Week 35 Overview
The advance of the Islamic State in Syria and Iraq, rising tensions in the Persian Gulf, security issues in Libya and in the MENA region, and the confrontation in Ukraine all indicate that energy projects are threatened by fragilities in countries that have traditionally played a key role for Europe’s energy security.
Against this backdrop, European energy officials tried to fast-track energy talks over the last days, focusing on two key areas: the Balkans and Ukraine.
However, fighting in eastern Ukraine between pro-Moscow rebels and Kiev's government forces questioned once more the February ceasefire. The leaders of France, Germany and Russia backed a new ceasefire on Saturday, but offered little hope for a peaceful resolution of the conflict. This is scary, as a deal is needed by October to avoid shortages in Ukraine and in Europe (half of Russian supplies to Europe pass through Ukraine).
UKRAINE MET WITH EU OFFICIALS, STORAGE LAGS BEHIND
Ukraine's efforts to store natural gas for winter will run the country 1 billion cubic metres behind last years pace, Prime Minister Arseny Yatseniuk said on Wednesday. Reuters reported that Ukraine has 14.1 billion cubic metres (bcm) of gas in underground storage, adding that the country aims to store 18-19 bcm of gas before the winter heating season begins in mid-October.
Ukraine asked Russia to reduce the cost it charges the country for gas as well as write-off loans Russia gave it. “We are convinced that the only mechanism to ensure a gas transit to the EU as well as stable supplies to Ukraine is applying the same mechanism that was worked out last year between the EU, Ukraine and Russia” Ukrainian Prime Minister Arseniy Yatsenyuk said.
Representatives of the EU and Ukraine met in Vienna to discuss energy security matters and the re-commencement of trilateral discussions with Russia to ensure stable gas supplies to Ukraine and via Ukraine to the EU during winter. The meeting served as an intermediate step in view of preparing for the next round of trilateral gas negotiations between the European Commission, Russia and Ukraine. European Commission Vice-President for the Energy Union Maroš Šefčovič will meet with Russian representatives on 11 September in Vienna.
The United States could play a role too. “Russia is here to stay as the main supplier to Europe, but US LNG is going to provide a lot of competition to the European gas market and Europe will be one of the main beneficiaries of US LNG. Unless what was expected 2 years ago, not all US LNG will go to Asia – actually a lot of it will go to Europe, and doing so will put a lot of pressure on existing suppliers because you're getting new supply that will push prices down and you improve your bargaining power”, Leslie Palti-Guzman told Natural Gas Europe.
BALKANS: NEW PROJECTS OR SIMPLY FRESH DECLARATIONS?
It comes as little surprise that natural gas diplomacy in the Balkans is set to intensify, as a result of more initiatives put forward by the United States and Russia. In Greece, which has just entered another pre-election period, Energy Minister Panagiotis Skourletis met with U.S. Ambassador David Pearce to discuss proposed energy infrastructure projects in the region, namely the Interconnector Greece-Bulgaria (IGB) and the Trans-Adriatic Pipeline (TAP).
European Commission confirmed its intention to promote five energy projects in the Balkans: Albania – FYROM electricity interconnection; Serbia – Montenegro – Bosnia and Herzegovina electricity interconnection; Serbia – Romania electricity interconnection; Trans-Balkan electricity corridor in Serbia; the Serbia-Bulgaria gas interconnection which is linked to the Interconnection Pipeline from Nis in Serbia to Dimitrovgrad in Bulgaria. According to New Europe, these projects will now be discussed in Brussels.
Meanwhile, former Yugoslavian countries are voicing their interest to pay more attention to gas issues.
The Serbian government announced it will expand the capacity of the sole gas storage facility in the state, as it is uncertain whether new gas supply routes will be found soon. Serbian Prime Minister Aleksandar Vučić said that the government’s priority would be the expansion of the only gas storage facility, Banatski Dvor, for the purpose of raising the state’s energy security. Vučić said that the Serbian officials had considered several new gas supply routes for Serbia, but that a good solution has not been found yet.
Montenegrin newspaper Dnevne Novine provided a front page focus on the prospects of the Balkan country joining the Trans-Adriatic Pipeline project (TAP). Montenegrin officials see the projects as providing an opportunity to collect substantial funds from transit fees.
TURKEY KEEPS MAKING THE HEADLINES
Turkish Stream gas pipeline will not supply the European market in the foreseeable future, Vesa Ahoniemi, an independent energy analyst believes. “The future of Turkish Stream is very uncertain, in particular, the schedule and capacity Russia announced in December 2014 are unlikely to materialize,” Ahoniemi told Trend.
Logically, Russia maintains a comfortable hold on its position as Turkey's largest supplier of natural gas. In 2014, Russian natural gas accounted for 55 percent of Turkish natural gas consumption. However, Ankara is uneasy about Turkey's heavy reliance on Russian natural gas, particularly in light of the two countries' greater competition for influence in the Black Sea and the Caucasus.
In this context, Ankara is looking at Azerbaijan, Iran and Israel to increase its energy security.
Experience shows that cooperation between Turkey and Azerbaijan contributes to the success of their achievements. While foreign policy priorities are different, simultaneously they are not contradictory and do not compete with each other, Rovshan Ibrahimov wrote.
SOCAR Turkey Energy, the Turkish unit of the State Oil Company of the Azerbaijan Republic (SOCAR), confirmed its plans to acquire a 7% stake in Trans Anatolian Gas Pipeline (TANAP). SOCAR would then reduce its stake in TANAP to 51%. Responding to a question from Natural Gas Europe about the reasons why SOCAR wishes to sell its share to its own subsidiary company, Kenan Yavuz, CEO of SOCAR Turkey Energy, said that it was because of two reasons: "Decreasing SOCAR's expenditures and increasing SOCAR Turkey Energy's influence in Turkey."
As previously mentioned, not all of Turkey's prospects are rosy. An explosion in Turkey disrupted natural gas flows from Azerbaijan’s offshore Shah Deniz gas field on Monday night. Kurdish militants are suspected of sabotaging the section of the Baku-Tbilisi-Erzurum (BTE/South Caucasus) natural gas pipeline passing through the Sarıkamış district of Turkey’s northeastern province of Kar. The pipeline had just restarted gas following a scheduled three-week halt for inspection and maintenance work on the Shah Deniz field.
With regard to a possible 20-year deal between Turkey and Israel concerning Mediterranean gas, the Leviathan gas field would meet 22 percent of Turkey's gas demand for 8 billion to 10 billion cubic meters a year if an agreement is signed, according to Turcas Petrol CEO Batu Aksoy, as reported by Daily Sabah.
Finally, Iran reportedly commissioned a new gas compression facility to boost natural gas exports to neighbouring countries in Caucasus and Anatolia to about 60 million cubic meters a day. The new facility allows the country to more than double gas exports to neighbouring states in Anatolia and Caucasus, including Turkey, Armenia, the Republic of Azerbaijan and Nakhchivan.
On the other hand, despite the new Iran nuclear deal, Iranian gas may not flow to Europe through Turkey even if the sanctions are lifted. According to Serhan Ünal, this seems unlikely for three main reasons: Turkey-Iran bilateral relations, the regional balance of energy power, and geo-economic issues.
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci