Week 23 Overview
In its search for a new identity, the gas industry is trying to approach market conditions, new opportunities and old failed bets with a more factual approach. The geopolitical movements were limited over the last days, which though shed light on the new stars in the gas industry. Indeed, it seems increasingly clear that technology will play a larger role in the future: LNG, CNG for transportation, interconnections, and ultra-deepwater fields will be the likely protagonists of the years to come. On the other hand, the 23th week suggested that unconventional resources will probably not take high speed in Europe, leaving the traditional gas suppliers - Russia and Norway - in a favourable position.
LNG AND CNG
GE France, GE Oil & Gas and GRTgaz have signed a Memorandum of Understanding (MoU) on Thursday to promote the development of Compressed Natural Gas infrastructure in France. GE and GRTgaz committed to gathering and exchanging technical information, cooperating to promote CNG with public authorities and hold talks with industrial or service companies in the CNG chain.
In its annual Medium-Term Gas Market Report, the International Energy Agency said that Europe’s LNG imports are set to double in the next five years. As reported by Euractiv, the report published on Thursday indicates that 90% of the rise in exports will come from Australia and the US.
Russian companies are finally moving also in the LNG segment too.
Novatek announced on Tuesday that its subsidiary Novatek Gas & Power concluded a long-term contract with France’s ENGIE (formerly GDF Suez) for the supply of LNG from the Yamal LNG project. ENGIE welcomed the deal, arguing that the 23-year contract for one million tons of LNG a year will help it to diversify its portfolio. The LNG will be supplied to FOB Montoir-de-Bretagne terminal.
But that wasn’t the only deal clinched by the company. Novatek Gas & Power, a wholly owned trading subsidiary of Novatek, also signed a 20-year contract for annual supply of approximately 0.9 million tons of LNG with Shell International Trading Middle East for the supply of LNG from the Yamal LNG project. Commenting the news, also Shell confirmed its commitment to cooperate with Russian companies.
RUSSIA IS THE KEY PLAYER, TO REMAIN SO IN THE FUTURE
As said, changes are occurring within Russia too. According to Vladimir Drebentsov, Head of Russia and CIS Economics, BP, Gazprom is becoming less and less competitive in the domestic market vis-a-vis other Russian players. According to him, the higher rate of taxation, the regulation on the company's prices, and the 3rd party access to Gazprom-owned pipelines are clear signs of drastic changes.
BASF’s subsidiary Wintershall will continue investing in its core regions, with Russia remaining the most important area for the company. “Europe will only have energy security with Russia. These aren’t geopolitical but geological facts, and that’s why Russia will remain an important part of the energy provision for Western Europe” CEO Mario Mehren said on Tuesday.
Moreover, Russia could export up to 100 billion cubic meters of gas through the “Western Route” and the gas could be paid in yuans and rubles, Gazprom’s Alexey Miller said on Tuesday. “The parties outlined the schedule and expressed their willingness to speed up the project preparation activities” Miller commented, adding that the Heads of Agreement for gas via the western route signed by China and Russia on May 8 laid a stable ground for future negotiations.
According to Sputnik, Turkey is waiting for more detailed coordinates on the Turkish Stream gas pipeline from the Russian side. Only after receiving the information, Ankara will move on with construction activities.
Finally, Energy Minister Alexander Novak said Wednesday that Russia would sign a new agreement on gas supplies with Kiev only if Ukraine and the European Union (EU) will both take responsibilities.
INTERCONNECTIONS: ONLY WAY TO DECREASE RELIANCE ON RUSSIAN GAS?
In a sense, Brussels is intrinsically supporting gas by increasing the focus on the interconnections. According to some experts, European projects interconnecting national markets and their respective networks have the capacity to increase the demand of natural gas by opening up the markets to multiple players in the region.
Against this backdrop, the Ukrainian and Hungarian gas transmission system operators have signed an signed an interconnection agreement governing both directions of natural gas flows. The agreement between Ukrtransgaz and its Hungarian counterpart FGSZ, covers all pipelines crossing the border between the countries and is fully consistent with European Union’s 3rd Energy Package.
Other projects will soon follow and the Eastring could be one of those. The pipeline makes sense in a multitude of ways that coalesce with the aims of the Energy Union, Chairman of Eustream’s Board of Directors Tomáš Mareček said. Depending on one supplier and one pipeline, South-eastern Europe would be the first region of the continent to reap the benefits of the project, Mareček commented.
Greece and Bulgaria over the past few years have placed importance on combining forces and viewing themselves as integral parts of a wider interconnecting gas transit system. But things might change soon. Nowadays, it is becoming more and more obvious that both countries have diverging viewpoints and essential strategies that will ultimately clash.
Finally, Serbia seems to follow in European footsteps, but it’s trying to keep good ties with the Kremlin. Serbian Prime Minister Aleksandar Vucic said on May 28th that Serbia would accept the US suggestions to reduce the country's dependence on Russian gas and join the US-backed gas pipeline. After a great hype, Vucic intervened in the discussion. He said this is only an attempt to diversify gas supply routes and to increase the state’s energy security.
SHALE GAS: A FEW ENTHUSIASTS REMAIN, BUT NOT MANY
The toll of failure in the Polish shale gas experience continues to mount with the departure of the last major. ConocoPhillips announced on is Friday that is was withdrawing from shale gas exploration in Poland.
Bad news for shale enthusiasts come also from technical studies, hinting at possible environmental consequences. Hydraulic fracturing can contaminate drinking water but has not caused "widespread" impacts, U.S. EPA found in a highly anticipated study released on Thursday. The report upsets the industry line that fracking has never contaminated drinking water. However, it concludes that the evidence does not indicate "widespread, systemic impacts on drinking water resources in the United States." Still, the evidences might pave the way for further protests across the Old Continent.
In this context, it sounds quite strange that somebody underlines the potentials of shale gas in Europe. During the second day of the World Gas Conference in Paris, there was somebody speaking out for unconventional resources (but negative remarks too). ExxonMobil Chief Executive Rex Tillerson argued that hydraulic fracturing in the Old Continent could lead to similar results achieved in North America, while the president of the International Gas Union (IGU) said that Europe cannot follow in North America’s footsteps.
ULTRA-DEEPWATER FIELDS AND OTHER CONSIDERATIONS ABOUT GAS
No one is immune to the “commodity super cycle,” says Dieter Helm, Professor of Energy Policy, University of Oxford. With the shale gas revolution in North America having transformed the nature of the markets, he contends the world is different now compared to the in 1980s. Back then, he explains, when an authoritarian government needed cash it pushed production higher, supplies going up despite prices going down.
Nonetheless, apparently undeterred by low oil prices, oil & gas output from ultra-deepwater (>1,000m water depth) fields will continue the relentless growth seen in recent years. In the latest World Drilling & Production Forecast, Douglas-Westwood predict combined oil & gas production from such fields will grow 7.7% year-on-year over 2015-2021 from 6.5 mboe/d to 10.2 mboe/d.
According to Daniel Yergin, Vice Chairman, IHS, there is no dominant source of energy at the moment. But gas could soon take the lead. “We'll have a horserace between coal, gas and oil, and it's our conviction that the horse that will move ahead, take the leadership, is indeed natural gas” he recently said.
Coherently, according to International Gas Union's outgoing president Jerome Ferrier, gas is not just a transition fuel. In his opening speech at the Conference in Paris, he said that gas should be the long-term basis for the world's energy mix, noting that countries as divergent as the US and China have put gas at the center of their strategies for the next 25 years.
MIDDLE EAST AND AZERBAIJAN
Israel’s Delek Group reportedly said it is interested in buying an additional 19.9% stake in Aphrodite field from Noble Energy for about $155 million. Following the transaction, Noble would keep a 50.1% interest, and it is likely to remain operator of the field off the coasts of Cyprus.
Meanwhile, Tel Aviv is growing aware of its own interest in developing the Gaza Marine field. During a conference that took place on Thursday, three Israeli experts said that gas from Gaza could help diversify energy supplies to Israel, help the country enhance its reputation vis-a-vis Arab countries, and eventually increase gas trade in the region.
However, Israeli resources can be easily out-shined by Egyptian potentials. While Igor Sechin was holding talks in Egypt, Italy’s ENI finalised its multi-billion energy exploration deal with Cairo. The Egyptian oil ministry wrote on Monday that Egyptian General Petroleum Corp (EGPC) and the Italian major inked an agreement which includes concession areas in five different regions of the country.
In conclusion, Azerbaijan is preparing to start construction of a giant petrochemical complex able to service a demand of 12 billion cubic meter per annum (bmc/a). The date of commencing this project is also simultaneous with exporting 16 bcm/a of gas to Turkey and EU, namely 2021.
INTERVIEWS
Natural Gas Europe had the pleasure to speak also with Paweł Olechnowicz, CEEP's Chairman of the Board of Directors and President of the Management Board of Grupa LOTOS. In the interview, he advocates the need for a platform through which countries in Central-Eastern Europe could jointly negotiate gas contracts.
Natural Gas Europe had the pleasure to speak with Marie-Jose Nadeau, chair of the World Energy Council since 2012. We also spoke about Ankara’s ambitions to become an energy hub. According to her, in its attempt, Turkey can build new relations with Russia, hope that a nuclear agreement with Iran will be reached and wait for a better governance in Iraq.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci