Week 4 Overview
The fourth week of the year has been a real roller-coaster for the whole industry. That is the case especially for Poland.
The Eastern European country registered expected setbacks and abrupt achievements. If it seems increasingly clear that Australia will be the first to follow in the steps of the United States to produce shale gas on an extensive scale, the first to cross the finishing line in Europe is quite uncertain. Bookmakers are not (yet) betting on this. But the majority would probably foresee the winner to be Poland or the United Kingdom.
POLISH SHALE
Last week, Eni joined the shale gas exodus from Poland, explaining the decision in light of difficult geology. The six-legged dog let two of its three shale licences to expire. But Warsaw’s prospects took a U-turn in the week.
San Leon Energy announced the successful completion of flowing testing in the Ordovician shales in the Lewino-1G2 well in Poland’s northern Baltic Basin. The Dublin-based explorer backed by George Soros and Blackrock reported it ‘achieved all of its goals in the Lewino testing programme.’ As a result, the company said on Thursday it plans to spud its first horizontal well and multi-stage frac at Lewino in the near future.
Some newspapers have been enthusiastic about the achievement, heralding the news as a breaking point for shale gas in Europe. They see San Leon Energy to be the first to produce shale gas in Europe. And they might be right.
The positive mood of the newspapers about European shale gas has also to do with messages from Brussels. On Wednesday, the European Commission presented its energy strategy to 2030. It did not propose binding measures to address unconventional resources.
BRITISH SHALE
UK’s Prime Minister David Cameron was the one lobbying for this to happen. He strongly voiced concerns for any intrusion of the European Union into his attempt to foster the nascent national industry.
According to green groups, Commission president José Barroso has “bowed to the pressure of the fossil fuel lobby and its political cheerleaders like David Cameron.”
Nonetheless, the vast majority of industry players expect indigenous shale gas to take at least 10 years to have a significant impact on national energy supplies, a survey by Pinsent Masons revealed on Monday.
A few days later, on Wednesday, Trapoil said it is considering new opportunities in the unconventional hydrocarbon sectors to increase its shale portfolio. Once more, this proves the unconventional industry is building momentum in the country.
On the other hand, one of South East England’s MEPs has asked South Downs National Partk Authority (SDNPA) to intervene, blocking exploratory drilling that could lead to fracking.
In this sense, while the Polish difficulties to tap shale gas resources are mainly related to geology and politics, the British hurdles are probably even higher: many communities don’t want shale gas in their backyard. It comes as no surprise that Cuadrilla scrapped its plan to frack at Balcombe. The company said on Thursday it revised its project. It will not carry out any hydraulic fracturing in the area given “the presence of … natural fractures and the nature of the rock.”
BRITISH CONVENTIONAL GAS
Downing Street is willing to cope with the energy security problems by also tapping conventional resources. The North Sea is the only trump card in the hands of the country.
The UK launched its 28th tender for new offshore licences on Friday, with the Government hoping for results similar to the ones obtained in the last round.
“There continues to be extremely high level of interest in North Sea oil and gas, which is unsurprising when there could be as many as 20 billion barrels of oil still buried deep within the seabed. This new round of drilling for offshore oil and gas will help boost growth, energy security, and jobs in the UK,” Energy Minister Michael Fallon commented in a note.
THE EUROPEAN ENERGY PACKAGE AND CRITICISM
While the Polish and the British government showed some optimism, some companies voiced concern.
The European energy package published on Wednesday did indeed trigger mixed reactions among industry players. Most of them praised the European Commission for the attempt to overhaul the European carbon market, but some companies pointed out alleged flaws in the guidelines.
The Magritte Group of CEOs criticized that decision of Brussels to set multiple targets. In particular, they attacked the target on renewables.
Also on Wednesday, Wintershall said that the price gap with the US would decrease EU exports of energy-intensive goods by about a third in the next 20 years.
On Friday, France’s Total added its warnings, calling peers to revise expensive projects in light of escalating costs.
“Costs are becoming too high. Projects of $50 billion leave one thinking ‘Isn’t it crazy?’” Christophe de Margerie, chief executive officer of the Paris-based company, commented from Davos.
OTHER EVENTS: BULGARIA, CROATIA, NORWAY AND RUSSIA
Bulgaria, Croatia, Norway and Russia also made some headlines.
After the meeting on Monday, Moscow and Brussels decided to set up a joint task force to address technical and legal details that could slow down the South Stream project. Moreover, this week witnessed Rosneft’s upward revision of its reserves, and Gazprom beating expectations on growing European demand.
Norway is the other heavyweight that as usual tried to reaffirm its centrality. On Tuesday, the Norwegian Petroleum Directorate said that the country registered a record number of companies applying for available acreage in mature field. Statoil was the company reporting the highest number of licences.
The two Eastern European countries are less used to make the headlines. Bulgaria and Croatia are both trying to increase their regional clout.
Zagreb was more active. It said it would promote a licensing round in the central and southern Adriatic in the second quarter of the year.
"This is an extremely important project, which could turn Croatia into an important energy hub,” Minister Ivan Vrdoljak said on Wednesday.
A few hours before, Total, OMV and Repsol confirmed their commitment in Bulgaria’s Black Sea. They completed their 3D seismic acquisition campaign in the 1-21 Han-Asparuh. The three companies reaffirmed their plan to drill two more exploration wells in 2015 and 2016.
SO WHAT?
The industry progressed slowly in the fourth week of the year. The last few days have been more a matter of critical voices than signals for industry players. Once more, the main topic in the agenda of European companies was shale gas.
As said, the two favourite countries to win the race remain the United Kingdom and Poland, while Romania seems still a few metres behind. But the last week saw another contender that could claim to be the revelation of the year: Italy. A story by the Canadian newspaper The Globe and Mail claimed that energy giants are eyeing up projects in Italy.
‘The national and regional governments are keen lure investment into the underdeveloped south and a few of the biggest oil companies are drawing up Basilicata investment plans. They include Italian national oil giant Eni …, Royal Dutch Shell, Total of France and Japan’s Mitsui,’ read the story.
The main interest of the companies would be oil deposits, but gas resources have not been excluded. Surprises like this would clearly create more optimism and silence the most critical voices. The European gas industry has still many cards to play, some of which have been kept well hidden in the last years. Italy is just one example.
Sergio Matalucci