Week 34 Overview
Eastern European countries hold the media spotlight during the 33rd week.
Bulgaria made headlines in all major European newspapers, as it clear that the future of the South Stream project is strictly connected to local political decisions and developments in the country.
For one post-Soviet state teetering in its stance, another one is doing exactly the opposite. While Sofia is trying to understand whether to maintain and increase its ties with Moscow, Vilnius is moving closer to break Gazprom’s monopoly. The first LNG contract signed with Norway’s Statoil matches actions with rhethoric in Lithuania’s decisiveness.
If Europe’s future in terms of economics will be determined by changes and evolutions in Southern Europe, the Continent’s geopolitical direction will be set, once more, in Eastern Europe.
BULGARIA, SOUTH STREAM (& TURKEY)
On Tuesday, Sofia stressed that South Stream Bulgaria’s capital increase constitutes a breach of protocol. The company applied for capital increase on August 12.
‘According to the Ministry of Economy, the capital increase itself constitutes the beginning of construction activities…,’ the Ministry wrote in a statement published on Tuesday, adding that Sofia supports the project only if realised in full compliance with European rules.
Sofia seemingly asked to stop all the activities to comply with the EU requirements, and Gazprom confirmed that South Stream Bulgaria suspended orders and contracts for the South Stream gas pipeline construction in the country.
‘South Stream Bulgaria AD adheres to the principles of transparency and responsibility while constructing the South Stream gas pipeline, so the project complies with the EU requirements,’ the company led by Alexey Miller wrote in a statement published on Wednesday.
Nonetheless, doubts remain. Several pundits question the fact that the country honoured its pledge to suspend work. The European Commission said on Thursday that it was aware that a video showed workers at Varna harbour in Bulgaria making room for more pipes shipped from Germany.
In all this confusion, a Russian newspaper voiced the possibility of a plan B for the project, which could pass through Greece and Turkey, dropping Bulgaria, Serbia, Hungary and Slovenia. This alternative route would resemble the TAP-TANAP project from Azerbaijan to Italy.
At the end of the week, Bulgaria also disclosed a plan for a gas interconnection with Turkey. On Friday, a Bulgaria delegation met Turkish experts.
“Today's meeting is an important step of the government's efforts to diversify gas supplies to the country,” Deputy Minister of Economy and Energy Anton Pavlov commented.
These facts further corroborate the idea that Turkey could soon cement its position. In this context, it comes as no surprise that the state-run Turkish Petroleum Corporation (TPAO) has inked a $1 billion loan agreement with Vakıfbank and İşbank to acquire Total’s 10% stake in Azerbaijan’s Shah Deniz gas project.
BALTIC (1): LITHUANIA
Lithuania moves forward in its efforts to increase energy security, applying for EU support for an interconnection project with Poland and singing its first LNG contract with Statoil.
Indeed, Baltic countries are completely reliant on Russian gas and are trying to progress with new plans to minimise the impact of an eventual gas cut off.
‘On 19 August 2014, the Polish and Lithuanian natural gas transmission systems operators GAZ-SYSTEM S.A. and AB Amber Grid submitted joint applications to the Innovation & Networks Executive Agency (INEA) for the co-financing of the project Gas Interconnection Poland – Lithuania (GIPL) from Connecting Europe Facility (CEF),’ reads a note published by Lithuania’s Ministry of Energy on Thursday.
The two companies submitted an application to receive EU financial support for planning and design, and a second application to receive funds for construction activities.
Following the provisions of the legal acts for CEF, the maximum amount for co-funding is 50% for planning stages and 75% for construction works.
‘The estimated value of the GIPL project amounts to EUR 558 million, including EUR 422 million in the territory of Poland, and EUR 136 million in the territory of Lithuania.’
Vilnius also signed its first contract with Statoil for the supply of liquefied natural gas. This will enable the country to break Gazprom’s monopoly.
‘This contract will help to ensure continuous operation of the terminal and will establish a new natural gas pricing policy linked to the natural gas price movements on the international markets. The contract also covers possibilities of LNG reloading – a new commercial activity in the Baltic Sea region,’ reads a note released by Litgas on Thursday.
Litgas, which is the the gas trading arm of Lietuvos Energija, signed the contract that will bring 540 million cubic meters of gas to Klaipėda LNG terminal, starting in 2015.
“This strategic contract will help to ensure the availability of an alternative natural gas import source which will enable us and other Lithuanian companies to procure natural gas on international markets from various suppliers at any time,” says Dominykas Tučkus, general manager of Litgas.
According to the company, the price of LNG supplied to Lithuania will be linked to the value of the NBP index.
BALTIC (2): ESTONIA
Finland’s Gasum and Estonia’s Alexela Energia have presented collaboration models to go with their LNG plans in the Gulf of Finland.
‘The alternative collaboration models, having facilities on both sides of the Gulf of Finland, were presented to the European Commission in Brussels yesterday and now the companies are waiting for the European Commission's position on the presented collaboration models,’ reads a note released on Tuesday.
In February, the two companies signed a memorandum of understanding of feasibility studies concerning the project, coming up with a project that has been rejected by the European Commission in June. The EC did not find the project viable for investment aid.
”The negotiations were conducted in good spirit and now we are waiting for the Commission’s position on the presented collaboration models. We find the development of the Gulf of Finland LNG infrastructure important in order for us to be able to ensure and diversify access to liquefied natural gas,” said Gasum CEO Johanna Lamminen and Alexela CEO Marti Hääl.
NORWAY: DECREASING PRODUCTION, POLITICAL UNCERTAINTIES, NEW INVESTMENTS
As usual, Norway is of great importance. Moreover, at the moment, the local gas industry is experiencing a lot of changes and events that could have a strong impact on the rest of the Continent.
On Sunday 17 August, Statoil shut down production on the Troll C platform in the North Sea to replace a pipe.
‘Statoil shut down production on the Troll C platform in the North Sea on Sunday 17 August after an inspection programme on the platform detected corrosion damage to a pipe connected to the oil export system,’ the Norwegian company wrote on its website.
On Monday, Rosneft and Statoil started explorations operations at the Pingvin License PL713 prospect in the Norwegian section of the Barents Sea.
‘The first exploration well Pingvin-1 will be drilled by the Transocean Spitsbergen rig. The water depth is 422 meters and the drilling target total vertical depth (TVD) is 1516 meters. The companies expect to analyse the drilling results until the end of 2014,’ reads a note released by Rosneft on Monday.
A few hours later, on Tuesday, Statoil and Prime Minister Erna Solberg officially opened the Gudrun platform in the North Sea.
‘This is the first new Statoil-operated platform on the Norwegian continental shelf (NCS) since Kristin in 2005,’ wrote the company on its website.
On Thursday, an international report from analyst IHS suggested that tax increases and proposals on power from shore could enhance uncertainty for companies mulling investments in the Scandinavian country.
‘The report from IHS … finds that the NCS is still competitive but will be regarded as less attractive if this kind of political decision-making continues. Both companies investing on the NCS and international financial markets have taken note of the political changes which have occurred in Norway,’ Norsk Olie&Gass reported.
Despite these potential uncertainties, local companies are trying to stave off decreasing production risks, playing the card of the efficiency and cost reduction.
‘Statoil has awarded Kvaerner a concept study related to a standardised, unmanned dry tree wellhead platform for the Oseberg Future Development project. The concept is focused on minimisation of facilities, equipment and costs down to water depths of 150 meters and may be a cost effective solution compared to a conventional subsea tie-back solution,’ reads a note published by Kvaerner.
Kvaerner said that the new platform could increase recovery and reduce development costs. According to the company, this project should be followed by other works for Statoil.
SCOTLAND TOWARDS THE INDEPENDENCE?
Scotland is moving forward with its plan to promote indigenous gas production, examining the potentials of oil and gas discoveries in offshore areas to the west of the country.
‘These maritime areas include the Solway Firth, the Firth of Clyde, the North Channel and the Sea of the Hebrides,’ reads a note released by the Scottish Government on Sunday.
The government is seeking cooperation with industry and academia to maximise returns from ‘underexplored offshore areas.’
Meanwhile, Edinburgh started its last four weeks of political campaign against London focused on hydrocarbon wealth. The Scottish Government is trying to prove that Westminster did make several mistakes in the management of the oil and gas reserves in the North Sea.
In a report published on Thursday, Energy Minister Fergus Ewing and his team hinted at a poor results from resources.
‘In 1970, levels of GDP per capita in Norway were 7.5 per cent lower than in the UK. By 2013, GDP per capita in Norway was over 80 per cent higher than the UK,’ reads the document.
Edinburgh also accused London of downplaying remaining reserves, while reassuring voters that an independence is financially viable. In this context, the SNP wants to get another message across: economic opportunities don’t simply lay in the North Sea.
“Oil is a bonus for an independent Scotland’s economy, and not the basis – our onshore tax revenues, excluding oil and gas, are roughly the same as those in the rest of the UK. As Standard & Poor’s have observed, even without North Sea oil and gas, Scotland is a wealthy country which, as an independent country, would qualify for their ‘highest economic assessment’,” Ewing said in a statement published on Wednesday evening.
WHAT’S NEXT?
It is obvious that Russia and Ukraine are both focusing on their economy to minimise the negative consequences of their standoff.
While Kiev is moving closer to a $2 billion funds from the IMF and the World Bank, Gazprom’s Alexey Miller met Chinese Ambassador to Russia Li Hu to speak about Russian natural gas supply to China via the eastern route.
‘It was pointed out that Gazprom made energetic efforts to build the required gas production, transmission and processing capacities in Eastern Russia. Particularly, the preparations for the construction of the Power of Siberia gas pipeline were highlighted,’ the company wrote on its website.
Indeed, it is increasingly clear that the winner of this geopolitical chaos will be the bloc or the country able to survive the present "crisis turmoil" and turn a good (survival) financial performance. Brussels, Berlin, Kiev and Moscow seem well aware this.
Sergio Matalucci