Weekly Overview: COP21, European Council, UK Shale Gas
The 2015 United Nations Climate Change Conference held in Paris led to a global agreement, which is for sure a game changer. As argued by The Financial Times on December 17, the deal seems to be marking a turning point for institutional investment.
The Paris conference, however, did not bring about cohesion in the European Union. Several member states intervened in the debate about Russia and the Nord Stream-2 project. Some governments, like the Italian, also asked to include the pipeline connecting Russia with Germany in the agenda of the ongoing European Council. The provisional agenda did not mention the issue, but the EU Summit could touch upon the topic, while discussing EU sanctions against Russia on December 18.
European diplomacy is also paying attention to North Africa--mainly Libya--and the Balkan countries. The way European politicians are dealing with the two regions show once more how energy talks are intertwined with security issues and migration discussions.
Conversely, the United Kingdom seems to be mainly focused on its domestic policies, with unconventional developments taking the lion's share of attention in the past week. British politicians strongly showed their support for shale gas developments over the last days. In a matter of hours, the Oil & Gas Authority announced more than 100 onshore blocks related to unconventional shale oil or gas, and the Parliament voted to allow hydraulic fracturing under national parks and wildlife protection zones.
POLAND, UKRAINE, THE NORD STREAM-2 PIPELINE, AND THE BLACK SEA
The first ever delivery of LNG arrived to the newly built Polish Terminal in Świnoujście on December 11 delivered by Qatargas. “The Świnoujście LNG receiving terminal is a clear manifestation of Poland’s vision and commitment to ensure diversified, reliable and secure supplies of LNG and natural gas” Qatargas’ Chief Executive Officer, Khalid Bin Khalifa Al-Thani commented.
Poland has been very active also on a political level. Warsaw discussed stronger gas cooperation opportunities with Lithuania during a closed-door meeting on the sidelines of the launch of the electricity interconnection LitPol. “We are ready for a discussion about a gas link,” Polish Deputy Prime Minister Mateusz Morawieck said on his way to Vilnius.
Poland is also speaking out against the Nord Stream-2 project. The presidents of Ukraine and Poland met on December 15, saying that the front of European countries opposing the new pipeline could lead to a common European position. In the past week, Italy’s Prime Minister Matteo Renzi joined the group of countries opposing the Nord Stream-2 project.
Meanwhile, the Black Sea basin is increasingly under the spotlight. “This is the region in the Trans-Atlantic space in greater European space, where there's been the greatest degradation of security, and yet we haven't moved very far to update our own strategy about the region,” Atlantic Council Executive Vice President Damon Wilson recently conceded.
For its part, Ukraine is trying to find other opportunities in the energy sector. Minister Gennady Zubko said the country would like to be involved in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. “Ukraine is interested in taking a role in the realisation of the project,” he said in a statement published on the Ministry’s website.
RUSSIAN GAS AND BRUSSELS' ALTERNATIVES
Russian firm Novatek announced on December 17 that it signed binding definitive agreements with the Chinese investment fund, Silk Road Fund, to sell an equity stake in the Yamal LNG project. The completion of the transaction is contingent on the finalisation of amendments to an intergovermental agreement between Russia and China.
A few hours before, Rosneft completed its 2015 geological exploration program at its offshore licenses, explaining that the 3D seismic acquisition covered 2,710 square kilometres in waters of the Pechora Sea and the Sea of Okhotsk. In this way, Rosneft further proves its interest in hydrocarbon exploration in the Barents Sea and the north Kara Sea.
Brussels wants to diversify its large natural gas supplier Russia, and Turkmenistan represents an alternative. The Central Asian country has started the construction of the East-West Pipeline with an annual capacity of 30 billion cubic metres. This pipeline, which will deliver natural gas from the Shatlyk field to the Caspian coast, will go online in December 2015. Nevertheless, doubts about the feasibly of the project(s) connecting the EU and Turkmenistan remain.
UK, SHALE GAS AND NORWAY: GROWING INTEREST?
On December 17, the British Parliament voted to allow hydraulic fracturing (fracking) under national parks and wildlife protection zones, a controversial decision that has triggered protest and opposition from environmentalists and civic organisations.
The Oil & Gas Authority announced the same day that 159 onshore blocks under the UK’s 14th Onshore Oil and Gas Licensing Round are being formally offered to successful applicants. The majority of the blocks are unconventional.
The future of shale gas in France is more fuzzy. U.S.-headquartered Schuepbach is claiming damages of €117 million as partial compensation for the licences of Nant and Villeneuve-de-Berg in Southern France. The long anticipated decision, which could revive the shale gas debate in France or bury it at least until the next presidential elections in 2017, will come later this month.
Things look rosier in Norwegian waters. Some companies’ decisions suggested a renewed interest for Norwegian assets, with two companies reporting developments in the area. Faroe Petroleum announced "the award of a rig contract for the drilling of the Faroe-operated, Brasse exploration well in the Norwegian North Sea (Faroe 50%) and the recommencement of oil production from the Enoch field (Faroe 13.86%)," the company wrote on December 17. Statoil is moving forward with its plans as well.
THE OIL AND GAS INDUSTRY: STATOIL MATERIALISES PLANS TO CUT WORKFORCE
Statoil is offering voluntary redundancy packages to its entire workforce in a clear signal of the need readjust to a challenging market. Oil prices recently neared 11-year lows. "As part of ongoing 'rightsizing' efforts in the company, permanent employees in Statoil ASA will now be allowed to apply for severance packages," Statoil press office wrote to Natural Gas Europe.
In light of this, it comes as no surprise that Moody's Investors Service (Moody's) put the ratings of 29 U.S. exploration and production (E&P) and 7 Canadian E&P companies and their rated subsidiaries under review for downgrade this week. Among those companies up for review is Noble Energy the leading partner of the natural gas monopoly in the Israeli market and the leading partner in Cyprus's Aphrodite gas field.
Theoretically, downstream and midstream companies should perform better.
With the delivery of its first LNG cargo in the next month, U.S.-based Cheniere will be entering into the monetising phase. Charif Souki, whose vision made it possible, will not be at the LNG terminal to witness the event. The co-founder of the company was ousted on December 13.
LNG is considered by many experts to be the next big thing for the gas industry, and other companies are reporting progress in this field. Royal Dutch Shell announced on December 14 that its recommended combination with BG Group has received unconditional clearance from the Chinese Ministry of Commerce.
Speaking about M&A operations, Halliburton will have more problems. The American oil service company will have to wait a bit longer for its planned $26 billion acquisition of rival Baker Hughes. In a statement, Halliburton explained that there is no guarantee that an agreement with U.S. competition regulators will be found.
In conclusion, Fluxys closed a deal with Gazprom that will see the Belgium-based company acquire the latter’s 10% stake in Interconnector (UK). The transaction was successfully closed earlier on December 17.
OTHER COUNTRIES UNDER THE SPOTLIGHT: TURKEY, ISRAEL, GREECE-BULGARIA
On 10 December, the Greek Energy Minister, Panos Skourletis, met in Sofia with his Bulgarian counterpart, Temenuzhka Petkova, and signed the final investment decision for IGB. The pipeline will commence its construction around May 2016 and should be ready by mid-2018.
On December 16, the Knesset's Economic Affairs Committee recommended to the Israeli Economy Minister caretaker, Prime Minister Benjamin Netanyahu, not to activate article 52 of the Antitrust Law. Seven voted in favour of the recommendation, six against.
However, a few hours later, Netanyahu signed article 52 to the antitrust law. In doing so, he sidestepped the antitrust commissioner to approve the natural gas regulatory framework. Some commentators argue that it will create a monopoly in the Israeli energy market for decades to come.
Some experts also said that the current geopolitical situation offers Israel and Turkey a chance to improve bilateral relations. Brookings, for instance, wrote this week that recent developments may lead to a rapprochement between the two countries.
This seems to be the case. Israel and Turkey are about to normalise their diplomatic relationship and exchange ambassadors, according to Israeli newspapers. On December 17, it emerged that the two countries reached a tentative agreement according to which Israel will pay Turkey $20 million in compensation for the Turkish citizens killed on the Mavi Marmara boat, while Turkey will ban Hamas' activity in its territory and will expel a senior military operative that operates from Istanbul.
The new Turkish cabinet includes the son-in-law of President Recep Tayyip Erdogan. The political move is considered to be aimed at focusing on the price Turkey pays for Iranian and Russian natural gas. “I think you have a new Turkish Energy Minister who is very close to Erdogan, speaks for Erdogan, coming into the cabinet, who may take a very hard line on Turkey's push to decrease the cost of the country's gas import bill, from Iran and Russia” Aaron Stein, Nonresident Senior Fellow at the Atlantic Council's Rafik Hariri Center for the Middle East, commented.
INTERVIEWS AND OTHER CONTRIBUTIONS:
Micha’el Tanchum on TANAP project, Turkey and Iran
Thomas Pellerin-Carlin on Nord Stream 2 project
Susan Sakmar on Cheniere’s LNG activities
Marie-Claire Aoun, Sylvie Cornot-Gandolphe on Europe’s gas market
Elisabeth Tørstad, CEO of DNV GL's Oil and Gas, on the role of gas in the energy mix
Interview with Christophe Hecker on COP21 and shale gas
Interview with Jean-Arnold Vinois, Honorary Director of the European Commission, on the Energy Union
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