European Projects Can Excite Appetite of Financial Investors
There is plenty of opportunity for enhancing the “conservative” financing schemes of oil and gas companies, while maintaining strong cooperation between private companies and public authorities to increase the confidence needed by institutional funds to invest their big money in the European energy markets. Prospects for European gas markets are not that bleak.
This was one of the messages delivered by the session “Investing in Gas Infrastructure” at the European Autumn Gas Conference, which also saw the unveiling of the forthcoming plans for the Trans Adriatic Pipeline (TAP).
TAP: A FINAL INVESTMENT DECISION IN A MONTH
“In the next month or so Shah Deniz II will take its final decision,” said Michael Hoffmann, External Affairs Director of Trans Adriatic Pipeline.
Hoffmann revealed that there is clearly demand for Azeri gas from Shah Deniz II, explaining that there is also room for improvements in the European gas markets.
According to the External Affairs Director of TAP, prospects in Europe are better than they may look. Minor changes could have great results and the Trans Adriatic Pipeline could be used as an example for future projects.
“Prioritization of the projects of common interest is highly politicized,” said Hoffmann, calling politicians to better understand the financial implications of the different projects. A cost-benefit analysis should be the starting point of any decision in Brussels. This change in behaviour could also increase the engagement of private companies. According to Hoffmann, this was the case for the TAP.
In the last months, the cooperation between public authorities and private companies resulted in a success for the pipeline bringing to Europe the gas from Azerbaijan’s Shah Deniz II field. New shareholders joined in the last months and buyers clearly showed their enthusiasm for the project.
“On July 30th new shareholders joined the project, enhancing TAP’s strategic position in becoming an integral link between upstream and downstream businesses,” commented Hoffmann.
The seven shareholders are Socar (20%), BP (20%), Statoil (20%), Fluxys (16%), Total (10%), E.ON (9%), Axpo (5%). TAP proves that investment priorities of the investors could sensibly differ, but they can be aligned to ensure a long-term partnership.
EUROPE HAS ITS TRUMP CARDS
“The commercial side is the most important,” remarked Walter Peeraer, Chairman of the Executive Board & CEO of Fluxys.
Interestingly, the commercial side is not a hurdle for developments in Europe. On the contrary, investors showed and keep showing a stark interest for major projects in Europe.
“Financial investors are required to finance the “Energiewende” in Europe - circa €200bn next decade. They remain highly interested in and bid aggressively for regulated assets. They account for the majority of energy infrastructure transactions in the EU,” Jochen Weise, Senior Advisor at Allianz Capital Partners, stated.
Despite different profiles of investors in terms of financial firepower and investment horizon, financial investors are interested in major projects as they are compatible with investors’ needs: low cyclicality, predictable cash flow, dominant market position and relatively low risk profile.
“Financial investors are well suited to support the EU energy policy goal of fully functioning, interconnected and integrated markets due to their focus on infrastructure asset performance and regulatory stability,” concluded Weise.
In this sense, European projects will be welcome by financial infrastructure investors. Prospects for European gas markets are not that bleak. Europe is at cross roads: new supply routes and a strong demand for significant new investments will change continental energy markets in the next decade. Despite the confusion deriving from a change in the regulatory framework, next years are full of opportunities. Established companies and the more flexible small companies could reap the benefits of shrewd choices.
In this framework, panellists asked European governments and European institutions to promote the transparency and security investors need. They are also called to promote growth in the national markets. Investments will follow. As several experts noticed, “money is there”, but it will be invested only after the end of the recession.
Sergio Matalucci