Week 37 Overview
The 37th week witnessed a progressive organisation of Russian oil and gas activities promoted by the Kremlin, with Moscow strengthening its ties with Iran and Kazakhstan.
Meanwhile, risks for companies in Europe became evident. Reports suggested that Norwegian production is set to slow down, while the outcome of the referendum vote on Scottish independence is increasingly uncertain. According to different polls, Edinburgh could drift away from the United Kingdom.
Russian President Vladimir Putin is capitalising on the shaky ceasefire in Ukraine, while Europe is missing out several opportunities. The only exception came from the Baltic Countries, with Lithuania and Lavtia working to increase short-term energy security.
RUSSIA GOES THROUGH DIFFICULTIES
On Monday, Russia’s Prime Minister Dmitry Medvedev committed to help Rosneft in the short term. The company led by Igor Sechin could receive 1.5 trillion roubles ($40.6 billion) to finance its debt.
“This figure only looks imposing, but everything doesn’t have to be done in one year. I recently held a meeting on Rosneft’s investment programme: the company needs to maintain its production levels, because Rosneft is a major source of tax revenue. As such, we should help it maintain its level of investment,” Medvedev said in an interview to the Vedemosti newspaper, as reported on the PM’s website.
Similarly, on Saturday, Finance Minister Anton Siluanov confirmed that the country could support sanctions-hit companies like Rosneft and Novatek through its National Wealth fund.
Gazprom is equally taking measures to maintain its clout.
On Tuesday, the company continued its campaign to intensify business ties with neighbours, meeting Kyrgyz President Almazbek Atambayev.
‘The parties addressed major cooperation initiatives in the oil and gas sector and noted that the comprehensive integration of the Kyrgyz energy sector into Gazprom Group would help solving several issues of national importance,’ the company said in a communiqué.
On Friday, Putin met with President of Iran Hassan Rouhani and President of Kazakhstan Nursultan Nazarbayev to discuss bilateral relations.
‘Everyone knows that we are working steadily and consistently to develop our relations. We have big projects that have already been completed or are in progress. We have good opportunities for working together and developing cooperation. This concerns political cooperation and also economic ties,’ the Kremlin wrote speaking about the meeting between the president of Russia and Iran.
In this sense, Russian decisions are consistent, well-designed to minimise the consequences of the sanctions imposed by the US and Europe.
However, the company led by Alexey Miller was the first to report difficulties, disclosing on Thursday a 41% decrease in profit for the first quarter of the year.
‘Operating expenses increased by RUB 139,697 million, or 15%, to RUB 1,089,749 million in the three months ended March 31, 2014 compared to the three months ended March 31, 2013.The major factor leading to an increase in operating expenses was accrual of provision for doubtful trade accounts receivable in the amount of RUB 71,298 million in the three months ended March 31, 2014, which was mainly related to doubtful trade accounts receivable of NAK Naftogaz Ukraine,’ reads a note released by the company on Thursday.
Meanwhile, Poland’s Polskie Górnictwo Naftowe i Gazownictwo said that registered lower gas supplies from Gazprom since Monday.
‘Polskie Górnictwo Naftowe i Gazownictwo SA reports that natural gas supplies provided under the Yamal Contract at the interconnection points in Drozdovitse (Ukraine), Kondratki (Belarus) and Vysokoye (Belarus) remain inconsistent with the nominations made by the company,’ PGNiG wrote on Thursday.
Similar reports came from Austria and Slovakia.
EUROPE: COMMISSION, NORWAY, BALTIC COUNTRIES
Oil and gas investments in Norway are expected to fall by 18.5% next year, reads a note released by financial services group DNB.
‘Statistics Norway's August survey for oil and gas investments supports the expectations of a sharp decline in oil investments next year. Companies say they will invest NOK 185.3 billion in 2015. This is 13.9 percent less than the estimate for 2014 issued August 2013. Moreover, the figures for 2015 include costs associated with removal and shutdown. These costs were not included in the figures for 2014 (given in August last year). Adjusted for this the decline is 18.5 percent from 2014 to 2015,’ DNB said on Monday.
The financial services group, which also sees a decline in manufacturing investments, predicts 2015 oil and gas investments back to 2013 levels. And, in a sense, it is undeniably right.
Norwegian authorities received applications from 47 companies for available acreage totalling 109 205 km2. In comparison, just one year ago, the APA received applications from 50 companies for available acreage totalling 103 029 km2. This indicates that 3 companies did not apply for licences.
“We are looking for the best applicants, companies with good knowledge, new geological concepts and the best strategy for exploring the areas,” Sissel Eriksen, exploration director in the Norwegian Petroleum Directorate (NPD), said in a note released on Thursday.
Despite the statistics, Germany's Wintershall, the oil and gas unit of chemical giant BASF, increased stepped up its activities in Norway, with the announcement Friday that it has acquired a package of assets from Statoil for US $1.25 billion.
Good news for Brussels did come from the Baltic countries on Tuesday.
Lithuania is strengthening diplomatic ties with Germany, Kuwait, Norway and the Netherlands, as Latvia is storing significant quantities of gas. Baltic countries are trying to increase their energy security.
On Tuesday, Lithuania received letters of credence from ambassadors from Norway and the Netherlands. On Monday, Vilnius accepted letters of credence from Kuwait and German ambassadors. Lithuania’s President Dalia Grybauskaitė intends to discuss diplomatic and economic cooperation with the four countries, with an eye on ‘strategic projects’ and regional security.
Also on Tuesday, according to GSE data, Latvia stored 107.30 mcm, increasing by 6.85% its inventory level of gas in storage. The trend continued also in the following days.
But the Baltic countries are the only ones giving Europe some relief. Like Norway, the majority of the Continent went through difficulties.
On Wednesday, BP stepped into the debate about Scotland’s independence, endorsing Sir Ian Wood’s report about challenges of Edinburgh and London in case of a split up.
“As a major investor in Scotland – now and into the future – BP believes that the future prospects for the North Sea are best served by maintaining the existing capacity and integrity of the United Kingdom,” Bob Dudley, BP Group Chief executive said in a note released on Wednesday.
Prospects grew bleaker during the week also in the rest of the UK.
On Thursday, Celtique Energie criticised South Downs National Park Authority’s decision to turn down application to undertake exploratory drilling to quantify the amount of untapped oil and gas resources in West of Fernhurst, Sussex.
“Government, including the Prime Minister and several energy ministers, has repeatedly stated that ‘we are all in this together’ when it comes to oil and gas exploration in the UK. However, given today’s decision and the recent planning refusal by West Sussex County Council at Wisborough Green, we appear to be arriving at a scenario whereby, in the face of Government policy, operators are being deliberately prevented from exploring in the south-east of England,” Geoff Davies, Chief Executive Officer of Celtique Energie, commented in a note released on Thursday.
WHAT’S NEXT?
The next week will be focused on uncertainty and risk, with Scotland and Ukraine being the main actors. The European oil and gas industry could face significant upheaval in case of Scottish independence and any further escalation between Brussels and Moscow.
Sergio Matalucci