Week 24 Overview

This wrap-up is normally focused on the major events of the week, but this time it is slightly different. There are two minor deals that might give a good insight into the future of the European gas industry in the coming years. They would probably be a game changer for the future of the European Union as well, even more than large-scale deals that took place in the last days. 

In a moment of leadership crisis in Europe, with Germany’s Angela Merkel teetering on the brink of a nervous breakdown over the appointment of the new President of the European Commission, Nordic countries seem ready to step in and take an active role in Continental policies. At the same time, the two main European gas importers - Germany and Italy - are securing better conditions and positions with their traditional partners, namely Russia and Kazakhstan, therefore decreasing the attractiveness of other alternatives. Berlin and Rome are set to remain under Russian sphere of influence. In the backdrop of these agreements, Ukraine and Russia continue their negotiations. Tensions remain.

NORDIC COUNTRIES

Norway voiced its intention to take a more active role in European policies, saying it wants to intervene also in earlier stages of European debates.

“It is in our national interest to cooperate closely with the EU and to participate actively in the ongoing political processes in Europe. In order to successfully influence important decisions, Norway must be more clear and assertive, and more active in the early stages of debate on issues of European policy,” said Minister and Chief of Staff at the Office of the Prime Minister Vidar Helgesen in a note released on Wednesday.

According to the document, the Ministry of Foreign Affairs really pushed cooperation with the EU to a higher level, considering the move the best way to safeguard its interests in ‘priority areas.

At the same time, Oslo intends to increase its clout also through regional agreements. The country signed a deal to share common safety practices for offshore personnel with the Netherlands, the UK and Denmark.

‘It is agreed that Oil & Gas UK, Norwegian Oil and Gas, NOGEPA and Oil & Gas Denmark, will recognise specialised safety and emergency response training given in each of the countries and in accordance with this agreement and future updates,’ reads the report about the guidelines for mutual recognition of specialised safety and emergency response training for North Sea operations.

According to another document, the ultimate goal of the association is to develop a common standard to prepare the workforce to achieve a high level of competence in ‘specialized safety and emergency preparedness’ across the North West Europe. 

A more comprehensive interpretation could be that the deal is part of the leadership exercise Norway is betting on. Small regional agreements could indeed give Oslo the legitimation it needs to take a more active role in Brussels. On the other hand, the deal is also useful for other countries. For instance, the UK could benefit from having a reliable partner with great experience in the offshore industry, especially now. London is planning to increase gas production from its North Sea fields and any support could help the country achieve its goal. 

In this context, it comes as no surprise that the UK Department of Energy and Climate Change (DECC) approved the Field Development Plan of the Catcher area put forward by Premier Oil (50%, operator), Cairn Energy (30%) and MOL Group (20%).

“The Catcher area development shows that there continues to be an extraordinary level of interest in North Sea oil and gas, which is excellent news for industry and for the whole of the UK. The project represents over £1bn of investment and almost all of the subsea expertise and equipment needed for this development is being supplied by British companies right across the country,” Michael Fallon, Minister of State for Energy, commented in a note released on Thursday.

ITALY AND GERMANY

A recent communication of Gazprom did not make the headlines. The Russian company did not even write a press release about it. But a banner on its website, also published on Twitter, said that ‘Gazprom has delivered 40,18 billion m3 of Russian natural gas to Germany – enough for 19 million households.’ It seems clear that Russia wants to remark its essential role in Germany and beyond. 

It might be a coincidence, but since Matteo Renzi became Prime Minister, Italy stopped bickering with its traditional partners. Last weeks’ Russian messages to Rome were followed by a significant achievement for Italy-based Eni. 

The company led by Claudio Descalzi clinched a deal with Kazakhstan’s KazMumayGas for joint exploration and production activities in Isatay, an offshore area located in Kazakh waters. 

‘The agreement will result in KMG and Eni each holding 50% of exploration and production rights in Isatay, an offshore exploration area located in the north Caspian Sea. The block is estimated to have significant potential oil resources and will be operated by a joint operating company,’ reads a note released by the Italian giant on Thursdayt.

With the deal, Eni reinforces its position in Kazakhstan, where it holds a 16.81% stake in Kashagan, the biggest global oilfield outside the Middle East. In this sense, the agreement could be a signal of easing tensions between the company and the Kazakh government. Their relations did indeed register a long string of ups and downs in relation to overruns and delays of the Kashagan’s field. 

Eni, which also operates the Karachaganak field, also benefited of some other concessions granted by Astana to oil and gas companies developing the huge Kashagan field in the Caspian Sea. The deal opens the doors to contract extensions: each time the consortium decides to move ahead with a new phase of the project, it will be awarded an extension.

In this context, it is worth reminding that Kazakhstan recently signed a treaty with Russia and Belarus to further foster integration, guaranteeing the free movement of goods, services, capital and work force. It would be interesting to understand if the Kremlin played any role in Kazakh concessions.

RUSSIA AND UKRAINE 

Ukraine and Russia are at loggerheads. The Kremlin reacted angrily to a violent protest in front of Russian embassy in Ukraine, while Ukrainians were mourning 49 people killed by pro-Russian militants, who shot down an Il-76 transport plane in Luhansk. In this context, it comes as no surprise that Moscow and Kiev failed to end a gas-pricing dispute on Saturday. The two countries agreed to meet again on Sunday for last-ditch negotiations. Sunday negotiations are extremely important, as time is running out. Russia and Ukraine decided that the Kremlin would not introduce prepayment before June 16. If that were the case, gas disruptions would be more than likely. 

In this context, if Russian gas to Europe is at risk, Norway could take advantage of the situation. Now more than ever, it is crystal clear that EU interests don’t depend only on Europe. Geopolitics matter. Norway could soon follow Russia to increase its clout in Europe.

Sergio Matalucci