Week 39 Overview
The 39th week of the year ended with the hope that Brussels and Moscow could soon defuse tensions in Ukraine, through a mix of reciprocal concessions. The Europeans and Russians might have also been speaking about the South Stream project.
Azerbaijan, has been building increasing prominence in European gas matters over the past years. However, the last days drew experts’ attention to potential difficulties.
For instance, Fitch said that the increase in defence spending in Azerbaijan and Armenia is a risk that could pave the way to new tensions in the area.
‘High-level meetings are likely to continue in order to try and resolve the long-standing dispute with Armenia over the breakaway territory of Nagorno Karabakh. However, Fitch does not expect a permanent resolution in the foreseeable future. Given an increase in defence spending in both countries in recent years, the risk of renewed hostilities such as those seen in August 2014 is not negligible,’ Fitch wrote on Friday, adding it confirms the outlook and the ratings (BBB-) of the country’s long-term foreign and local currency Issuer Default Ratings (IDRs).
Challenges to Azeri prospects also stem from a new threat for the Trans Adriatic Pipeline (TAP) project. Italy’s 5-Star Movement (M5S) expressed its intention to call for a referendum over the project. MV5’s leader Beppe Grillo already said that the TAP project is simply meant to “support speculators.”
But not everything is bleak for Baku, as Socar also registered some major achievements.
If all the eyes were on Russia and Ukraine, last days also witnessed some significant advancements for Azerbaijani, Norwegian and British gas industries.
RUSSIA - SOUTH STREAM PROJECT & NEGOTIATIONS
The week started with the European Union opening the door to possible talks about the South Stream project.
The European Union did indeed confirm in a statement that, during the trilateral talks that took place in Berlin on September 26, they would have been ready to answer questions raised by Russian negotiators.
On Tuesday, Gazprom added that it will announced the designed of the Hungarian section towards Baumgarten by the end of October.
‘Budapest hosted today a working meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Viktor Orban, Prime Minister of Hungary. The talks were focused on the issues of reliable and uninterrupted gas supplies in the coming winter period. The parties paid special attention to the implementation of the South Stream project and noted that it was progressing to schedule,’ the company wrote on its website.
And Gazprom might be right, as the tensions seem on the wane. According to local reports, Russia's Federal Anti-Monopoly Service (FAS)’s chief Igor Artemyev said that the FAS is avoiding opening cases against Western companies.
The company is also trying to strengthen its position in Russia, working to cement its leadership in the Liquefied Natural Gas (LNG) business.
“To avoid the unnecessary budget overruns, the more so they are covered by the state budget, Gazprom proposed the Sakhalin I project operator to sell its future LNG volumes to the company on an arm's length basis,” said Gazprom’s Viktor Timoshilov.
Exxon Neftegas Limited is the operator of the Sakhalin-1 Project.
On Thursday, Russia gave some signs of internal power struggle.
‘Sistema JSFC, the largest publicly-traded diversified holding company in Russia and the CIS, announces that the acquisition of a 98% stake in OJSC United Petrochemical Company from the Group's subsidiary JSOC Bashneft has not been completed. Bashneft retains ownership of UPC,’
Moscow City Court ruled on Thursday that Sistema’s leader, Vladimir Petrovich Yevtushenkov, will remain under house arrest until November 16, dismissing the defence’s appeal. The Court also seized Yevtushenkov’s shares in Bashneft over allegations Sistema underpaid for them.
The week ended on Friday with European officials saying that there a binding interim agreement could be signed next week.
In the presence of Gazprom’s Alexey Miller, Commissioner Günther Oettinger said that Ukraine has committed to pay $3.1 billion by the end of the year, with Europe acting as a warrantor.
UKRAINE - STORAGE CAPACITY
On Tuesday, Naftogaz said it pumped a total of 16.3 bcm of natural gas into its underground gas storages (UGS), adding that the current levels are 14% higher than in September 2013.
‘This level of stored gas is the second highest in Europe, after Germany,’ the company wrote.
On Wednesday, Kiev said it intends to decrease its reliance on Russian gas pushing consumption down, betting on alternative energy sources.
According to Minister of the Cabinet of Ministers Ostap Semerak, the country is stepping up efforts to support alternative energy sources.
"The Government has allocated UAH 500 million on it from the budget, including UAH 50 million for credit compensation, and thus multiplied additionally up to UAH 200 million funds aimed at replacing gas boilers", Ostap Semerak, Minister of the Cabinet of Ministers, said on the government’s website.
AZERBAIJAN - SOCAR IN BULGARIA, GREECE AND TURKMENISTAN
On Monday, Socar increased its clout in Bulgaria, signing a deal with two local companies.
‘Socar President Rovnag Abdullayev received the representatives of Bulgartransgaz and Bulgargaz being on a visit to Baku on the occasion of the 20th anniversary of the signing The Contract of the Century,’ reads a note released by the company on Monday.
Companies’ officials signed two gas cooperation agreements.
A few hours later, TAP AG has been awarded a 50-year licence for an Independent Natural Gas System (INGS) in Greece.
‘The INGS license gives TAP the necessary approval for activities related to the construction of the pipeline such as installation of the pipeline, compressor and metering stations, block valve stations and other equipment.’
The decision completes the positive framework for TAP in the country, adding to the previous green lights given by the Greek government. Earlier this month, the Ministry of Environment, Energy and Climate Change did indeed give formal approval to the Environmental and Social Impact Assessment (ESIA) submitted by Trans Adriatic Pipeline AG (TAP) for the Greek section of the pipeline.
Wisely, Socar is also trying to diversify its assets. Azerbaijani officials met with the President of Turkmenistan to discuss business and cooperation opportunities in the energy sector.
‘President of Turkmenistan Gurbanguly Berdimuhamedov received Socar President. He emphasized the importance of bilateral friendly ties and neighborhood relations between Turkmenistan and Azerbaijan,’ reads a note released on Wednesday.
AZERBAIJAN - MILITARY EXERCISES
According to Azernews, last week, Azerbaijani troops accomplished one of the largest military drills in the country, while military forces of Turkey took part in the exercises.
NORWAY
On Monday, Statoil unveiled its plans to increase production on the Kvitebjørn field in the North Sea with a new compressor. According to the company, the new machinery that is in operation since September 17 will increase production by 220 million boe and extend the field’s lifetime with eight years.
‘The new compressor contributes to an increase in the recovery rate at the Kvitebjørn field from 55% to 70%,’ reads a note released on Monday.
On Thursday, Norway’s officials said that national gas production is expected to remain on the same levels in the years ahead.
‘Last year Norway produced nearly 110 billion cubic metres of gas; almost 100 per cent was exported to Europe. We expect our production to be steady or grow slightly in the years ahead,’ Minister of Petroleum and Energy Tord Lien said during the Norway Energy Conference in Brussels.
On the other hand, Statoil stated on Friday that its gas discovery in a frontier unexplored area of the Barents Sea northwest of Johan Castberg is non-commercial. The volumes in Pingvin are estimated in the range of 30-120 million barrels of recoverable oil equivalent.
UK - TRESPASS LAW & IGAS
On Thursday, IGas Energy moved closer to acquire Dart for $200m, saying that the new IGas shares should be admitted to trading on AIM in mid-October.
‘As previously announced, the Scheme remained subject to the satisfaction or waiver of certain conditions, including the approval of the UK Competition and Markets Authority ("the CMA") to the transaction… IGas and Dart announce that they have now formally waived the CMA Condition,’ reads a note released by the company.
British authorities also said they are about to change the legislation for deep underground drilling, allowing companies to carry out hydraulic fracturing without the permission of the landowners.
The Department of Energy & Climate Change said it is working to remove barriers to deep underhand drilling access, explaining on Thursday that the move is coherent with its plan to cut greenhouse emissions.
‘That’s why, alongside a further £40 billion of renewable investment running into 2020 we are exploring for shale gas. As the cleanest fossil fuel gas provides a bridge to much greener future, and Geothermal energy can supply renewable heat to our homes and businesses. This diverse, and continually evolving energy mix is a central part of our plan to reach our carbon targets and guarantee our energy security in the years ahead,’ the Government wrote on its website.
The change in regulation is meant to foster oil and gas production, along with deep geothermal energy exploration.
WHAT’S NEXT?
The main event of the week will be the next round of negotiations between Russia, Ukraine and the European Union. Next days will say if Oettinger will manage to broker a deal. On Saturday, Ukraine brought doubts to any near-term resolution
Oettinger, Member of the European Commission responsible for energy since February 2010, is a politician with a 30-year career in the Christian Democratic Union, party led by Germany’s Chancellor Angela Merkel. On November 1, he will step down from its role and it will become European Commissioner for Digital Economy and Society under the Commission led by Jean-Claude Junker.
He does not have much time to prove that the CDU, Germany and Europe have some good cards to play at the international tables. Another blow to the negotiations could easily endanger the role of Germany, raising obvious doubts about its diplomatic weight.
Sergio Matalucci