The Week in Review (September 7 – 14)

The Monitoring Team: Fatma Babayeva, Jerry Byers

 

Investment Troubles in the Era of Low Energy Prices: The Case of the North Sea

The article discusses the impact of low oil prices on the highly expensive extraction costs of North Sea oil production. It notes that while production is increasing this year because of investments during periods of high oil prices, that investment in new development is grinding to a halt. Over the next few years several billion fewer pounds sterling of annual investment are expected. Additionally, many North Sea players are dumping or attempting to dump their assets such as Total of France. Furthermore, direct and indirect job losses are already estimated at 70,000 and are expected to rise as investment drops. The slowdown in investment is not really a shock. Analysts have been waiting and tallying which oil players would be first to blink in the face of the current production glut.

Stacy, Kiran, 2015. Plunge in North Sea Investment Predicted. Financial Times, 9 September. http://www.ft.com/intl/cms/s/0/e3a754e8-5578-11e5-9846-de406ccb37f2.html#axzz3lRuOPxPM

The Arctic Race: Budget for Icebreakers

Over the last 2 years, the Russian efforts to ramp up its icebreaker activities, develop its northernmost regions, and move forward with the Arctic shipping lanes to the Far East have been highly criticized by Western journalists and analysts. Many have claimed Russia’s Arctic ambitions were absurd and lacked any real potential; however, as the article points out, there exists glaring deficiencies in the U.S. Arctic policy that Russia has or is already in the process of developing. These items include ice breaking potential (the U.S. has only 2), satellite systems, deep water ports, aviation assets, and navigational aids. The article details the lack of interest in funding these types of programs in the U.S. despite the huge mineral potential of the Arctic region and echoes President Obama’s recent call on Congress to find the funding necessary to speed U.S. Arctic goals.

Conley, Heather A, 2015 To Build or Not to Build and Icebreaker? That is the $1 Billion Funding Question. Center for Strategic Studies, 1 September. https://csis.org/publication/build-or-not-build-icebreaker-1-billion-funding-question

Indonesia to Rejoin OPEC

The number of OPEC’s member-countries may rise to 13 by the end of year. Indonesia submitted official letters for its readmission to the organization after seven years. Indonesia’s request has been already circulated to OPEC members for approval, and formalities for reactivation of its membership will be carried out in next OPEC’s next meeting on December 4.

Clarke, David, 2015. UPDATE 1-OPEC says Indonesia to rejoin oil group after 7-year break. Reuters, 8 September. http://www.reuters.com/article/2015/09/08/indonesia-opec-idUSL5N11E3HX20150908

Chilkoti, Avantika, and Anjli Raval, 2015. Indonesia Close to Goal of Rejoining OPEC. Financial Times, 8 September. http://www.ft.com/intl/cms/s/0/a7105c1e-55e6-11e5-a28b-50226830d644.html#axzz3lQyKpAaX

Novatek’s Access to Funds, the Upcoming Decision by Sberbank to Affect Yamal LNG

Due to the sanctions after the Crimean crisis, Novatek’s access to Western funds has been limited; French oil major- Total’s ability (that holds a 20% share of Yamal LNG) to finance part of the Yamal LNG project in Russian Arctic has been affected by Western sanctions. Russian Sberbank will decide on financing terms of the deal for Novatek-led Yamal LNG project by the end of September. Novatek also expects to get more than $10 billion from Chinese banks to finish the project by 2017. Total investment needed for the project is $27 billion.

Kobzeva Oksana, Golubkova, Katya, 2015 Russia’s Sberbank says to decide on Yamal LNG financing terms by month-end. Reuters, 8 September. http://www.reuters.com/article/2015/09/08/russia-yamal-lng-china-idUSL5N11E38620150908

Gazprom Bows to Brussels by Holding First European Gas Auction

There has been a long-running battle over the shape of the European gas market between EU and Russia. Russia supported LTC while the EU pushed creation of a liberalized gas market. Finally, Gazprom launched its first public auction for spot gas supplies in Europe making a concession to Brussels. Although the volume of gas involved in auction during this week is small, it represents Gazprom’s shift in strategy and may help parties to reach a settlement. If auctions are successful, it will also help Gazprom to resolve problems with Opal without violating EU regulations.

Farchy, Jack, 2015. Gazprom bows to Brussels by holding first European gas auction. Financial Times, 7 September. http://www.ft.com/intl/cms/s/0/ad9a8a5e-5556-11e5-8642-453585f2cfcd.html#axzz3lFjtNfl7

New Round of Cooperation between Iran and Azerbaijan

While under Western sanctions, problems arose between Iran and other littoral states over exploration of some disputable oil and gas fields in the southern part of the Caspian Sea. Now, the situation has become different: sanctions are on the way to being lifted, and Iran is more willing to cooperate with other coastal players. The National Iranian Oil Company and Azeri SOCAR commenced a new round of cooperation in oil and gas in the Caspian Sea. This cooperation will boost economic ties and expand relations in the energy sector between two neighboring countries.

Mehr News Agency, 2015. Iran, Azerbaijan commence new round of oil cooperation. Mehr News Agency, 10 September. http://en.mehrnews.com/news/109982/Iran-Azerbaijan-commence-new-round-of-oil-cooperation

Ukraine Seeks to Become a Part of a Gas Hub With European Partners

Ukraine wants to join the gas hub that is now being developed by Poland, Romania, Hungary and Slovakia, which will meet all criteria and requirements of TEP and provide free gas flow among cited countries. A memorandum was signed for the construction of a gas interconnector (10 bcm) between Ukraine and Poland. Realization of this plan will contribute to Ukraine’s energy independence.

Caspian Energy News, 2015 Ukraine seeks to become a part of a gas hub with European Partners. Caspian Energy News, 10 September. http://www.caspianenergy.net/en/oil-and-gas/26161-ukraine-seeks-to-become-a-part-of-a-gas-energy-hub-with-european-partners

Why Vladimir Putin Won’t Be Helping OPEC to Cut Oil Production

The hot topic of the week following a surge in oil prices based on speculation of cooperation between Russia and OPEC on cutting production levels. The article details how these types of speculation have happened before, but that Russian and former Soviet leadership has never agreed to any quotas with the Saudi-led oil cartel. There are several reasons for this noted in the article such as the difficulty of “shutting off the pumps” in harsh climate areas in Russia, the pro-USA stance of Saudi Arabia, and the ability of the Russian economy to function despite lower oil prices as compared to many of OPEC’s members.

Mazneva, Elevan, Khrennikova, Dina, 2015. Why Vladimir Putin Won’t Be Helping OPEC to Cut Oil Production. Bloomberg Business, 11 September. http://www.bloomberg.com/news/articles/2015-09-10/why-vladimir-putin-won-t-be-helping-opec-to-cut-oil-production

Gazprom Signs Key Nord Stream-2 Deal with EU Companies

Huge news on the pipeline front and it is a binding agreement that includes the major gas players from Europe. Gazprom will have the controlling stake; E.ON, BASF/Wintershall, OMV, and Royal Dutch Shell getting 10% each. Engie will get the remaining 9%. After the EU and US helped kill the South Stream pipeline that would have benefitted Bulgaria and Southeast Europe for transit, this deal will place Germany in the role of transit master and bypass the troubled Ukrainian route. The U.S. and EU leaders are expected to come out against the pipeline, but as in the past, Germany’s eastern policies will likely prevail.

Barsukov, Yury, 2015. Gazprom Signs Key Nord Stream-2 Deal with EU Companies. Russian Beyond the Headlines, 8 September. http://rbth.com/business/2015/09/08/gazprom_signs_key_nord_stream-2_deal_with_eu_companies_49071.html

Price Weakness, Construction Costs Cast B.C. LNG Projects into Doubt

The article discusses how the glut in LNG and regulatory approval are hampering the completion of 20 proposed LNG projects in Western Canada. Many analysts including Peters and Co., a Canadian investment dealer, are predicting that only 3 or 4 of the projects may actually be completed. Several major gas production companies such as Chevron (USA), Woodside (Australia), and Petronas (Malaysia) have major stakes in the development of their projects near British Columbia. The LNG export projects were started with the expectation to compete for contracts in Japan, South Korea and China. However, they have faced resistance from Native American groups, environmentalists, and regulators in moving forward quickly.

Jang, Brent, 2015. Price Weakness, Construction Costs Cast B.C. LNG Projects into Doubt: Report. The Globe and Mail, 10 September. http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/price-weakness-construction-costs-cast-bc-lng-projects-into-doubt/article26318603/