Week 12 Overview
Russia is flexing its muscle in the gas sector as a reaction of the European and American sanctions. But the gymnastic exercise fell short of Moscow’s expectations.
Despite cementing its position in the Old Continent through acquisitions, European leaders reacted pausing their blame game and coming up with the clear intention to cut the Continent’s reliance on Russian gas. During a summit in Brussels, they suggested that they could fight tooth and nail in the near future. The only thing that remains to be seen is whether the European declarations are just generic messages or open-faced challenges to the Russian influence.
ACQUISITIONS AND EXTENSIONS IN EUROPE
The week started with some clear signs from Gazprom. The Moscow-based company announced it is proceeding with the South Stream’s offshore section, signing contracts with Italy’s Saipem and a Japanese consortium comprised of Marubeni-Itochu and Sumitomo (40% of total output), United Metallurgical Company (35%) and Severstal (25%).
A few hours later, RWE said it entered into an agreement to sell RWE DEA to LetterOne Group at an enterprise value of € 5.1 billion. LetterOne Group, a Luxembourg based investment vehicle with a mandate to invest in the oil and gas sectors, is controlled by Russia’s fourth-richest man Mikhail Fridman and Ukrainian-Russian German Khan.
Also on Monday, Russian authorities approved the environmental impact assessment (EIA) for the Russian sector of the South Stream offshore pipeline.
“This is a significant milestone for the Project and a testament to our efforts,” Oleg Aksyutin, CEO of South Stream Transport, said in a press release.
But the most important acquisition came a few hours later. On Tuesday, while the Crimean parliament was confiscating the Ukrainian companies Ukrtransgaz and Chernomorneftegaz, Rosneft clinched a long-waited agreement with Pirelli.
‘Rosneft reached an agreement with international consortium composed of Unicredit Bank, Intesa Banking Group, and Clessidra Fund for purchase of 50% share of the company holding 26.19% of Pirelli & C. S.p.A. stake,’ reads the communiqué.
The agreement, which is subject to Russian, Italian and European law, will tighten business relationships between Rosneft and Pirelli. The repercussions on Russian clout in West Europe could be clear, but it will all depend on Brussels’ willingness to go all the way. European authorities could indeed stop Russian expansion in Europe.
During the summit in Brussels, officials said that all European countries recognize the need of additional efforts to cut reliance on Russia and create an energy union. This U-turn was corroborated by other declarations, as some industry participants started hypothesizing direct consequences on their partnership with Russian companies. Companies see difficulties ahead.
According to Eni’s CEO Paolo Scaroni, the on-going standoff in Ukraine could come with some complications for the South Stream pipeline project.
"The South Stream project will put into question the many authorisations that European countries must give to complete the project," Scaroni said on Thursday.
Despite the difficulties, the South Stream did not stop its rush. The project showed signs of vitality also in the 12th week of the year.
On Friday, several reports claimed that South Stream is to award a 3.5 billion euro contract to Timchenko-controlled Stroitransgaz for the construction of the Bulgarian section of the pipeline. The US Treasury added Gennady Timchenko to the blacklist of Russian officials.
WHAT ELSE? MULTIPLE TARGETS AND TECHNOLOGY
In the wake of the tensions between Russia and the West, uncertainty remains the most established reality for the European gas industry. It comes as no surprise that the bickering about multiple targets climbed down Brussels’ agenda.
During the first debate on 2030 energy and climate policies, leaders of the 28-nation EU focused their attention on measures to cut reliance on gas imports from Russia’s Gazprom, delaying their decision on carbon-reduction targets until October.
In the coming months, Europe could try to strengthen its ties with North America and North Africa, while investing in research and development. As it often happens during international tensions, technology should indeed take the lion’s share. Almost 45 years after the Apollo 11 reached the moon, the oil and gas industry should now play its cards to achieve its own revolutionary discoveries.
In this context, some good news comes from Spain and France. Madrid-based Repsol and the French Institute of Petroleum, IFP Energies Nouvelles, signed an agreement to develop exploration and production technology.
‘These projects will help to make hydrocarbon discoveries, identify new reserves, as well as evaluating their potential and increasing production,’ reads a note released on Friday.
If Repsol’s investment on carbonate reservoirs is not comparable to a NASA’s project, it is still a good indication. Europeans have to open their eyes on the innovation issue. A fracking revolution will not take place in the Old Continent, but it does not mean that there is no future for Europe. A technological renaissance is possible.
Sergio Matalucci