Week 4 Overview
The fourth week of the year shed some light on the future of the gas industry, with several reports and analyses foreseeing debt reduction and imminent consolidation.
Over the last days, mixed messages came from Cyprus and Norway. Total intends to depart, but ENI remains committed to exploration activities in the Mediterranean. Norway reiterated its efforts to keep production up, but the relatively low interest of international company is not a positive factor.
Meanwhile, Turkey said it backs Ukraine’s position on Crimea. While Germany has reportedly offered Russia negotiations on common trade areas with the EU conditional to Moscow sticking to the Minsk Agreement, the role of banks in Russia’s crisis got increasingly evident. Access to credit for Russian companies and projects will be soon a deciding factor.
REPORTS: EU INDUSTRY, IMPORTS FROM RUSSIA, AZERBAIJAN AND NORWAY
Lithuania's President Dalia Grybauskaitė said that the era of gas pipelines is over. She confirmed the Baltic country’s commitment to the promotion of LNG.
From the standpoint of gas export volumes to Europe and Turkey, Gazprom will report the worst fourth quarter of this century. According to a recent study, Gazprom exported about 30 percent less gas than in the same period of 2013.
Western sanctions on Russian oil and gas industries have started to take a significant although indirect effect. This could have a possible impact on production levels in Russia.
Financial sanctions could take their toll on new large pipeline export projects too. The Oxford Institute for Energy Studies wrote that the current tensions lead Moscow to take the more logical commercial export strategy.
Similar consequences were excluded by Gazprom in relation to the Baltic LNG project. The company announced that the LNG plant in the Leningrad Region (Baltic LNG) should be built near the seaport of Ust-Luga.
In this context, he role of bank became prominent. Gazprom and Intesa Sanpaolo Group sign agreement worth EUR 350 million.
Sberbank of Russia had announced it wishes to finance the planned Turkish Stream. The bank would be ready to negotiate terms and conditions.
But what happens in Russia does not stay in Russia. Azerbaijan might suffer because of Russian difficulties too. Indeed, the reason for a 28% drop in SOCAR’s exported gas price is a significant reduction in deliveries to Russia.
Norway could try to capitalise on this possible decrease in Russian production. Oslo announced the results of the APA 2014 and a revision of the ice edge calculation that could allow companies to explore further inside the Arctic Circle. But low prices make new projects less likely also offshore Norway and the UK.
In this sense, companies are called to react to the fall in revenue, managing their debt and cutting the costs to potentially benefit from a possible flurry of M&A opportunities in the year ahead. It comes as no surprise that oil prices remain the main worry for the industry, wrote Wood Mackenzie.
The impact of medium to long term low energy prices will not just affect the North Sea. One of the few major onshore conventional fossil fuel producers is Romania.
MIDDLE EAST
This week, King Abdullah bin Abdulaziz died. Almost simultaneously, a flurry of news came from the Middle East.
Iran is determined to increase its clout in Europe and Iraq. Teheran said it could export up to 30 bcm of gas per year to the Old Continent.
On the other hand, Egypt’s Energy Minister Sharif Ismail confirmed to local media that importing gas from Israel was a possibility. A final decision on the role of Delek and Noble is now expected by February 2015.
Meanwhile ENI announced a discovery in the Western Desert of Egypt. The new discovery of oil and gas is in the West Melehia deep exploration prospect.
More importantly on a geopolitical level, Ankara restated its support to restore ‘sovereignty and territorial integrity’ in Ukraine. PM Ahmet Davutoğlu has emphasized that Turkey didn't recognize the annexation of Crimea.
On the other side of the Cilician Sea, Cyprus is playing its cards too. All eyes are on ENI’s next results.
UKRAINE
Gazprom wrote on Wednesday that Naftogaz will be called to pay an additional $100 per thousand cubic meters of gas, as the winter package is coming to the end.
Ukraine reacted saying it would simply increase imports from Europe. The country announced an increase in gas import capacity from the EU.
Kiev is finding it difficult to live up to its expectations. Gas usage in Ukraine in the first ten days of January 2015 exceeded by 23.7% the targets set by the government.
Nonetheless, it is working on new solutions. Naftogaz announced a tender for independent evaluation of its onshore reserves in Ukraine, Egypt and Crimea.
GERMANY
Germany is playing a prominent political role at the moment.
German companies want to benefit from this strong position. German company asks for more technologically advanced heating systems.
They would also like to promote a more favourable climate for indigenous production too. The shale gas debate is a threat for domestic conventional explorations in Germany, said Wintershall on Tuesday.
UK SHALE GAS
Lancashire planning officers have recommended to refuse consent for Cuadrilla applications.
As a consequence, Cuadrilla might work to take more time an adapt to the recommendations. It requested the deferral following a setback to its plans.
UK shale faces more turbulence. The SNP and Labour party did indeed move against fracking in Scotland.
Earning the “social license to operate”
OTHER ARTICLES
Algeria still evaluating shale prospects, says Minister
GDF Suez reaches milestone in LNG truck loading
Bulgaria’s energy security needs to gain prominence
Croatian government to sign drilling contracts by April
Russia prepares to slash its budget
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci