Week 46 Overview
While companies and governments are bracing for the United Nations conference on climate change to take place in less than a month, Iran is slowly disclosing its strategy for the period following the “implementation day” - when Tehran will adopt all the measures included in the nuclear deal and the main world powers will lift the sanctions against the country.
In his first interview with a European newspaper since his election in 2013, Iran’s President Hassan Rouhani told Corriere della Sera on November 12 that the “implementation day” should be achieved by the end of the year. This might imply that 2016 might witness further drastic changes in the LNG sector.
If the spotlights are on Iran, central Asian countries are also drawing increasing diplomatic attention, and Ukraine is trying to defuse tensions.
Finally, the Baltics are realising their energy strategy. Their existing long-term contracts with Gazprom are expiring at the end of the year. Estonia, Latvia and Lithuania are working to reduce prices while maintaining energy security.
Next week, all eyes will be on the first State of the Energy Union, a document that the European Commission will publish on November 18 analysing how the continent is addressing climate change issues, and realising a fully-integrated internal energy market.
On the same date, the European Commission should adopt the second list of Projects of Common Interest. Dominique Ristori, director-general of the Directorate-General for Energy within the European Commission, wrote so on his Twitter account.
BALTIC COUNTRIES WORKING FOR A SOLUTION
The political convergence between the Baltic States and Poland emerged strong during a conference on November 11, when Baltic leaders made the case for closer cooperation on energy matters with the United States. “We are going in the same direction” Jerzy Buzek, former Prime Minister of Poland and former President of the European Parliament, said during the conference organised by Natural Gas Europe and Geopolitika.
Lithuania started talks with Russian gas exporter Gazprom on purchases for the next year, Baltic news agency BNS reported.
However, ICIS wrote on November 9 that negotiations between Gazprom and Baltic States stalled, as Lithuania and Estonia are waiting for an official price offer from the Russian company.
Interfax reported that Gazprom is considering gas auctions for Baltic costumers.
The current uncertainties are probably the reason why, despite falling gas consumption, Lithuania is not considering, at least for now, terminating a gas supply contract signed with Norway's Statoil in August 2014, Energy Minister Rokas Masiulis said on November 11 as reported by the Baltic Course.
UKRAINE TRIES TO MAINTAIN STABILITY
Ukraine’s President Petro Poroshenko met with High Representative of the European Union for Foreign Affairs and Security Policy Federica Mogherini. Reading between the lines, Mogherini's speech indicates that there are doubts around the Association Agreement, which would enter into force on January 1, 2016.
Naftogaz presented its development strategy on November 12, saying that corruption and the company's outdated governance model are two of the many hindrances that had stopped the development of the Ukrainian gas market. On the other hand, Naftogaz CEO Andriy Kobolyev, said that the company ensured for the first time ever a real diversification of gas imports to Ukraine.
Ukraine is trying to maintain stability in its gas sector though a mix of reforms and support to its citizens, as indicated through comments by the country's Prime Minister. The country is also trying to defuse tensions by turning the spotlight on the visa-free regime and on the European integration.
Despite the current difficulties, Ukraine is leading the way among emerging economies in financial sector reforms, according to the EBRD’s latest Transition report published on November 10.
IRAN FLEXES ITS MUSCLES
Some details of the Iran Petroleum Contract have been disclosed. Iran has kept its sovereignty over its hydrocarbon reserves, but the new contract has some advantages over previous models. At present, the government’s approval only outlines generalities of the IPC. Full details will be announced in a conference that is scheduled to be held on November 20.
Recent negotiations and declarations indicate that Total and Belgium might step up ties with Iran. Teheran is indeed looking for LNG technology.
Belgium is in technical and economic talks with Iran to establish floating liquefied natural gas (FLNG) facilities in Iran’s southern Kharg Island, located in the Persian Gulf, an Iranian government official has said. “If technical and economic talks between Iran and Belgium are fruitful, Belgium’s FLNG facilities will be brought to Kharg, so that Iran will produce LNG using these facilities for the first time,” Iran’s Oil Minister Bijan Namdar Zanganeh told Shana news agency on November 9.
Tehran is also looking at cooperation with companies. A large European company is negotiating with the National Iranian Gas Exports Company on a floating liquefied natural gas (FLNG) project. Alireza Kameli, managing director of National Iranian Gas Exports Company, said on November 8 the two sides would soon sign a confidentiality agreement. He did not provide details about the European company, but said that once sanctions against the Islamic Republic are lifted and negotiations are finalised, [representatives of] the European company will travel to Iran. Could the company be Total?
Meanwhile, Iran signed a deal with a German company to commission the building of an LNG carrier, Esmail Sadeqi, director of the LNG tanker construction project, said. This will be Iran's first commissioned LNG carrier.
Italian and German firms have began releasing blocked petrochemical equipment destined for Iran in recent months, according to Marzieh Shahdaee, director of projects at the National Petrochemical Company of Iran. “The companies are cooperating and, so far, some blocked equipment has been handed over to Iran,” Shahdaee said, Iran’s official IRNA news agency reported.
It seems clear that the country is flexing its muscles.
Iran has commissioned a platform of the South Pars gas field phase 16 within 5 months and 10 days, breaking Statoil record which was 6 months and 15 days. Meanwhile, Kamran Mehrdadi, manager of project for building platforms of the South Pars phase 14, said four platforms of the phase 14 are being built by Iran Shipbuilding and Offshore Industries Complex in the southern city of Bandar Abbas, IRNA news agency reported on November 6.
Iran also exported 14.109 million metric tons of petrochemicals, valued at $8.205 billion in the first seven months of the current Iranian fiscal year, which started on March 21. Despite a 36.36% uptick in volume of petrochemical exports, revenues rose by just 0.01% compared to the same period last year, according to the Iran Customs Administration's report released on November 10.
Iran is also developing regional ties.
Tehran and Baghdad signed an 6-year agreement on November 11, aimed at exporting 25 million cubic meters per day (mcm/d) of Iranian gas to Iraq's Basra. Iran is expected to export 40 billion cubic meters of gas to Iraq starting in 2017. Iran and Iraq already signed another agreement on delivering 25 mcm/d of Iranian gas to Iraq's capital, Baghdad.
CENTRAL AND SOUTHERN ASIA: TAPI, NEW NEGOTIATIONS
Over the week, Kazakhstan made the headlines. Astana held negotiations with Beijing, Karachi, Tehran and Paris.
Kazakh President Noursoultan Nazarbaïev met with François Hollande at the Elysée Palace on 5 November as part of a two-day official visit in France. The reception was aimed at strengthening the economic ties between the two countries in different areas, including hydrocarbon production. Patrick Pouyanné, CEO of Total, spoke with the Kazakh President about the development of the Kashagan field and other investments to come.
A subsidiary of JSC "NC" KazMunayGas" - JSC “KazMunayGas - refining and marketing” and the French company “Air Liquide” signed a shareholders agreement on creation of the Kazakh-French joint venture for the production of industrial gases, the press service of the Kazakh company said. The project is supposed to transfer operational know-how methods by French partners.
French diplomacy is evidently roaring back, but it is not the only ambitious player in the area.
Turkmenistan fired the starting pistol on the TAPI natural gas pipeline, a 1,735-kilometer route intended to supply markets in Afghanistan, Pakistan and India. To the applause of ministers, President Gurbanguly Berdymukhamedov announced he had ordered the beginning of construction on November 6 during the weekly Cabinet meeting.
Reuters wrote on November 9 that Pakistan finalised a 15-year liquefied natural gas (LNG) deal for $16 billion with supplier Qatar. Shipments are expected to begin next month.
In mid-October, Pakistan and Russia signed an agreement for the construction of gas pipeline from Lahore to Karachi.
RUSSIA: CALM BEFORE THE STORM?
Russia’s President Vladimir Putin met with Emir of Kuwait Sabah Al-Ahmad Al-Jaber Al-Sabah this week to discuss opportunities for cooperation in the fields of energy and diplomacy. The two countries also signed a memorandum for military technical cooperation.
From January to September 2015, the average export price of Russian gas totalled $238.2 per 1000 cubic meters, according to statistical information of the Russian Federal Customs Service. During the same period last year average export price of Russian gas was $326.5 per 1,000 cubic meters. The 27% price drop pushed down income from gas export by $12.8 billion to $31.331 billion.
AZERBAIJAN: TANAP, AND NEGOTIATIONS WITH GEORGIA
Azerbaijani President Ilham Aliyev said on November 6 that his country has enough gas to supply its neighbours for the next 100 years. The statement comes in a moment Georgian politicians are considering gas imports from Iran and Russia. Georgian officials have several times demonstrated their willingness for Russian gas. Georgia and Gazprom met twice (in Brussels and Florence) over the past months.
SOCAR President Rovnag Abdullayev held a meeting with Prime Minister of Egypt Sherif Ismail in Cairo on November 9. The parties spoke about crude oil supply to Egypt.
The country's top oil official says the cost of construction of the Trans-Anatolian Natural Gas Pipeline (TANAP) decreased by 20-25% cheaper on previous cost estimates. Head of the State Oil Company of Azerbaijan Republic (SOCAR) Rovnag Abdullayev said on November 10th that the decline of costs is a result of the decreasing price of materials.
Maximum gas extraction of 25 bcm/y from the Shah Deniz field is expected to be between 2022 and 2028, said SOCAR Senior Vice President for Geology, Geophysics and Field Development Khoshbakht Yusifzada. “The peak volume of gas extraction of 16 bcm/y from the Shah Deniz Phase 2 will be achieved in 2022 and maximum volume of gas extraction from Phase 1 and Phase 2 is expected between 2022 and 2028,” added Yusifzada.
Total’s Edouard Thibaut said the Absheron gas field in the Azerbaijani sector of the Caspian Sea is conveniently located for transmission of electric energy from the shore. For the first time in Azerbaijan, an offshore production platform would operate with electricity from onshore. The final investment decision is expected to be made in the last quarter of 2017.
MEDITERRANEAN: ISRAEL, CYPRUS, ISRAEL, AND ENI
Cypriot President Nicos Anastasiades is set to arrive in Israel on November 13 to meet with Israeli Prime Minister Benjamin Netanyahu. Israel and Cyprus have yet to sign a unitization agreement that will resolve the differences and disagreements between the two countries, mainly concerning the distribution of natural gas deposits in the Aphrodite field in the Cypriot EEZ. According to assessments, approximately 1% of the natural gas from the Aphrodite field is in Israeli territorial waters.
The meeting might turn out to be a pivotal moment in the natural gas diplomacy between Israel and Cyprus. However, problems remain. Conflicting commercial interests are making what seem to be fairly routine diplomatic negotiations into a commercial war.
According to experts, Tamar and Leviathan gas fields are probably the two first and last giant natural gas discoveries offshore Israel. “The prospects of discovering another either Tamar or Leviathan in the Israeli waters is unfortunately very low. Future gas discoveries in the Israeli Mediterranean will be mainly in stratigraphic traps, whose potential rewards will be much smaller than the reserves which were found in Tamar and Leviathan Structural traps” Yossi Langotsky, a prominent Israeli oil geologist, told Natural Gas Europe.
In this sense, positive diplomatic developments between the two countries would lead the way.
France’s Total has demonstrated a renewed interest in drilling for natural gas in Block 11 of Cyprus’ Exclusive Economic Zone despite previously postponing any further exploration activity in Cypriot waters, various media outlets have reported. Total’s decision might also be related to Eni’s giant discovery in Egyptian waters.
Meanwhile, Eni is reporting some other achievements. Eni signed on November 12 a new concession and three amendment agreements in Egypt. ‘The agreements will lead to investment for more than $2 billion for the realization of projects to be implemented in the next 4 years’ the Italian company wrote on Thursday.
Eni also completed the side-track well GU2-Dir A at the Guendalina gas field in the Northern Adriatic, offshore Italy, partner Rockhopper Exploration reported on November 10. According to Rockhopper Exploration, total production from the field is stabilised at approximately 440,000 standard cubic metres (scm) per day gross.
AMERICAN SHALE GAS, AND LNG
Ineos announced on November 9 that it signed a long-term agreement with ExxonMobil and Shell to secure ethane from U.S. shale gas for its Fife Ethylene Plant at Mossmorran, in Scotland. The first deliveries should arrive in mid 2017.
Starting from 2018, Engie (ex GDF Suez) customers will use natural gas from two American liquefaction plants – primarily Corpus Christi, currently under construction, and Sabine Pass. Engie will purchase 12 cargoes of liquefied natural gas each year. Last July, EDF closed a similar agreement with Cheniere.
Korea Gas Corp has agreed with the trading arm of France's EDF to funnel excess liquefied natural gas (LNG) supply into Europe and beyond, the French company said on November 11, as reported by Reuters.
EUROPEAN SHALE GAS
Paul Landers, Expert, United Kingdom Onshore Operators Group (UKOOG), said that amongst the problems for shale in the UK in the last 4 years, one was the government. “A coalition government where you have two different parties in your coalition that are at loggerheads with each other, then you can get nothing passed.”
Something is moving in the UK. The first application to explore for shale gas in the East Midlands has been submitted to a Nottinghamshire council. According to the BBC, Island Gas Limited (IGas) wants to carry out test drilling on Springs Road, in Misson, Bassetlaw.
On the other side of the English Channel, France has banned hydraulic fracturing and thus any developments of unconventional resources since 2011. Four years later, a key provision of the anti-fracking law voted in during Nicolas Sarkozy's presidency has never been fully implemented. The law required the establishment of a "national commission on the orientation, monitoring and assessment of the exploration and exploitation techniques of liquid and gaseous hydrocarbons.” The commission has never convened a single session. “Actually, the government has absolutely no intention to convene a commission meeting," Jean Claude Lenoir, senator from what was previously the UMP, told Natural Gas Europe.
THE GREEN PUSH TOWARD COP21
According to a Greenpeace analysis, between the months of January and September 2015 coal use around the world was down by at least 2.3% and by as much as 4.6% versus the same period last year.
BP’s CEO Bob Dudley wrote on November 12 a column for Reuters in which he said that a lower carbon economy would necessary include oil and gas as part of the transition.
This is in line with recent declarations of Eni, Total and Statoil, which are increasingly investing in renewables, and reducing the environmental footprint of oil and gas operations.
Statoil said on November 11 it is increasing its environmental commitment on the Norwegian continental shelf (NCS) for 2020 by 50%. According to the Norwegian company, by 2020, it will reduce emissions on the NCS by an amount equivalent to the emissions from about 750,000 cars.
NORTHERN EUROPE: DUTCH COURT TO TAKE DECISION ON GRONINGEN, NORD STREAM
The Nord Stream consortium has stopped gas shipments via the Baltic Sea through one of its two lines, explaining it will resume transportation as soon as the Swedish Armed Forces dispose of the "munitions object" found on November 7 during routine survey operations. "Transportation through Line 2, closed at inlet as a precautionary measure, will be resumed as soon as the disposal of the object is confirmed," reads a statement published by the consortium on November 11
Nonetheless, Chairman of the Executive Board and CEO of Austria's OMV Aktiengesellschaft, Rainer Seele, said the Nord Stream II project, which would expand deliveries of Russian natural gas to Germany, holds promise. “Nord Stream II is a realistic project. Very powerful European investors are behind the project, and these are renowned companies we're talking about which all have experience in building pipelines to increase security of supply” he told Natural Gas Europe.
Northern Europe is possibly stumbling upon complexities coming from the Netherlands.
A Dutch court reportedly said on November 12 it would take a final decision on the Groningen natural gas field on November 18, in line with previous declarations indicating that the court would rule by December 1. The field, which is operated by state-owned Gasunie in partnership with Royal Dutch Shell and Exxon Mobil, is the largest gas field in Europe and one of the top 10 in the world.
Meanwhile, Norway and Norwegian companies showed signs of vitality.
The Norwegian Petroleum Directorate (NPD) announced on November 6 that it has granted start-up consents for the Edvard Grieg oil pipeline and the Utsira High gas pipeline. It also said that the infrastructure will be part of the development of the Edvard Grieg and Ivar Aasen fields on the Utsira High in the North Sea. "Start-up of the Edvard Grieg field is planned towards the end of 2015, whereas the planned start-up of Ivar Aasen is scheduled for next year. Ivar Aasen will use both pipeline systems," NPD wrote on its website.
The Petroleum Safety Authority Norway released the results of its audit of the Skarv FPSO production vessel. The Norwegian agency revealed five non-conformities and five improvement points. It gave BP till December 15 to report on how it intends to proceed.
On November 6, Faroe Petroleum announced that it has completed the previously announced acquisition of Roc Oil, which holds a 12.5006% interest in the Blane Unit in the UK North Sea and a 12.00% interest in the Enoch Unit in the UK North Sea.
GAS MARKETS, COMPANIES’ PROBLEMS
The LNG construction industry enjoyed a period of fast expansion, especially in the US and Australia, which is expected to come to an end. According to a report published by Wood Mackenzie on November 10, ‘few pre-FID LNG projects on the horizon (are) likely to materialise.’
The International Energy Agency (IEA) expects oil prices to increase to $80 per barrel by 2020, adding in its yearly report that there are clear signs that an energy transition is underway. “A period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats” IEA Executive Director Fatih Birol commented in a statement released on November 10.
Speaking about markets, the tendency toward liquidity is a given fact. For instance, PEGAS announced on November 5 that a total volume of 108.8 TWh was traded in October 2015 which represents a new monthly record. This corresponds to a 67 % increase compared to last year (October 2014: 65.1 TWh).
Apparently, also the Czech Republic is gaining from the current situation and the push toward increased liquidity. “The gas markets in Germany, Austria and the Czech Republic are drawing closer and closer together, especially in terms of price systems, market transparency, product landscapes, market regulations and the very low barriers to market entry” Hamead Ahrary, Director of Sales Central Europe at WINGAS, explained on November 9.
In the meantime, most of the companies keep suffering. MOL was the only company reporting its best ever financial results.
Poland’s PGNiG revised downwards its consolidated revenue forecast for 2015, while expecting higher consolidated EBITDA. "The decrease in forecast revenue is due to persistently low prices of crude oil and lower gas selling prices across European and Polish commodity exchanges” the company wrote on November 6.
Similarly, Austria’s integrated international oil and gas company OMV showed signs of difficulties on November 5, announcing a 35% decrease in sales in the third quarter of the year with respect to the same period in 2014. On the other hand, it also reported a 31% increase in clean CCS net income.
Conversely, as said, Hungary-headquartered MOL Group continues to grow, reporting results for the third quarter of the year that the company says are the best ones the company has ever achieved. According to the company, net profit reached HUF 163.1bn (USD 583mn), more than doubling the results from the same period last year.
SOUTH EUROPEAN NEWS AND TURKISH STREAM
Bulgaria’s Energy Minister Temenuzhka Petkova said on November 9 that shareholders of the Interconnector connecting Bulgaria and Greece (IGB) have agreed on the conditions necessary to proceed with the project. In a statement released on November 10, the Energy Ministry said that the parties should define a date to sign the Final Investment Decision (FID) by the end of the week.
The finalized list of the EU's Projects of Common Interest (PCI) has been fully unravelled in Greece by the general secretariat of strategic investments, an institutional body administered by the ministry of national economy. But the included projects face some difficulties, either because they do not align with the EU's current energy stances or because their viability is uncertain.
Doubts arose also in relation to the Turkish Stream project.
“I am of the opinion that if the Turkish Stream project is realised, especially after the results of the elections in Turkey, there will be just one line” Volkan Özdemir, Chairman at EPPEN, told Natural Gas Europe. Özdemir also referred to Botas’ decision to initiate court proceedings against Gazprom over gas prices, saying that the legal action is part of the wider ties between the two countries, where the Balkans and Syria equally play a role. “The discount should be more than 10%, and it will be part of the broader gas negotiations between the two countries.”
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci