Week 45 Overview
If social unrest continues in traditional oil and gas producer-countries, the Arctic could soon become the new tropical paradise for oil majors and, more surprisingly, for smaller companies.
Market movements in the north seas gave a new hot twist to the 45th week of the year. A week that revealed the difficulties of the industry, forced to explore more complicated fields. Technology and legal confrontations are the results of these complexities.
“The easy fields have already been explored. Now we have to go for the more difficult ones. The more difficult in terms of technology or the more dangerous for on-going social unrests,” said on Monday one of the experts at the conference The Changing Dynamics of Global Energy Markets organized by the London-based think-thank Chatham House.
TECHNOLOGY (1) – ARCTIC EXPLORATIONS
The weeks’ market movements were coherent with the statement. Shell submitted revisions to keep the company’s 2014 exploration options in the Chukchi Sea viable, Statoil disclosed its plan to drill 20-25 exploration wells on the Norwegian continental shelf in 2014 and started production in the Visund North oil and gas field. At the same time, the Norwegian major signed an agreement to farm-out seven exploration licences to OMV.
Majors started their investments in frozen seas in the 60s. Shell and Statoil’s assets are nothing new.
On the other hand, something surprising came on Tuesday. Poland’s Lotos reached an agreement with a subsidiary of UK-based Centrica to acquire shares in 14 licences in Norway, including one operatorship.
If assets in the Norwegian offshore were a majors’ exclusive, Lotos’ $175.8 million investment is a clear sign that something is changing. It indicates that Arctic operations are warming up.
TECHNOLOGY (2) – FRACKING IN GERMANY & FRANCE
Difficulties in the market often bring to advancements in technology. It is worth reminding that the shale revolution is the result of a mounting pressure on the US.
As North America reacted finding its way to technologically advanced solutions, the same steps forward are expected in Europe, primarily for offshore explorations in the Arctic, but also in the shale gas industry. Changes in technology are strongly needed in Berlin and Paris.
At the moment, Germany and France leave the door close to shale gas. But the governments of the two biggest European economies showed in several occasions that they are aware of the consequences of high energy prices.
European stance on shale gas could change as technology advances. As soon as shale reserves will be exploitable with a reduced environmental footprint, local communities will more likely to accept it with less reluctance.
For instance, on Friday, the German government agreed on a moratorium on unconventional exploration “that is to be in place until it’s clear that there are no health implications.”
In this sense, the recent message delivered by Katherina Reiche, Germany’s Deputy Environment Minister, comes as no surprise. The exploration industry has begun research to stop using chemicals when fracking and, if successful, the bans may be lifted.
And things are somehow similar also across borders. France continues to evaluate technological developments for environmentally friendly shale gas, said on Tuesday Benjamin Gallezot, an official at the Industry Ministry.
That is why the ban in both countries could be a transitory measure. Technology is the trump card that could pave the way to shale gas in Europe.
Another trigger for shale gas could come from Ukraine. On Tuesday, Kiev signed a blockbuster shale gas production-sharing agreement with Chevron, giving the US energy company the right to explore the Olesska deposit in the west of the country.
“LEGAL CONFRONTATIONS”
Technological solutions can promote an evolution of the markets, but that is just one side of the story. Hard times don’t come at zero cost and this week proved that legal confrontations occur commonly in stressful periods.
On Monday, the European Commission said it expects to investigate the alleged anti-competitive market practices by Russia’s Gazprom during the winter. The investigation should be concluded by spring 2014.
On Thursday, Italy’s Eni claimed Statoil overcharged its natural gas for several years. Eni demands $10.1 billion from the Norwegian company.
Finally, on Friday, Chevron said it has decided to proceed with legal action against protesters occupying a shale gas development site in Eastern Poland. Chevron said it filed the action on the grounds that the protesters were violating its lawful right of access to the site.
ADDITIONAL MEASURES
All in all, the 45th week of the year suggested that Europe has to step up efforts to promote a better business environment. Coherent and innovative energy policies are necessary.
As remarked by Lithuania’s President Dalia Grybauskaitė on Tuesday, the list of Projects of Common Interest is a step in the right direction. But probably something more is needed.
Investments in LNG projects are a good complementary measure. As Russia is moving toward LNG export liberalization, Cyprus and Total signed a Memorandum of Understanding to build the LNG facility in Vassillikos, an industrial zone on the south coast of the island.
But indigenous production and innovation remain the main points to rely on. Otherwise, the European Union could run the risk of following the example of Turkey: great plans and hopes for new solutions, but no major shift from the historical dependence on Russia.
Sergio Matalucci