Natural Gas in Europe - Week 8 Overview
Gas industry experts have long hinted the importance of infrastructures to increase efficiency in Europe. Despite the escalation of violence in Ukraine and the related energy security risks, the eighth week of the year unveiled some major projects that could push the Old Continent in the direction of higher competition and differentiation.
CYPRUS AND ISRAEL
At the beginning of the week, the Cypriot minister of Energy Yiorgos Lakkotrypis met with the high management of ENI in order to finalise an MOU agreement for the participation of the six-legged energy company in the island’s LNG project. A similar document was previously signed with Total and Noble. Cyprus’ multi-billion dollar LNG plant would convey more flexibility to the island’s export strategy. The project is now pending further exploratory results that would ensure its commercial viability. Total, ENI-Kogas are scheduled to start exploration activities towards the end of 2014.
On Wednesday, the partners in the Tamar project signed an agreement to export natural gas to consumers in Jordan. Arab Potash and Jordan Bromine will receive gas for an initial term of 15 years from 2016. The total gross quantity is approximately 66 billion cubic feet of natural gas.
“The execution of this agreement evidences the growing regional opportunities for our natural gas and brings forward value for the Tamar asset. We have now signed the first regional export agreements for both Tamar and Leviathan, and we are in a number of additional negotiations to sell significant quantities of natural gas from both fields to multiple customers," Keith Elliott, Noble Energy's Senior Vice President, Eastern Mediterranean, commented in a note released on Wednesday.
PIPELINES: SOUTH STREAM AND TAP
In the meantime, the two major under-construction pipelines to Europe are proceeding as expected.
On Wednesday, the South Stream project confirmed its intention to construct a 59-kilometer gas pipeline branch to bring gas to consumers in Bulgaria, Turkey, Greece and Macedonia.
‘Despite the numerous opponents of South Stream and the opinions of European sceptics doubting the success of the project aimed at constructing a new gas trunk line from Russia to Southern and Central Europe, it is progressing at a fast pace,’ reads the Gazprom Magazine.
The project confirmed that the gas pipeline commissioning is scheduled for December 2015. The full design capacity of 63 billion cubic meters a year is expected in 2018.
A few hours later, on Thursday, Trans Adriatic Pipeline (TAP) AG announced the second phase of the market test, requesting interested parties to register before 7 March 2014.
TAP, the pipeline connecting Azerbaijan to Italy, will start the Booking Phase to expand capacity on 17 March. The project was endorsed by the European Commission, which added it to the list of 250 key energy infrastructure projects that will benefit from accelerated licensing procedures.
NEW OPPORTUNITIES IN ESTABLISHED COUNTRIES
More competition is the other side of increased differentiation. When these new projects will bring new gas to Europe, traditional exploration areas will come under mounting pressure.
It comes as no surprise that Norway’s government could promote energy law changes in order to align local costs of exploration with neighbour countries, aware of the rising importance of legislation for production from floating rigs.
“That is one of the thing we need to consider. The need for drilling capacity from floating rigs will become even greater,” Petroleum and Energy Minister Tord Lien recently said.
Other traditional producers are trying to gain momentum as well. Romania reported a year-on-year increase of hydrocarbon production for the first time since Petrom’s privatization in 2004. The Romanian company and Austria’s OMV both see good opportunities onshore and in the Black Sea. Bucharest could take advantage of a better business environment stemming from its liberalization programme.
On the other hand, United Kingdom’s Centrica is switching its attention from North Sea to Norway and North America, trying to reverse the on-going production decline. The British company sees a difficult year ahead.
‘Market conditions are set to remain challenging in 2014 with margin pressures and unusual weather patterns on both sides of the Atlantic, rising unit costs in the North Sea and weak economics for gas storage and gas-fired power generation,’ Sam Laidlaw, Centrica Chief Executive, commented in a note released on Thursday.
In this sense, the next months will remain tough despite increasing opportunities and new projects pushed forward by the European Union.
The main risk from Brussels would be a worsening of its ties with Moscow and the situation in Kiev could not be underestimated. It remains a source of risk for gas transit and for cooperation between Russia and Europe.
Sergio Matalucci