RUSSIAN GAS FOR EUROPE
Gazprom CEO Alexei Miller announced on May 7, after a discussion with the Turkish Energy Minister, that South Stream look-alike Turkish Stream will be ready to supply Turkey with gas by December 2016.
In effect, 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.
Despite the seemingly rushed advancement of Turkish Stream's first line under the Black Sea, destined solely for Turkey, there are no clear developments regarding a second pipeline, destined for EU markets. Nor are there any definitive steps towards any type of infrastructure to take over the volumes from the Turkish-Greek border, should Gazprom actually deliver on its promises of building the second pipeline so as to be able to bypass Ukraine by 2019. Indeed, the first pipeline to Turkey could mostly replace the Trans-Balkan pipeline currently supplying Turkey, but it is not clear whether Turkish Stream's terms are attractive enough for Central and South Eastern European (CSEE) markets so as to prompt countries in the region to build their own pipelines.
Greece seems the most intent on offering Turkish Stream a European outpost with its proposal to build the so-called Tesla Pipeline – a de facto continuation of Turkish Stream across Greece, Macedonia (FYROM), Serbia, Hungary and Austria. The idea came out of a meeting between the respective foreign ministers in Budapest on 7 April 2015. To be noticed that Bulgaria has been left out of the plans, pointing out that Moscow is still holding a grudge over Sofia's reluctance last year to go against EU regulation in support of South Stream.
It is also worth noting that Macedonia, which now replaces Bulgaria on the pipeline's route, has seen spirits flare between police and what Skopje calls an armed paramilitary group, with two days of gun battles leaving eight policemen and 14 others dead in mid-May. Regardless of whether this was, as suspected by some analysts, a plot by the government in order to stay in power – bulk evidence has surfaced in recent months of illegal wiretapping, election fraud and political interference in the police and judiciary by government officials – it looks like Macedonia will find it difficult to act as a reliable partner for building the pipeline, at least until domestic unrest is settled. The Kremlin-friendly rule of Prime-Minister Nikola Gruevski was immediately defended by the Kremlin, with Russian Foreign Minister Serghei Lavrov stating that events have been orchestrated by foreign interest, in a clear reference to the West. Stakes are high for Moscow in the two-million population Balkan state, as a change in government could also bring further alignment with Brussels instead of Moscow.
Serbia has recently shown indecisiveness on which pipeline project to participate in. Despite Belgrade's presence in the April Tesla meeting in Budapest, Serbian President Tomislav Nikolić stated on May 8 that Turkish Stream crossing Serbia is out of the question, as the country does not afford the expenses for building the pipeline which, unlike South Stream, would not be financed by Gazprom. It must be also noted that both Serbia and FYROM must comply with the EU's Third Energy Package, as parties to the European Energy Community treaty, which Gazprom relentlessly opposes.
Nonetheless, only one week later, Serbian Foreign Minister Ivica Dačić did express his country's readiness to participate in the Turkish Stream project, after a meeting with his Russian counterpart on May 15. Prime Minister Aleksandar Vučić, during a May 27-28 visit to Tirana, put his country's support behind the Trans-Anatolian Pipeline (TAP), only to have Srbijagas chief, Dusan Bajatović, the very same day, this time in Belgrade, accusing the EU of using ideologically-based administrative bansto obstruct the construction of gas supply infrastructure in the region.
What Serbia is displaying at this stage, therefore, resembles a mix of erratic and opportunistic behavior, not unusual with countries in the region, which constantly use their geographic advantage in order to obtain concessions from either Moscow or Brussels when it comes to pipelines planned to cross their territory.
The US also intervened, urging both Serbia to consider TAP as an alternative, and Greece to focus more on its task at hand, the Southern Gas Corridor than on the as-of-yet elusive Turkish Stream (the latter message coming from US Special Envoy for Energy Affairs Amos Hochstein in an interview with the New York Times).
Gazprom is testing the waters to see whether its natural gas offer still holds the same sway on countries in CSEE, in what looks like an about-face on its formerly confident, arm-twisting pipeline policy in the region.
This can be seen not only in Moscow's increasing number of meetings with CSEE officials in the past months, most accompanied by statements in support of Turkish Stream, but also in the aggressive rhetoric, mostly through the voice of Alexei Miller:
Ukrainian gas transit will end from 2019;
Hindering Turkish Stream would be a "very serious mistake";
Any gas bought on a common basis as part of an Energy Union would come "at the highest price" paid by EU clients, not at a lower one;
"Europe has lost the battle for LNG," therefore Gazprom has no "competitors in gas shipments within a distance of up to 10,000 km from the European market."
On the other hand, as a result of the EU's anti-trust investigation, Gazprom is now showing willingness to include a larger spot price component in its contracts, according to an unnamed Gazprom official quoted by Reuters, in what would amount to a significant concession from its former stance. Furthermore, Russia's permanent representative to the EU, Vladimir Chizhov, sees "nothing strange about the fact that Southeast European countries, including Serbia, as well as Macedonia, are looking for alternative variants that are in their interest – it does not mean that they are giving up on implementing joint projects with us."
A coherent policy, however, has yet to emerge from the ever growing diversity of pipelines being promoted in the region.
The main contender, in terms of volumes of least (starting at 20 bcm), remains Slovakian-proposed Eastring, meant to connect existing infrastructure in Slovakia, Ukraine or Hungary (to be decided), Romania and Bulgaria. The initial proposal did not include either Hungary or Bulgaria, but it was Slovakia, Hungary, Bulgaria and Romania that signed a Joint Declaration backing the project during the 21 May Eastern Partnership Riga Summit, without, however, specifying the name of Eastring. Slovakian Prime Minister Robert Fico's visit to Moscow on June 2 prompted speculation, especially in Russian media, that Eastring intends to connect to Turkish Stream. Hungary's entry, along with this visit, thus point out to a trend of Ukraine being left out of the project. It remains to be seen, however, whether Romania would be on board with such a proposal. No public statements or official visits as of yet point out to a change in this policy.
The second significant contender is the so-called BRUA corridor that aims to connect Bulgaria, Romania, Hungary and Austria. Romanian TSO Transgaz is the lead voice on this option, having announced that it could issue bonds as early as this fall in order to finance the construction of its section of the pipeline as of next year. Transgaz is hoping for European funding to come through, but wants to use a bond-buying program to cover its share of the estimated €560m investment. A second, 230 km pipeline linking the national gas grid to the Black Sea coast would raise the entire cost of the pipeline on Romanian territory to €1.1 bn.
BRUA essentially entails building a 550 km pipeline on Romanian territory (on the Giurgiu-Podișor-Corbu-Hurezani-Haţeg-Recaș-Horia route) along with three compressor stations, also in Romania (in Corbu, Haţeg and Horia) to link existing points of interconnection with the Bulgarian and Hungarian national gas transport grids, between Giurgiu and Csanadpalota, respectively. The pipeline will be able to transport 1.5 bcm/year towards Bulgaria and 4.4 bcm/year towards Hungary.
However, the estimated 2018-2019 deadline of both projects seems farfetched, as neither of the countries on both routes seems able to bring to completion several other smaller projects already under discussion for some years now: a signing of the investment decision on the proposed Bulgaria-Greece interconnector has been delayed for technical reasons to June 12, instead of May 28, according to Bulgarian Energy Minister Temenuzhka Petkova; construction of the 2 bcm/year Serbia-Bulgaria interconnector is not expected to start until 2016; while the Romania-Bulgaria Interconnector is already more than two years behind schedule.
Apart from complacency on energy projects, the other issue that is not being tackled is Ukraine's post-2019 gas supply, since its participation in Eastring is far from certain. Seen from this perspective, and looking at still strong appetite for engaging Gazprom on behalf of some countries in the region, Miller's words risk ringing true. Indeed, Gazprom might not actually be facing any competition in Europe on a 10,000 km radius.
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IEA - For the third consecutive year, global energy investment declined, to USD 1.8 trillion (United States dollars) in 2017 – a fall of 2% in real terms. The power generation sector accounted for most of this decline, due to fewer additions of coal, hydro and nuclear power capacity, which more than offset increased investment in solar photovoltaics.
EIA - Crude oil production from the major US onshore regions is forecast to increase 143,000 b/d month-over-month in July from 7,327 to 7,470 thousand barrels/day , gas production to increase 1,066 million cubic feet/day from 69,466 to 70,532 million cubic feet/day .
U.S. FRB - Industrial production rose 0.6 percent in June after declining 0.5 percent in May. For the second quarter as a whole, industrial production advanced at an annual rate of 6.0 percent, its third consecutive quarterly increase. Manufacturing output moved up 0.8 percent in June.
U.S. DT - The sum total in May of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was a net TIC inflow of $69.9 billion. Of this, net foreign private inflows were $58.8 billion, and net foreign official inflows were $11.1 billion.