Strategic developments: Projects on the world market and energy security
- Written by Victor Lupu
The world energy is going through developments and changes determined, on one hand, by the fall in prices and, on the other hand, by the political and geostrategic uncertainties. Thus, countries and communities work hard to find solutions to ensure energy security over short and long term, betting further on chiefly on fossil fuels as consumption is growing worldwide. In Europe, central-European states are trying to decrease dependence on Russian oil and natural gas, whereas Asian countries seem less fearful to forge long-term deals with Moscow (let’s remember China and let’s look at India’s targets), while oil exporting countries are trying to bring the oil price back on track following the current crisis that has led to a steep fall both in revenues and investments. Meanwhile, on the background of repositioning, the large energy companies have conducted restructuring and aim at involving in various projects that would bring them the needed efficiency.
Finland gets closer to ending its isolation regarding natural gas, as on October 21 the Prime Minister of Estonia Taavi Rõivas and the Prime Minister of Finland Juha Sipilä have witnessed the signing of a EUR 187 million investment in the Balticconnector, a gas pipeline meant to connect Finland to Estonia. The project will connect the Eastern Baltic Sea region to the rest of the EU energy market and is expected to end Finland’s isolation in terms of energy by 2020. Attending the signing ceremony, EC President Jean-Claude Juncker said: “We are bringing people and Member States in the region closer together by building a pipeline that unites European countries. As part of the Energy Union, we are building missing energy links, uniting markets, improving security of supply and ending the energy isolation of Member States.”
The Balticconnector pipeline will consist of three sections: 22 km Finnish onshore, 80 km offshore and 50 km Estonian onshore. It enables the transport of 7.2 million cubic metres of gas per day with flows running in both directions. Alongside the Gas Interconnector Poland–Lithuania (GIPL), it will contribute to increasing energy security and solidarity in the region. Some EUR 5.35 billion will be invested by 2020 in European priority projects under the Connecting Europe Facility (CEF) aiming to enhance security of supply and contribute to market integration. The grant was awarded under Connecting Europe and covers 75% of the construction costs, the maximum co-financing level permitted.
Neighbouring Poland is looking for other solutions as well with a horizon up to 2022 when the contract with Gazprom expires. The tensions with Russia and the prospect of the building of Nord Stream 2 gas pipeline that would fuel Germany with larger quantities of gas directly from Russia (bypassing the traditional route across Ukraine), have made Warsaw look for alternative supply. A contract for the Danish-Polish connection was signed in 2001, but was then shelved. The project was revived once more in 2007, but without success. Now it would be the third attempt.
“We are going to replace supplies from the east with other sources,” Piotr Naimski, an MP in charge of strategic energy infrastructure at the Polish prime minister’s office, said recently at an event organized in the European Parliament in Brussels. Brussels has already selected the proposed Polish-Danish interconnection called Baltic Pipe as one of the EU’s priority infrastructure projects, making it eligible for EU funding. The Baltic Pipe is currently undergoing a feasibility study. The results are expected by the end of this year. A new pipeline would connect Denmark and Poland, while upgrading is needed for the pipeline between Denmark and Norway. The project is part of Poland’s larger energy security plan known as Northern Gate which also includes the country’s new liquid natural gas terminal that began operations this summer. It has a capacity of 5 billion cubic meters of gas a year. The pipeline would transport up to 10 billion cubic meters of gas, about the same as Poland currently receives from Russia, accounting for about three-quarters of the country’s gas needs. According to sources, Norway is open to the idea, although it said the existing capacity is enough to handle gas flows and that a new pipeline is not necessary to manage the gas exports. Meanwhile, the European Commission is looking to see if it can give the project ‘strategic assistance,’ according to Maroš Šefčovič, the EC vice president in charge of energy union.
The proposed gas link is part of Poland’s wider attempts to diversify energy supplies as the LNG terminal opened earlier this year, allowing Poland to import gas from Qatar.
A memorandum of understanding was signed in October in the presence of Indian Prime Minister Narendra Modi and Russian President Vladimir Putin at the India-Russia Annual Summit on sidelines of the 8th BRICS Summit, envisaging a giant infrastructure project of maximum USD 25 billion to connect India to the Russian gas supplies. The memorandum was signed by state company Engineers India Ltd. and Gazprom. The pipeline is to connect Russian gas grid to India through a 4,500 km to 6,000 km pipeline, the length depending on the route chosen. According to sources, the route through the Himalayas into northern India will be the shortest one. The two other alternatives are building it through Central Asia, Iran and Pakistan, to western India, or – the longest route – through China and Myanmar. An alternative is considered, a project to transport Iranian gas via Pakistan, with lower costs, nevertheless the long-time tensions between Pakistan and India makes it less attractive, analysts say. The memorandum is seen as an attempt to strengthen ties between the world’s largest oil producer and the world’s fastest growing fuel consumer. Following the signing of the memorandum, Indian companies have snapped up stakes in production assets in Siberian fields, sources quoted by politico.eu say. The news about this major Russian-Indian project came days after Rosneft announced it has teamed up with global commodities trader Trafigura and an investment fund, UCP, to acquire 98 percent of India’s Essar Oil.
A much smaller project is envisaged by Armenia in order to increase natural gas imports from Iran, according to an announcement made also in October by an official in Yerevan. According to Artashes Tumanian, the Armenian ambassador to Iran, Yerevan has offered recently to buy additional volumes of Iranian gas, some of which could be re-exported to Georgia. The Iranian side accepted the proposal, he said. An agreement is expected to be signed soon, but the level of imports envisaged has not been revealed. Armenia currently imports up to 500 million cubic meters of Iranian gas annually through a pipeline built in 2008. By comparison, Russian gas supplies to the South Caucasus country total around 2 billion cubic meters. The Iranian gas has until now been formally purchased by a state-owned Armenian thermal-power plant. The plant pays for it with electricity delivered to Iran.
Meanwhile, Iran is targeting to increase its oil and gas output after years of international sanctions. Tehran is negotiating with 16 international energy companies to help operate and manage 50 oil and natural gas projects around the country. The South Azadegan field on Iran’s south-western border will be the first deal announced, and probably needs USD 10 billion to add 600,000 barrels a day of output. Iranian Oil Ministry announced in October it will invite foreign companies to bid for oil and gas projects for the first time for 29 oil fields and 21 gas fields. The ministry has said foreign companies should submit their applications by November 19, and that successful companies would be announced on December 7. According to the Voice of America, Iran hopes to attract more than USD 150 billion foreign investments in oil, gas and petrochemical industry by 2020.
As in Africa there are some of the fastest-growing economies, the analysts note that many of them rely on oil exports. It is estimated that 57% of Africa’s export earnings come from hydrocarbons. Proven oil reserves have grown by almost 150%, up from 53.4 billion barrels in 1980 to 130.3 billion barrels by the end of 2012. Africa is home to five of the top 30 oil-producing countries in the world, and nearly USD 2 trillion of investments are expected by 2036.
Under these circumstances, the interest of Europeans, Americans and Chinese remains high in the continent, analysts say.
ExxonMobil is one of the largest foreign investors in Africa. During the last years, it has committed more than USD 24 billion to energy exploration and development. Eni, the Italian multinational oil and gas company, plans to invest around USD 25 billion mainly in oil and gas, representing 60% of the company’s investment. China is the world’s second-largest consumer of oil, expected to become the world’s largest consumer by 2030. It is estimated that the country will import over 66% of its total oil by 2020, and 72% by 2040. Its second-largest source of crude imports is Africa.
A huge number of energy companies are involved in exploitations and exploration in Africa: CNODC, CNPC, ZPEP, Sinopec (China), BP, Savannah Petroleum, Perenko (UK), Statoil (Norway), Eni (Italy), ELF, Total (France), Petronas (Malaysia), Rosneft (Russia), Chevron, ExxonMobil, Anadarko (US), Royal Dutch Shell (Netherlands).
The US – instead of conclusions
The US was too busy lately with the presidential elections. The trends and the challenges are well known on a market with low prices, on the other hand the outcome of the elections was not known. It was Donald Trump to win in the end. The tough debates during the campaign focused on a large number of issues and energy was one of them, although less commented than others. Mr. Trump said he would make oil derricks pump at maximum capacity, coal miners would get back to work, without much regard to effects of the fossil fuels, and would also withdraw the United States from the global climate change pact agreed in Paris in 2015. Latest news, after the president-elect’s recent talks with President Barack Obama, seem to picture a more moderate approach in terms of unpredictability, both regarding world agreements and the domestic market. While forging his team for the White House, President-elect Donald Trump seems to be looking for landmarks for this future term. After a brief shock and steps back, the US currency - one of the most sensitive indicators of political and economic pulse - has hiked to unprecedented levels in the near past. Is that a sign of the world’s confidence in the next American President? Or is it the enthusiasm before hitting the wall of reality?