time frame. During these six years, prices for natural gas will be regulated. The future of the agreement is now in the hands of Economy Minister Aryeh Deri. The deal should be then taken to the Knesset.
AZERBAIJAN: PROBLEMS TO COME?
During the first half of 2015, Azerbaijan’s gas export increased despite a decline in the country’s gas production as well a halt in gas export to Russia. A source in State Oil Fund told Natural Gas Europe that, in the same period, Azerbaijan’s revenues from gas export decreased by 36% to $189.532 million, mostly due to a decrease in oil and gas price as well as an increase in capital expenditure of Shah Deniz Stage 2.
BP, the operator of Azerbaijan's offshore Shah Deniz gas field released a report
indicating that the output from Shah Deniz Stage 1 (SD1) increased by 9.5 percent to 5.2 billion cubic meters (bcm) in first half of 2015. Comparing SOCAR and BP’s statistics, Azerbaijan’s produced 10.673 bcm of commercial gas in 1H15 in total and the remaining gas (4 bcm) has been re-injected to oil wells.
EASTERN EUROPE: PIPELINES AND LNG TERMINAL IN LITHUANIA
The Estonian Minister of Economic Affairs and Infrastructure Kristen Michal and the Finnish Minister of Economic Affairs Olli Rehn held a phone conversation about the Balticonnector. Both ministers reaffirmed that they will continue executing actions agreed upon in the plan on uniting the gas market.
The Gas Interconnection Poland – Lithuania (GIPL) project promoters, the Polish and Lithuanian gas transmission system operators, Gas Transmission Operator GAZ System S.A. and AB Amber Grid, agreed to conduct the Non-Binding Open Season Procedure. According to GAZ System, the outcome of this phase of the Open Season Procedure will result in decisions on launching the Binding Open Season Procedure, where the binding orders on capacity booking will be collected.
In order to make the project more sustainable, Klaipedos Nafta (Klaipeda Oil), the operator of the FSRU jetty, has asked Norway’s Höegh LNG, owner of the lease, to sell it now and not in 10 years as specified in the contract. Höegh LNG spokesperson Birgitte Hjertum told Natural Gas Europe in a written reply that Höegh LNG refused to sell the floating vessel-repository because “its business model is to own and operate assets.”
OTHER NEWS: NORWAY, UK, LNG FROM THE US
PGNiG Upstream International executed a USD 400m credit facility agreement with Societe Generale, BNP Paribas, ING, HSBC, Citibank, CACIB, SEB and Natixis. According to the company, the loan will give PGNiG the opportunity to freely purchase other production assets on the Norwegian Continental Shelf.
Norway’s production is growing, as planned maintenance operations have been recently completed. It is reportedly poised to reach an eight-year high, adding to an already oversupplied system.
While coming up dry in the Norwegian Sea, E.ON confirmed its intention to sell assets to reduce debt. The German company also posted half-year EBITDA of €4.3 billion (-13% with respect to last year).
The UK, the Netherlands and Denmark are trying to follow in Norway’s footsteps.
The UK Government relaunched its shale campaign, asking local governments to take faster decisions on companies' bids. It also said that the Secretary of State could call in shale applications.
Meanwhile, Maersk Drilling has been awarded a new contract for the jack-up rig Mærsk Giant with Danish energy utility DONG Energy. The firm contract covers 150 days of work on the Nini and Siri field in the Danish part of the North Sea. The company is also mulling acquisitions.
Finally, a unit of Cheniere Energy Inc. has struck what is thought to be the first U.S. liquefied natural gas (LNG) supply deal linked to European spot prices, implying confidence in the staying power of low U.S. gas prices. The sales agreement with Electricite de France (EDF) covers up to 26 cargoes, or up to about 100 million MMBtu, through 2018.
INTERVIEWS, SPEECHES AND CONTRIBUTIONS
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