Week 42 Overview
A touch of irony. China has taken the place of the United States as the top global oil importer. At the same time, various reports predict that the US will become the world’s largest oil producer, overtaking Russia in 2014. And these changes have all something to do with shale exploration. The same technique which Europe seems to increasingly dislike.
The Old Continent is clearly the greenest on Earth, but it is also the one suffering the most from financial constraints.
Brussels and Berlin are trying to react in their way, playing the card of modernization. The past week – the 42nd – showed some signs of this attempt to promote efficiency in the European energy markets. Unfortunately, these efforts did not make the headlines of the newspapers. The protagonists of the week were environmental groups trying to stop shale exploration across the Continent.
Shale gas protesters
The anti-fracking movement appears to be in ascendancy, expanding its clout beyond national borders. Campaigns against shale gas are gained momentum in Canada and in Europe, where protesters took the streets of Pungesti (Romania) and Lviv (Ukraine). At the same time, green groups are gaining the upper hand in the UK.
Greenpeace UK launched on Monday a campaign against shale gas, registering support from the food industry in Lancashire. The charity claimed that horizontal drilling would be unlawful without permission, urging landowners to veto drilling underneath their properties.
This new approach may well work. Greenpeace and Friends of the Earth intend to use environmental and property laws to challenge drilling for unconventionl hydrocarbons. As a result, some experts see production to start in 2018, two years later than previously envisaged. Undoubtedly, the permission process in the UK will be longer than initially expected by industry.
A dose of negativity also came from within industry, with Royal Dutch Shell CEO Peter Voser saying that Europe could wait for decades to replicate American shale gas revolution.
British energy crisis and the UK government
At the same tome, bad news for Britain nascent shale industry came in the form of a report by AMEC. The engineering consultancy that is advising the Department of Energy and Climate Change downsized the estimated potential benefits of shale gas in the UK.
However, proponents pointed to positive news. The British Geological Survey said it would work on new estimates after March 2014, while Cuadrilla Resources published a report claiming that an increasing number of residents in Lancashire support shale gas exploration. The UK government hopes to avoid the evolution of shale gas in Poland: disinvestments after a big hype.
Shale gas or not, the UK is called to do something. A recent report by the Royal Academy of Engineering (RAE) states that the risk of power cuts in the country would rise in the next five years, as old generating plants will close. The RAE predicts a high probability of power outages during the winter of 2014-15. At least in this case, Britain has to follow the European model. Modernisation is not an option, but an unavoidable solution.
Russia remains the protagonist of European gas markets
The lack of alternatives for European countries plays in favour of Moscow. Russian gas remains central in the European energy mix and it is likely to remain so.
Russia’s Energy Minister Alexander Novak said on Wednesday that Moscow would liberalize its liquefied natural gas (LNG) exports in less than three months.
This measure could have had a very serious impact on Gazprom, as liberalization implies more competition from Rosneft and Novatek. But it does not seem the case, despite Rosneft’s agreement with CNPC for upstream projects in East Siberia. Rosneft grows and so does Gazprom.
The top Russian gas and oil company intends to maintain the upper hand in Europe, focusing on its bilateral cooperation with Eastern countries. Despite the standoff with Brussels, the oil and gas giant is finding new ways to remain what it is: the most influential oil and gas company in Europe. In this sense, it does not come as a surprise that Bank of America Merrill Lynch is advising clients to consider investing in the company. The bank outlined the progress made in Asia and underlined the company’s role in Europe.
On Thursday, Gazprom’s delegation paid a visit to the Slovak Republic to address the status of cooperation in the gas sector. Slovakia, on of the largest Russia gas transit countries, is pivotal given the present tensions between Moscow and Kiev.
Europe and modernisation
Kiev is getting closer to Brussels, with the European Commission ready to contribute actively to the modernisation of the Ukrainian Gas Transmission System (GTS). EU Energy Commissioner Günther Oettinger said on Friday that Europe would finance improvements in the Ukrainian GTS.
This is in line with European ambitions and targets and to promote modernisation. Given the limited hydrocarbon production in the Continent, only efficiency could reduce reliance on Moscow.
This was evidenced on Monday, with the European Commission adopting a list of 250 key energy infrastructure projects that will benefit from accelerated licensing procedures and could have access to the €5,85 billion budget allocated for the period 2014-2020.
The European Commission listed projects to increase the efficiency of the gas markets, including gas transmission, storage and liquefied natural gas (LNG) plans.
Germany, Austria and Norway
At the same time, Germany and Austria are trying to invest in the future focusing on expertise and technology.
Austria’s OMV plans to double the funds for research and education. The company will fund a new degree program in cooperation with Montanuniversität Leoben.
Germany is investing in high-efficiency plants. WINGAS and E.ON launched on Friday a combined heat and power (CPH) plant in Lubmin. Energy generated decentrally seems to be a key element of the energy transition in Germany.
Is the first European economy opening its eyes on energy prices? The answer seems yes.
The leader of Social Democrats (SPD) Sigmar Gabriel urged on Friday Chancellor Angela Merkel to rein in rising energy costs in order to safeguard the competitiveness of the German industry. If this happened, Germany could hopefully lead Europe out of the present energy crisis.
Meanwhile, the new government in Norway, the top gas exporter to European countries, is trying to understand how to maintain its strategic advantages.
The Scandinavian country is consolidating its ties with energy major Statoil, appointing Børge Brende as Minister of Foreign Affairs in the new Government. Experts foresee that Norway will pave the way to more competition in the national gas market. This would be part of a broader change of direction in national energy policies.
Brende’s appointment could be an indication in this move.
Sergio Matalucci