European natural gas market wrap-up for Week 47

Week 47 Overview

After a week of negotiations Iran said on Sunday that it will be not possible to reach a nuclear deal by a November 24 deadline. This might have an impact on future gas supplies from Iran to Europe, giving an edge to established suppliers. In this context, two players could use Europe as a playground: Russia and the United States. Meanwhile, Germany and the United Kingdom are paving the way to unconventional explorations, while regional cooperation opportunities are on the negotiations tables in Ankara, Warsaw, Aşgabat and Baku. All in all, problems for the European gas markets are just around the corner.

PROBLEMS ARE EVIDENT

The real threat for gas in Europe does not come from Russia, but from internal mechanisms that keep giving an edge to coal. “Coal is going to become even cheaper” said Lady Bryony Worthington.

It comes as little surprise that gas is the only fossil fuel to record lower growth in 2013 than in 2012. According to a report released by Cedigaz, global gas demand rose slower than oil demand in 2013, confirming the difficulties the industry is going through.

Additionally, there could soon be tensions between Kiev and Brussels, as the current aversion to immigration in Europe could clash with Ukraine’s calls for a visa-free regime. Kiev hopes the EU will take a final decision on the abolition of visas for Ukrainian citizens during Latvia’s Presidency of the Council of the European Union in the first half of 2015.

REGIONAL / BILATERAL COOPERATION

At the moment, regional cooperation seems the only way forward.

The United Kingdom and Canada signed an agreement to work on CCS technologies on Tuesday. The two countries will promote research and innovation cooperation, while sharing their existing knowledge.

Finland and Estonia have finally reached a deal on LNG terminal locations. The two countries have agreed to build the Balticonnector gas pipeline connecting two new LNG terminals, one in each country. However, the parts did not convene on the timing of the construction.

Algeria increased scope of cooperation with Turkey. Algiers extended for additional ten year its existing LNG supply contract with Ankara.

Delegations from Warsaw, Chișinău and Kiev met on Thursday. They discussed trilateral cooperation opportunities.

The United States said on Friday Washington supports stronger cooperation between the European Union and two Caspian countries - Azerbaijan and Turkmenistan. The US hopes the parts will fast-track the construction of the Trans-Caspian gas pipeline.

US - RUSSIA: LONG-DISTANCE BATTLE

Russia and China are planning a transition to making trade settlements in roubles and yuan. This is clearly a source of tension between Moscow and Washington. Europe could be the major playground of this confrontation and gas markets could pay the price.

Will the US change its LNG export policy? The gas export issue is largely an issue of agreement among both Republican and Democrat candidates.

Iulian Iancu, Chairman, Romanian National Committee of World Energy Council voiced the importance of such a measure.

In this context, we also published an analysis on recent Russian-Chinese arrangements.

Meanwhile, Russia and Brussels kept exchanging diplomatic cross fire. The Cold War rhetoric continued also on Tuesday.

Europe will probably discuss a new round of sanctions against Russia. In order to make the sanctions more effective, the EU will also work on complementary measures, said the High Representative

Negative consequences on the South Stream are possible. Italy’s Minister for Economic Development Federica Guidi said that the South Stream is no longer a priority.

That is why Miguel Arias Cañete’s task will not be easy. The Commissioner’s real problem about Russia stems from different viewpoints within the European Union.

The Iaşi-Ungheni Interconnector is an example. Gas volumes are yet to be transported through the pipeline, mostly due to regulatory conundrums within the Republic of Moldova.

In this context, Turkmenistan will increasingly be under the spotlight. On Tuesday, Eni signed an addendum to the Production Sharing Agreement to extend to 2032 the duration of its contract to explore and produce oil and gas in the onshore Nebit Dag Area in West Turkmenistan.

And Azerbaijan is becoming a central player too. The latest statistics released by BP indicate that Shah Deniz partners have invested $6 billion in Shah Deniz Stage 1 until 1H14.

This because the standoff on Ukraine could be just at a preliminary phase, with additional confrontation soon to come.

SHALE GAS IN EUROPE