Week 43 Overview
Sometimes it is difficult to put events in context. Sometimes it is not. This has been the case for the 43rd week: the clear protagonists were Poland and the UK, both trying to get back on track despite the headwinds and setbacks they encountered earlier this year.
Warsaw is playing several of its trump cards to promote more efficient energy markets, while London is taking a pragmatic approach to facilitate shale gas production in the next years.
The axis for shale gas clearly is set. Poland and the UK are walking in the same direction.
POLAND WALKS TOWARD LIBERALIZATION
Poland stepped up its attempt to liberalize gas market on Monday, enabling trading companies and large customers to trade directly on the exchange market.
Two days after, San Leon Energy announced that it moved on with its hydraulic fracture stimulation programme in the Gdansk W Concession.
The Polish Power Exchange said it would also enhance liquidity in the market, enabling auction-based trading in gas forward instruments on the Commodity Forward Instruments Market. Those are all moves that point at strategic advantages in the near future.
POLISH LIBERALIZATION AND GAZPROM
Recently, Polish Economy Minister Janusz Piechocinski stated clearly that his country would soon proceed with negotiations with Gazprom. Because of its domestic coal reserves, Poland is a relatively energy independent country and will use this card to renegotiate gas prices.
Mutually reinforcing moves like increased freedom and liquidity can have the power to cement Polish position. In this sense, it is not difficult to see that Warsaw is positioning itself to press for cheaper gas from Russia. This result is not guaranteed, but Poland is doing something to pave the way to a positive outcome of the negotiations.
THE UK WANTS ENERGY SECURITY
The other strong proponent of shale gas in Europe is quite clearly the United Kingdom. Also there, the week has been relatively favourable to the markets.
On Tuesday, the government announced that it would re-open the Rhums gas field in the North Sea. The ownership of the field is equally shared between BP and the Iranian Oil Company (IOC). The operations were stopped in 2010 as part of the European sanctions to Iran, but the government will co-manage the field and it will allow production again. The Rhum gas field produced 4% of the British gas before the measures taken in Brussels against Teheran. The field could soon contribute to domestic production.
The arguments in favour of similar moves by London are compelling and indeed may be necessary at the moment, as current studies hypothesize that the UK could experience power cuts in the winter 2014/15. Doomer porn aside, there are genuine concerns regarding the UK’s future energy security. The solution lies in a coordinated response by both public and private sector stakeholders. The Government seemed to be reactive.
The beginning of the 43rd week set the tone for the other days and the trend continued also in the following hours. Some news came from France on Tuesday afternoon.
Paris-based GDF Suez announced it would invest $39 million in Dart Energy, the Australian company with a strong focus on shale gas and coal bed methane in the United Kingdom. The important factor is that the deal brought a second big investor in the British unconventional gas industry. GDF Suez, the largest independent power producer in the world, joined Centrica that already darted in shale gas industry in June.
Another major investor into the UK would further signal that the British government could gain the upper hand.
WHEN COULD IT HAPPEN?
“The level of interest in UK unconventional gas is growing almost daily," said Dart Energy Chief Executive John McGoldrick.
An eventual new entrant is likely to follow the traces of Centrica and GDF Suez. It would probably deploy their strategy to step into the market.
The two companies did something similar. Both invested in relatively small operators, acquiring shares of the licences. As Centrica invested in Cuadrilla Resources in June, the Paris-based energy company bought a 25% interest in 13 licences in Cheshire and the East Midlands.
Dart Energy will remain the operator of the field, but Tuesday’s deal will open the door to a broader cooperation between GDF Suez and the Australian company. The expertise and the influence of the major can fuel large scale exploration in the near future.
Shale gas could take place in the UK in the next years, but the very slow progress of Cuadrilla to date must concern proponents.
NORWAY
Poland and the UK are walking for a change and Norway is probably following them. The coalition government, formed last week by Prime Minister Erna Solberg’s Conservative Party and Progress Party, remarked it is intentioned to raise competition in the energy market at the beginning of the week.
A few days after the announcement by the Government, Germany’s Wintershall announced that it clearly sees business opportunities in the country. The BASF’s subsidiary opened a new office in Bergen on Thursday, stating that it expects to increase its offshore expertise in the next years. The company plans to expand its Norway-based staff from 500 to around 600 members.
This investment could indicate new opportunities for companies to invest and compete with Statoil. And this seems the outcome the new government is working on.
ISRAEL
If the Norwegian cabinet is achieving its goals, the Israeli one equally has good reasons to be confident. Israel’s Supreme Court rejected the petitions filed by environmental groups and the Academic Law and Business Center. The decision of the panel of seven judges supported Israeli government and paved the way for gas exports from the country.
While liberalization proceeds in Poland and more slowly in some other East European countries like Romania, new and unexpected stars could rise from the Mediterranean Sea and shine over European energy markets. The Arab spring left some space for new entrants and several countries could see this as a business oppportunity. Next months will tell which public and private stakeholders will take advantage of the situation.
Sergio Matalucci