Week 22 Overview
The standoff over Ukraine has winners and losers. The 22nd week of the year made it even clearer. German companies are the first movers, the first ones to adjust to the current situation and clearly the first to reap the benefits of the recent changes. While the UK and Poland are trying to move on, Germany found its way in a more subtle and effective way: several German companies capitalized on the current situation and struck relevant deals. At the same time, Turkey emerged as the other potential winner. Ankara is indeed in the conditions to take an active role in European policies. Despite the recent turmoil during the first anniversary of Istanbul’s Taksim Square protests, it is clear it can do so.
On the other hand, there are some losers. Eastern European countries seem to be the one paying the highest price of the upcoming balance, of the on-going changes. Russia is strengthening its relations with Kazakhstan and Belarus, while countries like Bulgaria and Romania are likely to lag behind. They still need to flex the muscles. Unfortunately for them, the last days indicated that this is not going to happen any time soon. The recent Chevron’s pull-out from Bulgaria is an expected coup de theatre, which will even reduce Sofia’s influence. Its ability to have a say remains extremely low. It is not even comparable to German influence.
THE MAIN WINNER: GERMANY
The first proof of German ability to consolidate its position in the last days is simple: it is increasingly moving closer to Russia, and this can further increase its might in the existing energy dialogue.
On Monday, Gazprom and Germany’s Verbundnetz Gas announced they are working together on projects for underground storage. And it comes as no surprise that the cooperation is perfectly timed.
“This issue is most relevant today given the relations with Ukraine in the gas sector. There is no doubt that cooperation with Verbundnetz Gas will allow us to create new gas storage capacities in Europe and therefore to increase the reliability and stability of gas supply to our European consumers in the autumn-winter period,” said Gazprom’s Alexey Miller in a note released on Monday.
Miller, Chairman of the Gazprom Management Committee, met Karsten Heuchert, Chairman of the Verbundnetz Gas (VNG) Executive Board on Monday. VNG is the first company to supply Russian natural gas to Germany. Apart from the symbolic value of the operation, this also suggests that Moscow will try to get Berlin’s help. Europe is a central partner and, in order to convince Brussels, Russia needs Germany. In this context, Berlin is in the perfect conditions to reap the benefit of its leadership. It is likely to exert its diplomatic ability to gain some advantages.
‘In a manner of speaking, Gazprom and Verbundnetz Gas are the originators of the Russian-German energy dialogue. Today more than ever the issues of energy security are especially crucial for the European gas market,’ added Miller.
But Berlin’s muscles did not flex just eastwards. German companies also looked towards the United Kingdom. On Wednesday, E.ON and Qatar’s RasGas clinched an agreement to ship liquefied natural gas (LNG) from Qatar to the United Kingdom.
‘E.ON and RasGas Company Limited (RasGas) have signed a medium-term flexible contract, with immediate effect, for the supply of liquefied natural gas (LNG) from Qatar to the Isle of Grain in the United Kingdom. The three-year contract has the potential to supply up to around two billion cubic meters over its term,’ reads a note released on Wednesday.
The two companies – E.ON and Verbundnetz Gas – are a clear example of German dominance; they indicate how Germany is leading the way. Despite not having significant indigenous resources, Berlin is indeed playing its heavy cards to increasingly be the main player of European energy policies.
TURKEY FOLLOWS
Turkey is equally walking a rosy path. According to several experts, the G-7 countries should support Turkey’s aspirations to become a land bridge for Caspian and East Mediterranean energy. Western countries are likely to make concessions in return for Ankara’s green light to LNG tankers through its straits.
‘The crisis in Ukraine has awoken a new sense of energy insecurity in Europe, triggering calls for a better coordinated multinational approach to energy security,’ reads the report released on Tuesday.
Given its geopolitical power and geographical position, Ankara’s voice could be the first one to be heard. This could be the case, especially in light of Turkish growing interest in energy-related investments.
On Friday, Turkey’s TPAO acquired Total SA’s stake in the Shah Deniz gas project, increasing to 19% its stake in the Azeri gas project.
BULGARIA AT RISK, DISAPPOINTING RESULTS IN ROMANIA
Bulgaria is probably Turkey’s most stable neighbour. Nonetheless, Sofia is not able to capitalize on its position. As already said several times, Bulgaria and Macedonia would be the ones paying the highest price in case of gas flows disruptions. Given the lack of agreement between Kiev and Moscow, this remains a very possible scenario.
In this context, Sofia would really need some indigenous production. Local gas would clearly not solve Bulgaria’s short-term problems, but it would create the political and financial confidence Sofia desperately needs.
This is why Chevron’s pull-out of Bulgaria’s shale gas is not great news.
‘Chevron was the largest international energy company that had once expressed interest in the exploration and production of oil and gas in Bulgaria. Its withdrawal will certainly negatively affect foreign investment and prospects for exploration and production of oil and gas in the country and especially on the ability to replace imports with local sources,’ energy expert Ilian Vassilev wrote on his blog on Tuesday.
The tussle between Kiev and Moscow does not help. Bulgaria is at risk.
Little consolation came from the results of the bidding procedure for the construction of South Stream’s segment in Bulgaria. Stroytransgaz consortium comprised of Russian Stroytransgaz and Bulgarian Gasproekt Jug won the bid, beating some fierce competitors.
RUSSIA
Russian authorities threaten to cut off natural gas to Ukraine as early as Tuesday. The confrontation is in progress, and Moscow is not wasting time also on other fronts. On Thursday, it signed a treaty with Kazakhstan and Belarus to foster further integration, guaranteeing the free movement of goods, services, capital and work force.
‘The Agreement on the Eurasian Economic Union will come into force on the Customs Union territory on January 1, 2015,’ reads a note released on Thursday.
Russian President Vladimir Putin reminded that Kazakhstan and Russia jointly hold one-fifth of the world’s natural gas reserves. Kremlin is sending clear messages.
In this context, Putin’s voice is heard even louder because his position is fully backed by Russian companies. They seem equally active.
Rosneft is looking for new opportunities, acquiring a significant stake in North Atlantic Drilling (NADL) and signing an agreement with BP for implementation of a joint pilot project to explore Domanik formations in the Urals region.
‘North Atlantic Drilling Ltd. and Seadrill Limited are pleased to announce that an Investment and Co-operation Agreement has been executed with Rosneft in order to pursue growth opportunities offshore and onshore in the Russian market through at least 2022. As part of these proposed opportunities, NADL will enter the onshore drilling market in Russia and enter into contracts for multiple offshore assets. In addition Rosneft will be acquiring a significant equity stake in NADL,’ reads a note released by Seadrill on Monday.
At the same time, Gazprom confirmed its commitment to the Natural Gas Vehicles sector. It said it is keeping an eye on international markets while working to improve efficiency.
‘The outlined target parameters will make it possible to maintain the sustained growth in natural gas supply from the company's portfolio to be used as a vehicle fuel as well as to increase the international retail sales of NGV fuel in the form of liquefied natural gas and compressed natural gas through the company-owned network of filling stations,’ reads a note released on Wednesday.
The company set target parameters for 2014-15 and through to 2030.
HOW TO GET POWER?
In this sense, it is clear that Russian efforts are well coordinated and balanced. They are a good mix of long-term and short-term measures. More importantly, national authorities’ messages are completely backed by companies. This seems the recipe for success. Germany and Turkey know it as well. Coherent and consistent decisions pay out. It is just a matter of time. Russia, Germany and Turkey are set to further increase their clout in Europe.
Sergio Matalucci