Week 48 Overview
Last week, the International Energy Agency stated that Europe’s energy prices would stay up to three times higher than in the United States for the next 20 years, unless the region could develop domestic supplies and increase efficiency.
In this sense, prospects don’t seem rosy, especially after a week that marked the end of a bigger and stronger Europe. As Russia forced Ukraine to drift away from Brussels, the lack of energy policies emerged crystal clear.
Between Wednesday and Thursday, Italian gas prices for delivery the next day rose by 30%, over reduced Norwegian gas flows and an increase in demand due to cold weather. This event proves that externalities are a heavy burden for the Old Continent, as Europe lacks political coordination.
Unexpected negative events would require knee-jerk reactions from politicians. Unfortunately, this behaviour is not really common in Europe, as politicians are unable to find common gound. Different governments indicate different solutions, while ministers within the same government often have completely divergent opinions. As a result, European countries are at the mercy of events and Kiev preferred Moscow to Brussels.
GOOD NEWS (1): POLAND
It would appear that the 48th week of the year has been really difficult, though Poland gave some positive signals. The Eastern European country, which became a full EU member only nine years ago, seems indeed the country taking more risks in Europe. At the moment, it is the only one trying its hardest.
On Monday, Poland’s Maciej Grabowski, who recently replaced Marcin Korolec at the helm of the Ministry of the Environment, said that a draft law on shale gas would be ready by the end of the year. Analysts welcomed the news, seeing a simplification of the procedures to explore for shale gas in the country. The draft law is meant to facilitate investment in shale and reduce the potential risk for investors.
It might be a simple coincidence, but other events rekindled hopes for a Polish shale gas industry in the following days.
On Tuesday, San Leon announced it successfully executed two vertical hydraulic fracture stimulations on the two planned intervals in the Lewino-1G2 well on its 221,000 acre Gdansk W Concession in Poland’s northern Baltic Basin.
On Wednesday, ConocoPhillips and 3Legs Resources agreed to proceed with further drills and tests to assess flow rate potentials of the Sasino shale in Northern Poland. The two companies agreed to include in the current drilling programme a long-length lateral well, to be stimulated with a multi-stage treatment and then tested for up to 90 days. The lateral well, most likely to be drilled in the Sasino formation, should be completed by October 2014.
3Legs Resources’ primary target remains the Sasino (or Ordovician O3) horizon, while the Piasnica horizon remains an important secondary objective.
GOOD NEWS (2): FRANCE & UNITED KINGDOM
The story might have passed under the media’s radar, but a recent French report on clear alternatives to fracking might be key for the future.
On Wednesday, after one year of investigation, France’s Parliament came out with the report “Alternative techniques to hydraulic fracturing for the exploration and exploitation of unconventional hydrocarbons.” The authors noted that alternative technologies are more developed than currently believed in France.
In this sense, Poland could find an ally in Europe to foster shale gas explorations other than the United Kingdom, which also had a really intense week.
The headlines of the major British newspapers are increasingly covering energy debates, as the rise in energy bills drew the attention of the public. In this context, some positive news for the industry came while the Government bickered with opposition about possible solutions.
IGas said that the exploration-drilling programme at the Barton site is in line with plans, while Dart Energy completed the farm-out agreement with GDF Suez E&P for a 25% interest in 13 licences in Cheshire and the East Midlands.
On Thursday, Cuadrilla Resources and Arup followed in footsteps of other players in the industry, engaging in public information days to update the local community on their exploration in the Fylde.
On Friday, Energy Minister Michael Fallon announced a second tranche of offers of 52 production licenses, in a bid to foster indigenous oil and gas exploration.
Last but not least, Water UK, which represents the water industry, and UK Onshore Operators Group signed a Memorandum of Understanding, which ensures their respective members will cooperate throughout the shale gas exploration and extraction process.
New investors might soon step in. Poland and the United Kingdom are the most likely destinations.
BAD NEWS: FORMER SOVIET BLOCK
On the other hand, Moscow reasserted its influence over Ukraine, while increasing its control over the former Soviet bloc. On Wednesday, for example, the Kyrgyz parliament approved the sale of state gas distribution company Kyrgyzgas to Russia’s Gazprom.
At the same time, Rosneft's Board of Directors approved the development of the Kharampur gas field in the Purovsky district of the Yamal-Nenets district and Gazprom announced its intention to step up its investments to enter new LNG markets. The company led by Alexey Miller is also looking at opportunities to invest in modern technology. On Thursday, Miller met Rusnano's management to discuss metallized protective coatings with high corrosion resistance. Russian companies have funds to invest.
WHAT TO DO?
In this sense, despite the offshore oil and gas production-sharing agreement signed by Italy’s Eni and France’s EDF with Ukraine’s energy minister on Wednesday, Europeans are still lagging behind.
Renewed efforts are needed to develop domestic supplies and increase efficiency. Brussels has now to focus on completing the integration of European energy markets. The positive results will come slowly, but will come.
As said by the Agency for Cooperation and Energy Regulators (ACER) on Thursday, signs of progress emerged in 2012. Other advantages of the single market will then arise once Europe will overcome two main hurdles: imperfect integration and retail market fragmentation. Afterwards, Brussels’ voice could ring out loud also in Kiev.
Sergio Matalucci