States are attempting to get their hands on long-term gas supply contracts with the Russian natural gas exporter Gazprom and pave the way for a multi-commodity energy supplier business where they can influence end-user prices directly.
“Now we are facing a stagnant demand both for oil and gas globally. These two commodities are providing 70% of Russian export and 50% of Russian federal budget revenues, so you can imagine how painful that is.”
Gazprom revived its contract with Italian contractor Saipem (controlled by state-run Eni SpA). The Milan-based company had signed two contracts worth €2.4 bn in total for the construction of an undersea pipeline and support services for construction of a second undersea pipeline, both part of much touted South Stream. The contract terms are now being renegotiated, so as to start construction in time for the 2016 deadline.
The most significant development on the supply side in 2014 was undoubtedly the continuing revolution in US shale. The US recorded the largest increase in oil production in the world, becoming the first country ever to increase average annual production by at least 1 million barrels per day for three consecutive years.
More than $100bn of investment has been deferred or scrapped in response to the near-50 per cent plunge in crude over the past year.
Not quite as severe as in the UK, he says the trend is similar in the Netherlands, considering the decline in Groningen and the curtail in production: “Moving from a net exporter of gas to a net importer of gas.” The situation across the entire EU, according to Mr. Egan, is even worse, with the European Union importing 80% of its gas, forecast to get even worse.
Falling oil prices have resulted in much lower gas prices in many parts of the word. As a result, gas demand is enjoying the tailwind of substantial price drops while the upstream sector is suffering amid large capital expenditure cuts.
Examining the essential gas transmission infrastructure projects in Europe alone - without taking into account the upstream sector – according to the European Commission, investments of at least 70 billion EUR are required by 2020, while EU funding will provide €4.7 billion for both gas and electricity PCIs between 2014 and 2020, subject to final approval of the European Fund for Strategic Investments (in 2015).
Russia is still likely to be Europe's biggest supplier of gas. Volume-wise, no one will be able to compete with Russia in Europe, at least for the next two decades.
Nearly a year after oil markets entered a deep downward spiral, unmoored from the $100-a-barrel mark that had anchored them for years, some OPEC members are publicly talking for the first time about a new "fair" price for their crude.