GAS FOR EUROPE: DIPLOMATIC FRENZY
Amid the military escalation in Eastern Ukraine, the geopolitical arm-wrestling between Brussels and Moscow, and its impact on natural gas matters, can only get more complicated.
Fresh evidence suggests that Moscow is trying to bet on Egypt (and Algeria) - probably to put pressure on Saudi Arabia - while the European Union continues to lack a single voice. The 8th week of the year also showed the weakness of the EU, with Vladimir Putin's visit in Hungary further proving that Budapest's agenda could soon conflict with Brussels' interests. In this sense, the complexities just started unfolding.
Against this backdrop, the coming days (and months) will tell if the Energy Union will lead toward more cohesive, and consistent energy policies. According to a document leaked on Friday, ACER will have more powers to supervise the transition toward a more integrated single energy market in Europe.
North Africa came to the forefront of the energy diplomacy's agenda for good reasons.
The International Monetary Fund went to Algeria to speak with the country's Minister of Energy Youcef Yousfi. The parts discussed cooperation in the energy sector.
In this context, Cyprus played a (unexpected) key role in the region. Driven by the protection of its natural gas resources in its Exclusive Economic Zone, the country plans joint military exercises with Israel, Greece and Egypt to improve regional security.
On Monday 16 February the ministers of energy of Egypt and Cyprus also signed an MOU in Cairo pledging cooperation in the field of energy. Egypt is in desperate need for gas as it undergoes a severe energy crisis caused by a growing demand and a flat production.
On Thursday, Gazprom discussed with Algeria's Sonatrach joint LNG projects. During a meeting in Moscow with Said Sahnoun, President and CEO of Sonatrach, Gazprom clearly showed its interest to increase its clout in the region.
This diplomatic frenzy comes after Russian President's visited Cairo on February 9. North Africa will play a major role in the future of energy in Europe, and even more so in the future of the relations between Moscow and Brussels. Algeria, Egypt and Libya remain under the spotlight.
EUROPEAN STRATEGY? EUROPEAN PROBLEMS?!
A stronger ACER, consolidated ties with strategic partners and a more integrated LNG system seem to be the three pillars of the Energy Union. According to a leaked document made available on Friday, the Energy Union to be unveiled on February 25 will give more powers and independence to ACER.
According to the Secretary General of the Energy Charter Treaty, Urbán Rusnak, the Energy Charter Treaty is compatible with, and vital to, the building of the Energy Union. In a recent speech, Rusnak identified the relevance of the Energy Charter Treaty to each of the five pillars of the Energy Union.
This concerted approach to come up with a single vision for European energy policies will not pay out immediately. In this context, European companies are called to get used to the current market conditions.
"We believe that these low oil prices will certainly continue for a while; our company must adapt to these circumstances," OMV's CEO. Gerhard Roiss recently commented. Now, the company is evaluating the numerous aspects of its business to sustain itself – managing its OPEX and CAPEX costs.
Over the last days, two energy company reported a change at the helm of their communication offices. This indicate that European companies will try to cope with present complexities - related to oil and gas prices - resorting to more modern, and active communication.
Players are also considering their portfolios, in the attempt to increase diversification and increase efficiency. Nonetheless, difficulties are set to remain. "The tough market environment may affect the timing of resolution of ongoing negotiations on legacy contracts, the scope of existing projects and the timing of future contract awards" Umberto Vergine, Saipem CEO, commented.
But not everything is bleak. Mixed news for European oilfield services sector came during the week. France's Technip and Norway's Aker Solutions' results hinted at two simultaneous trends: an increase in backlog, and plans to cut workforce. An increase in backlog is not bad news.
DOMESTIC PRODUCTION: SHALE AND NOT ONLY
In its Energy Outlook, BP said that significant unconventional hydrocarbon productions remain unlikely in Europe at least till 2035.
Nonetheless, BNK España reported progress with its shale plans in northern Spain. It presented to the Administrations the projects to carry out surveys in six sites covered by its permits Urraca y Sedano, located in the north of Burgos.
At the same time, 20 French corporations announced the creation of the Non-Conventional Hydrocarbons Center (CHNC). Through their joint effort, Total, GDF Suez, Technip will try to revive the shale gas debate across the country.
On the other hand, Romania has been added to list of European nations in which Chevron Corp. is ending its exploration efforts for shale gas. On Friday, the company announced that it is relinquishing its interests in shale-gas concessions in Romania.
In the UK, Egdon Resouces said test operations on the Wingfield Flags reservoir achieved up to 456 thousand cubic feet of gas per day. The final zone will now be tested, but it is already intended to undertake a longer term pumped production test.
LNG: A KEY ELEMENT OF THE ENERGY UNION?
The European Commission is looking at LNG opportunities to bring gas where it is most needed. "This is why I will be proposing a new EU LNG strategy, and working to accelerate other infrastructure projects" Cañete said during his speech.
Europe is a balancing market for the global LNG market. Still, there are little certainties about Russian efforts to export LNG to Europe.
A GDF Suez' subsidiary focused on LNG transportation signed an 18-month contract with Lactalis group in France. The contract shows that the future role of gas might be closely related to niche usages and to conversions from oil to gas for companies not connected to the gas network.
OVER THE LAST WEEK WE ALSO PUBLISHED THE FOLLOWING INTERVIEWS:
Interview with Koen Rademaekers, Managing director at Triple E Consulting, and co-author of a study about the subject for the ITRE Committee (European Parliament). We spoke about the consequence of TTIP on European energy markets.
Interview with Walter Peeraer, CEO of Fluxys. We spoke about the company's investment plans.
Interview with Mantas Bartuska, CEO at Klaipedos nafta AB. We spoke about Lithuania, about its LNG terminal, and the country's ties with neighbours.
Interview with Montenegro's Minister of Economy, Vladimir Kavaric. We spoke about the development of the Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) pipeline projects.
RUSSIA & UKRAINE
Moscow continues to strengthen its ties with Hungary. During a visit of Putin to Budapest, Putin and Orban discussed a host of economic agreements between their countries, including the gas contract renewal and Russia's financing of two new nuclear reactors in Hungary.
Russian decision to provide humanitarian gas supplies to Eastern Ukraine triggered a stark remark by Naftogaz' Andriy Kobolyev. "We got an impression that (Russians) did it intentionally: they first ruined the gas infrastructures, and then decided to supply gas" he said.
Kiev continues to drift away from Moscow also in other ways. Slovakia's Eustream also announced that shippers entirely booked capacity of the pipeline connecting Slovakia and Ukraine.
Meanwhile, JKX resorted to the Energy Charter Treaty to seek compensation from Ukraine for alleged violations that would have hit its bottom line breaching existing treaties. JKX is seeking repayment of more than USD 180 million in rental fees.
IRAN CONTINUES TO RISE SLOWLY
Iran continues its attempts to increase its regional clout. Domestic companies joining forces to finance the gas pipeline to Iraq.
Bank Mellat, Iran's biggest private bank, announced that the institution will invest $7 billion in the development of South Pars gas field. After full implementation of this field in 2018, the country's total gas production level would stand above 1.1 billion cubic meters per day.
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GAZPROM - The parties discussed relevant issues related to bilateral cooperation, including the Baltic LNG project. Emphasis was placed on the priority measures aimed at developing a joint design concept (pre-FEED).
BHGE - U.S. Rig Count is up 11 rigs from last week to 1,063, with oil rigs up 8 to 869, gas rigs up 4 to 193, and miscellaneous rigs down 1 to 1. Canada Rig Count is up 13 rigs from last week to 195, with oil rigs up 8 to 127 and gas rigs up 5 to 68.
REUTERS - Brent crude futures had risen $1.02 cents, or 1.3 percent, to $81.28 a barrel by 0637 GMT. The contract dropped 3.4 percent on Thursday following sharp falls in equity markets and indications that supply concerns have been overblown. U.S. West Texas Intermediate (WTI) crude futures were up 80 cents, or 1.1 percent, at $71.77 a barrel, after a 3 percent fall in the previous session. WTI is on track for a 3.5 percent drop this week.
EIA - Brent crude oil spot prices averaged $79 per barrel (b) in September, up $6/b from August. EIA expects Brent spot prices will average $74/b in 2018 and $75/b in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average about $6/b lower than Brent prices in 2018 and in 2019.