Week 49 Overview
The twists and turns of European gas matters never seem to disappoint.
The news from the joint conference of Turkey’s Tayyip Erdogan and Russia’s Vladimir Putin did not take much to ripple through. Apart from the geopolitical importance of Putin’s decision to stop building operations for the South Stream project, the conference gave an important signal: Russia and the East Mediterranean will arguably be the protagonists of the gas industry in the coming months and years.
As foretold in the wrap-up for the previous week, Turkey, Cyprus, Israel, Greece and Azerbaijan were the only countries able to push Russia out of the spotlight for some time. New realities are emerging and future projects will redraw the geopolitical chessboard. This happened despite the incredible news coming from Istanbul, Moscow and Vienna.
RUSSIA: BULGARIA, AZERBAIJAN, SAIPEM, UNICREDIT
Putin dropped his media bomb on Monday, saying that a new pipeline to Turkey will take the place of the ailing South Stream project. Putin and Erdogan signed a Memorandum of Understanding for a pipeline with an annual capacity of 63 billion cubic meters.
“We decided to construct a new gas transfer system to meet Turkey's needs and to create a hub for natural gas supplies for Southern European consumers through Turkish territories,” said Putin during the press conference.
Putin blamed Bulgaria for the decision, coherently with his plan to destabilise Eastern Europe. Russia’s President advised Sofia to ask for some form of compensation from Brussels to offset the lost revenues from the project.
But his remarks did not trigger the kind of confusion that many could have expected. Instead, the European Union will continue to discuss the South Stream on December 9, with Maroš Šefčovič adding that Putin’s decision is another reason to foster a “resilient” Energy Union.
On the other hand, Sofia tried to take its rational move and find a shelter in Brussels.
Junker gave some proof of political skills, reacting to the news with an unexpected cool-headed behaviour. The President of the European Commission said that the issues related to the South Stream project “are not insurmountable."
The only clearly pro-Moscow voice remains Hungary. MOL completed the acquisition of Lukoil’s assets in Czech Republic.
Russia would not get any cash from Germany, but commercial ties continue to strengthen. BASF confirmed its intention to complete its asset swap deal with Gazprom by the end of the year.
Russians probably found in the Italian banking system a reliable ally. Gazprom and UniCredit Bank signed a bilateral credit agreement worth a total of EUR 390 million.
Undeniably, though, Russia is set to remain the reference point for the European gas industry, wrote the International Energy Agency in its review of EU energy policy.
Nonetheless, some Russian voices start shouting loud that the current government is incompetent and too focused on oil and gas activities. Mikhail Krutikhin, a partner of RusEnergy, clearly argued that Russia could go through a catastrophe.
Some commentators even hypothesised that tensions between Russia and Turkey might rise soon over the pipeline from the East Med to Europe. For example, US’ Stephen Blank said that Moscow and Ankara have diametrically opposite positions on Cyprus.
Against this unstable backdrop, the only certainty is that Putin’s announcement changed regional dynamics. That is why Russia could revisit its plans for South Stream should its relationship with Brussels changed for good.
EAST MEDITERRANEAN
Turkey appears to be in the acendency.
They will enjoy a significant price discount in the coming months. Additionally, Turkey wants to benefit from the current situation to become an energy hub. It comes as little surprise that Ankara increased the imports of gas from Iran, Azerbaijan and Russia through existing pipelines.
Turkish officials say that the new deal will not have any negative impact on Baku’s chances to progress with its Trans-Anatolian pipeline. Similarly, SOCAR officials said they don’t see a pipeline from Russia to Turkey as a potential competitor.
Trans Adriatic Pipeline AG announced additional capacity at the pipeline’s entry point on the border between Turkey and Greece, adding that there will be additional exit points available along the route.
And Greece is the country that emerged as the surprise of the week. Athens will team up with Nicosia and Jerusalem to get the green light of Šefčovič, with the related funding. This is the most important aspect to keep in mind over the next days.
The growing interest for Greece became clear in the last days, with Fluxys taking more and more an active role and setting the ground for future investments in the Hellenic country.
On the other hand, Israel continued showing political problems and inconsistencies. Despite the approval of the Finance Ministry, Israel will have to find soon a way to reach an internal agreement on taxation on natural gas exports.
GERMANY AND FRANCE: THE CONFUSION CONTINUES
German companies diversify strategy, taking active steps despite the uncertainties. Wintershall continues its expansion in the Norwegian North Sea, while E.ON, put its exploration and production businesses in the North Sea under strategic review.
While German companies took the lead, politicians got the lion’s share in France. The Ile-de-France Region confirmed its opposition to fracking, but it is clear that the ban on shale gas will not hold given Hollande’s unpopularity.
In this sense, the take-home is that actors from France and Germany recognised the difficulty of the situation, but are not taking coherent long-term decisions.
The Netherlands is more cautious and slightly more consistent. But also Amsterdam shows some internal political divergencies over shale gas exploration in the country.
OTHER ARTICLES
Overview: a new energy & climate package for the EU, in which Natural Gas Europe announced that the Comitology would have passed the Capacity Allocation Congestion Management (CACM) network code on Friday. That is exactly what happened.
New Bulgartransgaz Supervisory Board expected to “speed up” gas interconnectors
Romanians lead shale protests in and around European Parliament
Shale gas projections are in decline - and we should’t be surprised
UK to decrease rate of supplementary charge from 32% to 30%
Egdon Resources proceeds with Lincolnshire plans
Dragon Oil drops takeover offer for Petroceltic over changed market conditions
Statoil extends drill rig suspension over lower profitability
Norwegian pension fund to remain committed to gas investments
NEXT WEEK?
In the 50th week of the year, Natural Gas Europe will shine the spotlight on the East Mediterranean with our event "2030 EU Energy Security, the Role of the Eastern Mediterranean Region" to be held in Brussels this upcoming Wednesday in conjunction with our partners at the Greek Energy Forum.
Also the Caucasus region may be of interest, Georgia is a country of strategic importance for Moscow. Could they soon be the new battlefield?
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci