Week 41 Overview
As foreseen in the analysis about the events occurred in the 40th week, Russia-Ukraine and France were the main actors of the 41st week of the year, along with the rising star Romania.
The relationship between Ukraine and Russia is destined to be the main story of the coming months, as it could change the cards on many different tables. It could give Brussels the opportunity to increase its clout and it could force Moscow to go East. Russia already started doing so, investing in LNG infrastructures and cementing its financial ties with Asian buyers.
At the same time, the EU is trying to take advantage of the situation. Brussels already expressed its intention to finance the modernization of the Ukrainian gas transportation system.
“We have discussed conditions for granting loans with out partners from the European Investment Bank, the EBRD and the IMF. We want to finance the modernization of the Ukrainian gas transport system,” European Commissioner for Energy Gunther Oettinger said on Friday.
In this way, Brussels could bolster the European gas markets, taking advantage of the coming Ukrainian shale gas. Indeed, Kiev appears the place where shale gas is destined to be produced soon - other European nations are much beyond. A flaltering Poland, stronng community opposition to British developments, the retreat of Chevron from Lithuania and the French Constitutional Court’s ruling, indicate that Ukraine could be the first country to produce shale gas on a large, commercial basis.
FRANCE SAYS NO TO SHALE GAS
France closed the doors to shale gas explorations in the country. The Constitutional Court confirmed the ban on hydraulic fracturing on Friday, ruling that the 2011 law conforms to the Constitution. France maintains its stance on shale gas and no developments will take place in the country during the Francois Holland’s Presidency. That was probably the most important news of the week.
REPORTS AND DISINVESTMENTS
Beyond activity in France and the former Soviet Union, the week was dominated by technical reports, with different lobbies and interests voicing their concerns about inefficient gas markets and the potential risks of shale gas. In this framework, European institutions were particularly active.
THE EU: REPORT AND VOTE FOR MANDATORY EIA
The EU recently published a report about how people and companies perceive unconventional fossil fuels in Europe. Most of the people and organisations are said to be cautious about shale gas. However, the report indicates that individuals and organizations would accept "safe" unconventional developments.
On Wednesday, Europe further confirmed its cautious approach toward shale gas. The European Parliament voted in favour of mandatory Environmental Impact Assessment for all unconventional drilling activities in the EU. The vote is not particularly relevant for the industry, as it just opens the door for more negotiations. In this sense, the vote was nothing but an indication. Laws on shale gas are not expected before 2016.
CAPGEMINI: REPORT ABOUT INEFFICIENT GAS MARKETS
The report published by Capgemini on Friday was more alarming. According to the 15th European Energy Market Observatory report, Europe’s security of supply is at risk both in the short and long term. The authors of the analysis think that a cold winter could plunge Europe into an energy crisis.
Similar messages were delivered on Friday by the heads of ten of Europe’s biggest utilities, which called on the European Union to overhaul its energy and climate policies. They pointed their fingers at the subsidies to renewables.
“In the EU companies pay three times the price of gas in America, twice the price of power,” said Eni Chief Executive Officer Paolo Scaroni.
The inefficiencies of European energy markets came on the front also in Germany. The country reported a stark contraction of its gas market in the first nine months of the year compared to the same period of last year. Output from gas-fired power plants in the country fell by 18%.
But what are the national governments doing to sort this out? Last week was not characterized by major agreements and most of the national governments did not take any decisions about energy markets.
REPSOL, CUADRILLA, MOL, ROMGAZ
Last week, companies tried to hedge the risks stemming from inefficient gas markets, mainly looking for disinvestment opportunities.
On Monday, Singapore’s Temasek and China’s Sinopec were said to be negotiating with Spain’s Repsol. The two Asian companies could have a preferential treatment in their attempt to buy Repsol’s stake in Gas Natural Fenosa.
Also on Monday, UK’s Cuadrilla Resources dropped the Anna’s Road site near Westby to focus on shale gas exploration in other sites.
On Tuesday, Hungary’s MOL clinched an agreement with the Hungarian Hydrocarbon Stockpiling Association (MSZKSZ) and MFB Hungarian Development Bank (MFB) to sell its stake in MMBF, company specialized in natural gas storage with mining rights on the reservoir Szoreg-1.
A few days later, Romgaz announced its intention to proceed with an Initial Public Offering as part of Romania’s privatisation programme.
ROMANIA, NORWAY AND LITHUANIA
Romania was indeed one of the most active countries. The liberalization programme is part of a wider attempt to promote ameliorations in the national market. Bucharest is paving the way to launch a new bid round for 28 onshore and 8 Black Sea offshore fields. Last week, Romania also granted Chevron a building permit in Vaslui County for the first shale gas exploration bore in the country.
In Lithuania, a vigourous debate followed news on shale gas developments.
Chevron recently retreated from a tender for a license to explore for shale oil and gas in the Silute-Taurage prospect, but Prime Minister Algirdas Butkevicius then suggested that Lithuania’s institutions should consider a revision of the country’s law on shale gas. Vilnius is getting ready for a new tender despite the hurdles. It is for sure a good way to get back from an embarrassing deadlock.
Completely different situation in Norway. Oslo is the place where energy is not a problem, but a safe asset. And the new government wants to further take advantage of national resources, increasing local use of gas and supporting a smooth transition from oil and liquefied petroleum gas to natural gas.
NEXT WEEK
Further news may come from Moscow to react to the Ukrainian intention to get closer to the European Union. Moscow has many trump cards. For instance, Russia could furher promote price cuts and strategic agreements with other European companies. As already said, Russia’s assistance to Ukraine is in Gazprom’s interests.
For Europe, its failure to increase efficiency in the markets would further prove that weak politics are the main reason for the crisis in Europe.
Sergio Matalucci