Week 9 Overview
Strategic agreements, technology, legislation and discoveries correctly dominate the newspapers’ headlines. But this week, the 9th of the year, things were pretty different. The geopolitical tensions between Russia and Western countries completely overshadowed other events.
How the arm-wrestling in Ukraine will affect investments in long-term projects from Russia and Azerbaijan to Europe? What about the South Stream? What about a potential expansion of Russian companies? Those are the appealing questions at the moment. Despite the importance of these issues, the answers unfortunately remain elusive. Not even the most respected investment banks know the right answer.
RUSSIA
Russia’s Gazprom and Austria’s OMV met last Sunday to discuss bilateral cooperation. The two delegations led by OMV’s CEO Gerhard Roiss and Gazprom’s Alexey Miller also addressed the South Stream project.
But Russian companies rightly did not focus just on European markets. Coherently with risk diversification theories, they are also looking at ways to decrease their reliance on Brussels.
While Rosneft was said to mull the acquisition of Croatia’s Industrija Nafte (INA) and Slovenia’s Petrol, Gazprom met the President of the Republic of Armenia to discuss the cooperation issues in the energy sector.
“Gazprom's expansion in Armenia guarantees sound and sustainable development of Armenian fuel and energy sector, fortifies its energy security and significantly contributes to the socioeconomic growth of the country,” Alexey Miller said in a note released on Wednesday.
But it was not all rosy for Gazprom. The company led by Miller registered a setback on Wednesday. It was reported to be unexpectedly behind schedule with its Vladivostok LNG facility, a plant meant to deliver LNG to Japan. The company did not yet postpone the start of production, which remains on schedule to begin in 2019.
UKRAINE, KAZAKHISTAN
What happens in Russia rarely remains in Russia. Neighbouring countries will pay the price of turmoil in the area. Georgia and Ukraine are the first countries on the list. Kiev is the real battlefield for the confrontation between Russia and the West.
European Union opened the doors to a financial support to the country. The European Bank for Reconstruction and Development (EBRD) could help Kiev overhaul its gas pipeline grid.
"We are prepared to help with the overhaul of the gas pipeline network of Ukraine," Energy Commissioner Guenther Oettinger said in an interview with German magazine Focus on Friday.
It is more complicated to understand the eventual consequences of a Cold War style standoff between the West and Russia on Kazakhstan.
Despite the uncertainties the country is quite rightly moving on. Astana is stepping up its efforts to draw foreign investors into oil and gas projects all the while looking for new solutions, and unveiling its plans to create a scientific research institute for drilling and production.
"Kazakhstan will create a scientific research institute for drilling and production. It will be a technological competence center of KazMunaiGas in the sphere of exploration and production," Sauat Mynbayev, Chairman of the Board of Kazakh national oil and gas company KazMunaiGas, said on Tuesday.
Other countries in the area equally show some room for market movements.
On Friday, Turkey’s Botas was reported to be interested in buying shares from France’s Total to join the Shah Deniz consortium.
Botas was said to be interested in the South Caucasus Pipeline (SCP), owned by a consortium led by BP (28.8%), SOCAR (16.7%), Statoil (15.5%) and Lukoil (10%). Total holds a 10% interest.
The Turkish state pipeline Botas already cooperates with Azerbaijan’s SOCAR for the construction of the TANAP project, which will transport gas through Turkey to Europe.
EUROPE: UK AND OFFSHORE BALTIC SEA
Apart from the former Soviet Union, other two areas made the headlines of the newspapers: the United Kingdom and the Baltic Sea.
London is trying to maintain its image and reputation, luring Scotland with a mix of threats and concessions.
On Monday, Shell signed an agreement with the UK Government to move forward with the Peterhead Carbon Capture and Storage (CCS) project in Aberdeenshire (Scotland). The project is led and owned by Shell and SSE. It aims at capturing 10 million tonnes of CO2 over 10 years.
Also on Monday, the British government released a review suggesting that Scotland could face high hurdles to efficiently tap the resources in the UK Continental Shelf, while London would be the ‘strongest basis to unlock the investment needed to achieve the objective,’ according to
The UK’s energy security came under the spotlight also on Wednesday, with the regulator Ofgem unveiling new rules for the main energy suppliers and 25 economists signing a letter to support the idea of shale gas in northern England.
Offshore explorations and LNG are the two main alternatives to a stable supply from former Soviet Union countries. And here the Baltic Sea comes into play.
On Monday, Finland’s Gasum finally unveiled it will acquire 51% of Norwegian Skangass’ distribution operations from Lyse Corporation.
‘The acquisition is a part of Gasum’s strategy of improving the availability of competitive liquefied natural gas (LNG) in Finland,’ reads a note released on Monday.
A few hours later, Seadrill Limited announced a 2,786 million dollar net income in 2013, reporting a 131% year-on-year increase. Through its financial results, it confirmed the frenzy to invest in offshore operations. The company registered a 12% surge in consolidated revenues for the fourth quarter of 2013 with respect to the same period of 2012.
The day after, Lotos Petrobaltic received its fourth offshore platform for exploration and production in Poland’s Baltic Sea.
“As soon as the Mining Authority decides that the structure is seaworthy, the 'Lotos Petrobaltic', which is the new rig’s name, will commence operations in the Baltic Sea,” said Zbigniew Paszkowicz, President of Lotos Petrobaltic, on Wednesday.
Could the Baltic Sea and efficiency in the UKCS be a lifeline for Europe? Despite all the attempts, the answer is no. Russia remains the main point of reference for the gas industry. What will happen in Ukraine will not remain in Ukraine. Moscow and Brussels know it.
Sergio Matalucci