Week 46 Overview
The recent block of the Greenstream from Libya to Italy, coupled with gloomy prospects across Europe, proved once more the centrality of Russia and its companies in the regional gas markets. Rosneft, Gazprom and the standoff between Ukraine and Russia monopolized the headlines of the 46th week.
Russian companies have the funds and resources needed to maintain a strong grip on European gas markets. It comes as no surprise that security of supply in the Old Continent will depend on Moscow also in the near future.
EUROPEAN COMPANIES
In general, European companies are called to adapt to increased competition and changes in national and continental laws. In particular, the established oil majors have to increase their ability to find partners and funds to invest in technology. They need a change. It is necessary in this difficult moment.
Germany’s RWE said on Thursday it expects a decline in power generation next year and a parallel worsening of financial results.
RWE and E.ON are affected by the decreased wholesale electricity prices driven by the German system based on wind and solar power. But there is a good news: the two companies are completely aware of the problem, they know perfectly that they have to find new strategies.
In this framework, financial constraints could result also in reduced investments in the Old Continent. The recent Centrica’s divestments have been followed this week by Enel’s sale of its 19.6% stake in SeverEnergia to Rosneft.
At the same time, investments in some continental fields are expected to decrease on a larger scale. The Norwegian Oil and Gas Association said on Thursday that investments in the Norwegian Continental Shelf are expected to diminish in the next years, from €27 billion in 2014 to an average of €20 billion in the period 2015-2020.
As if the situation was not difficult enough, turmoil in Northern Africa exacerbated the problems.
On Wednesday, Eni confirmed that Libyan gas exports to Italy via the Greenstream pipeline have been halted. Protesters have shut the pipeline to Italy demanding more rights for the Berber minority. The closure adds to Italy’s energy headaches.
However, the week for the Italian major was not completely bleak. On Thursday, the company led by Paolo Scaroni announced it successfully launched new fixed rate bonds.
Another positive news for European gas markets came from Poland. Orlen Upstream International formalized the acquisition of a 100% interest in Canada’s TriOil, potentially acquiring new know-how in the unconventional hydrocarbon business.
Orlen Upstream International wants to trigger shale gas explorations in Poland. Know-how is necessary. Investments in technology could give the Polish company a bit of an edge. Also limited-scale explorations could be beneficial for European companies.
From a financial point of view, majors could get some air from the unconventional hydrocarbons. But the fresh air would be not enough to save asphyctic companies. Complementary measures are needed. Investments are central.
On Thursday, Statoil, Centrica and ExxonMobil said that they are reaping the benefits of the investments done ten years ago to rebuild the Statfjord A. The partnership said that they would extend production from the platform to 2020.
"We are reaping the benefits of the efforts we have invested over many years in that we will now manage to recover even more of the resources in a manner that creates value for the owners and for society," Atle Rettedal, director of production for the Statfjord field, said in a note released on Thursday.
Statfjord A is a clear example of the fact that investments are necessary, especially in a period of financial constraints.
RUSSIA
Completely different mood in Russia. Moscow knows that it needs cooperation and it is finding several partners.
Gazprom keeps developing the South Stream project, registering tangible progress in several countries. As said by the company on Thursday, the new pipeline is advancing ‘steadily’ in Bulgaria, Serbia, Hungary, Slovenia and Croatia.
Gazprom is not the only Russian company betting on cooperation.
On Wednesday, Rosneft signed a Memorandum of Understanding with Korea’s Daewoo Shipbuilding & Marine Engineering (DSME) to develop offshore projects in challenging conditions in the Northern and Far East seas.
“We are glad the project will be implemented with the support of such an experienced technological partner as DSME, which owns cutting-edge technologies, as well as globally recognized reputation for shipbuilding, engineering and production of marine equipment for offshore projects. We are convinced the cluster will become a centre for high-tech arctic shipbuilding in Russia,” commented Igor Sechin, Rosneft President and Chairman of the Management Board.
RUSSIA - UKRAINE
Apart from European problems, the most important story of the week was that Russia and Ukraine found a way out of their gas spat. Ukraine’s Naftogaz resumed gas imports from Russia on Friday, stepping back from the brink of another gas war with the Kremlin.
If the future appears now calmer, things are far from being solved. Next two weeks will say if Kiev will walk toward Brussels or not. EU diplomats are giving up hope Ukraine will sign the free trade treaty at the Vilnius summit on November 27. But as the past years showed in several occasions, the relationship between Ukraine and Russia is really difficult to foresee. Further U-turns and changes of directions are more than likely.
Sergio Matalucci