Natural Gas Europe was pleased to have the opportunity to conduct an interview with H.E. Eng. Gebran Bassil, Lebanese Minister of Energy & Water.
GB: Despite the various delays in the licensing round, investors should not lose confidence. The process will commence and a tender will happen. There is a new date to look forward to as the licensing round is now set to be opened on 10 January 2014. If substantial interest is shown by international oil and gas companies, then we will move ahead with the process to award contracts and begin exploration activities.
NGE: Should investors be fearing further delays in the bidding round?
GB: The previous delays were caused by political discords. If further delays should occur, this time they would be technical instead.
NGE: What was causing the previous delays?
GB: The delays were caused by a lack of decision by the council of minister in issuing two crucial decrees, one delimitating offshore blocks and their coordinates and the second approving the model exploration and production agreement). Obstacles are normal in a country’s path towards energy production and we are confident that Lebanon will overcome them. Once the companies are awarded contracts, there is no further cause for concern.
NGE: When it comes to its energy potential, would you consider Lebanon in an advantageous position in comparison to its Eastern Mediterranean neighbours?
GB: Lebanon has majors advantages compared to its neighbours. Its strategic geographic location is one of them: Lebanon is neither an island nor an isolated country and can hence easily access export markets. The transportation of its natural gas will prove to be a relatively simple endeavour given the already existent infrastructure and Lebanon’s ability to export to various markets, locally and further.
NGE: Will Lebanon succeed in taking advantage of the tight window of opportunity offered by the constantly changing LNG market?
GB: I believe that we are entering a ‘golden era’ for natural gas that will last for the next decade. Lebanon’s efforts have already commenced and will continue until the country reaches production phase.
NGE: When will Lebanon reach export phase?
GB: It all depends on the pace on which Lebanon is moving ahead and on the luck in the discoveries. The fact that our surveys are advanced will allow exploration phase to be relatively brief.
NGE: What are the most recent estimates for Lebanon’s hydrocarbon wealth?
GB: 45 % of our waters have been surveyed. Results indicate that there is a 50% probability that 96 Tcf of natural gas could be found under our seabed and 850 millions barrels of oil onshore. It is important to note that the rest of our sea has yet to be surveyed and we are confident that we will encounter additional indicators that more hydrocarbon wealth could be found.
NGE: Will you be opening all the blocks for bidding at once or progressively?
GB: The blocks will be opened progressively. To open them all at once will be a major mistake that we cannot tolerate. The approach needs to be balanced between conservatism and aggressivity. A progressive awarding of the blocks will allow the process to be more manageable and Lebanon to embrace the new learning curve. Our capabilities, knowhow and workforce will adapt accordingly.
NGE: Will Lebanon be taking measures to mitigate the possible negative effects of an eventual energy boom?
GB: Of course. Our petroleum law has anticipated this risk by stipulating a model to distribute the tax and the revenues in an effective and transparent manner.
NGE: Can an American involvement help solve the maritime border dispute between Israel and Lebanon?
GB: The recent American initiative to this effect revealed positive signs that the United States could be indeed part of a success story. It is in America’s interest that the region achieves peace and stability and we will welcome such a contribution as long as it is fair and unbiased.
NGE: Will Lebanon be using Cyprus’ LNG terminal to process and transfer its gas?
GB: We don’t see why Cyprus will use Lebanon’s services instead. We have strong indications that Lebanon may contain bigger reservoirs than Cyprus.
NGE: What was the outcome of the recent meeting between yourself and the Cypriot minister of energy?
GB: We discussed drafting the unitization agreement that sets out the principles for splitting common reservoirs.
NGE: Do you believe that the new hydrocarbon wealth in the region will be a source of conflict or cooperation?
GB: There is no doubt that cooperation will be the outcome. Energy projects require new dynamics of productivity and positivity.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on firstname.lastname@example.org. Follow her on Twitter: @karenayat
An act restricting Gazprom’s monopoly in Russian gas exports came into effect on 1 December 2013. Previously Gazprom had had a legal guarantee to its monopoly position. The changes are an effect of consultations between various ministries that had been conducted for many months and were affected by lobbying from Novatek and Rosneft (Gazprom’s competitors on the domestic gas market); they need not, though, be seen as system changes. The ‘liberalisation’ they appear to bring in is feigned. Proof of this are found for example in both the limited material scope of the new law (it concerns only exports of liquefied natural gas, LNG) and the small number of the beneficiaries of the new regulations (the new solutions will be beneficial for Novatek and Rosneft). Contrary to initial announcements, the right to export LNG has not been restricted to South-Eastern Asian markets, which means that Russian liquefied natural gas is also likely to be sold to Europe in the coming years. Although these changes have been motivated above all by the individual interests of Gazprom’s competitors, they are also to a certain extent a response to the processes taking place on regional gas markets. They may, therefore, turn out to be beneficial for the state (increasing Russia’s share on the global LNG market and attracting foreign investors to gas extraction projects being implemented in Russia). The new regulations are probably the first step down the long road to breaking Gazprom’s monopoly in gas exports via the pipeline system.
The origins of the liberalisation
Gazprom was formally recognised as an export monopoly in the Federal Law on Gas Export of 18 July 2006. The company was thus vested with the exclusive right to export both gas transported via pipelines and LNG. This regulation did not extend to projects which were implemented by energy companies under production sharing agreements (PSA), which concerned, for example, Rosneft’s project in the Far East. Other companies interested in gas exports could enter into ‘agency agreements’ with Gazprom Export, a company which was acting as an agent in relations with foreign partners.
The need to put limits on Gazprom’s privileged position has been mentioned on numerous occasions in discussions within government circles. Formally, the change process was initiated in 2012 by Novatek, the key ‘independent’ gas producer in Russia. As Novatek’s position progressively strengthened on the domestic gas market, it started demanding to be given the right to export liquefied natural gas by itself as it was planning to produce LNG as part of the Yamal-LNG project. Its management argued that this would not only facilitate the conclusion of export contracts, but would also contribute to attracting more foreign investments in the gas extraction sector. In November 2012, Novatek submitted a formal motion to this effect to the Ministry for Energy. Along with other ministries one month later the Ministry for Energy granted this motion and sent a special report to the presidential administration. Prime Minister Dmitry Medvedev also expressed his support for the gas export rules to be liberalised at the World Economic Forum in Davos in January 2013.
However, the key event which triggered the change process was the meeting of the Presidential Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security on 13 February 2013, when Novatek’s proposal, backed during the discussion by the CEOs of Rosneft and Zarubezhneft, Igor Sechin and Sergey Kudryashov, was approved by Vladimir Putin.
The form of the liberalisation
The changes were introduced via the amendment of two laws: the Federal Law on Gas Export (Articles 1 and 3) and the Federal Law on the Grounds for Governmental Adjustment of the Foreign Trade (Articles 13 and 24). Pursuant to initial demands, the liberalisation of gas exports should be gradual, as regards both the depth of the planned changes (limiting the scope of the regulations in terms of the subject matter and the entities covered by them) and the procedures set for introducing the changes (export licences to be issued upon conclusion of contracts with LNG importers).
As regards the entities covered by the regulations, the new acts set general criteria which need to be met by companies applying for the right to export LNG. Export licences can be granted to: 1) companies which operate on fields under a licence which as of 1 January 2013 provides for a liquefying plant to be built or the liquefaction of the extracted gas; and 2) state-owned companies (and their subsidiaries) controlled by the state to more than 50% which operate on fields located within the internal waters, territorial sea and the continental shelf, including the Black Sea and the Sea of Azov, that make LNG from the natural gas extracted from these fields, not excluding the natural gas extracted as part of production sharing agreements.
In theory, the criteria for granting LNG export licences are general. However, in practice, considering the situation in the Russian gas sector, the group of companies that will benefit from the new solution will be very small, and will include Novatek, Rosneft and Zarubezhneft (though this has not yet been confirmed since the licence granted to this company does not provide for the construction of a liquefying plant).
As regards the subject matter of the new regulations, Gazprom’s export monopoly will be restricted only in the case of liquefied natural gas. Nevertheless, the act does not provide for a geographical restriction which was originally planned (this was the standpoint taken by President Putin, Prime Minister Medvedev and Rosneft). Initially, it was announced that gas export liberalisation will only concern projects under which LNG would be supplied to Asian markets.
However, LNG exports will be subject to rationing, since prospective exporters will have to obtain export licences. In order to obtain these licences, they must meet the general statutory criteria and sign contracts with gas importers (contracts or general terms and conditions of contracts).
One of the most disputed issues during legislative work was how to identify the authority in charge of issuing export licences and the possible coordination of LNG exports. The Ministry for Energy insisted that these competences should be assigned to it or possibly to a newly created authority reporting to the government. Another vision, which Igor Sechin was lobbying for, provided that these competences should be granted to the Presidential Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security. Finally, following special presidential instructions, the competences were given to the Ministry for Energy. The ministry will also be in charge of enforcing the statutory obligation which gas exporters will have to provide information on export volumes and directions.
The rationale behind the restriction of Gazprom’s export monopoly
The main reason behind the introduction of the changes were the economic interests of the political-business groups who are close to Vladimir Putin. The key figures among them are Gennady Timchenko, co-owner of Novatek, and Igor Sechin, the CEO of Rosneft, both of whom are interested in their firms launching a gas expansion both on the Russian market and abroad (however, considering the limited domestic demand, only gas exports to foreign markets can guarantee profits).
The recent moves are also a response to changes taking place on gas markets worldwide, in particular the rapid development of the global LNG market. Proof of this can be found in President Putin’s statement; when pointing to the need to gradually liberalise LNG trade he argued that budget incomes from gas sales had been regularly falling partly due to a significant reduction in supplies to Europe in 2012. He also expressed his concern that if Russia fails to act quickly, it may lose its chance of entering the rapidly developing LNG market in South-Eastern Asia. This has also been confirmed by declarations from energy companies indicating that LNG output from Russian fields (primarily those located on the Yamal Peninsula) is to be sold mainly to the promising Asian markets, especially to China, Japan, India, South Korea and Taiwan. The forecasts available so far indicate that gas demand in this region will grow significantly until 2025 (up to 600–800 billion m3 annually), almost 50% of which will be demand for LNG.
Although the Asian direction for Russian LNG exports was initially seen as the main reason for the liberalisation, the final form the regulation has taken proves that another major reason was the need to protect the Russian position on the strategic European gas market. The geographic restriction initially planned (excluding Europe as an LNG export direction for entities other than Gazprom) was primarily aimed at avoiding competition between Russian gas companies (in particular, protecting the position of Gazprom, which supplies gas to Europe via pipelines). The final stance taken by the Russian government is proof not only of Novatek’s lobbying success (this company was openly opposing the imposition of geographical restrictions and also declared its interest in exporting LNG to Europe) but also of an evolution in the approach to LNG market development in Europe. As recently as January 2013, Yuri Sentyurin, the deputy minister for energy, emphasised that Russia does not see Europe as a promising direction for LNG exports. In turn, in October 2013, when stating the rationale behind the bill restricting Gazprom’s export monopoly, the government envisioned a rapid development of the European LNG market and thus made it one of the key arguments for the introduction of changes.
The president’s decision was also influenced by the fact that Gazprom’s efficiency is constantly falling (in particular since it underrated the consequences of the shale gas revolution in the USA for the implementation of the Russian gas strategy, the slow rate of implementing LNG projects resulting in Gazprom’s low share in global LNG trade, and its weakening position on the European gas market) and it is thus decreasingly useful as a foreign policy instrument.
The consequences for the Russian gas sector of the liberalisation
The introduction of this regulation should not be treated as a systemic change.This is because the initiators of the changes and also the sole beneficiaries of them are Gazprom’s competitors, so-called “independent gas producers”: Novatek and Rosneft (the latter, being the largest state-owned oil company, is more and more engaged in energy projects on the Russian sea shelf, and a great part of the licences it holds cover gas field operation). Their new right to apply for export licences will strengthen their position in the Russian gas sector, while Gazprom’s position is continually weakening.
The changes, however limited their nature may be, may nevertheless have positive consequences for the Russian gas sector. The promises that gas export rules will be liberalised have alone contributed to an intensification of efforts taken by Russian energy companies in the LNG sector, including above all speeding up negotiations regarding new contracts and, as has been the case with Gazprom, the announcement of new LNG projects (the complete list of LNG projects in Russia is provided in Appendix). By creating makeshift internal competition, they can gain more opportunities for attracting foreign partners, and thus the investments and technologies necessary to implement expensive extraction projects in Russia. The first example is the purchase of a 20% stake in the Yamal-LNG project by China’s CNPC.
It is very likely that the curb on Gazprom’s export monopoly marks the first step on the way towards a demonopolisation of pipeline gas exports. This has been incidentally hinted at by representatives of government circles (the Ministry for Energy is considering a scenario under which Nord Stream and South Stream will form a separate company, which could have a positive effect on excluding both pipelines from being covered by the third energy package regime). On the one hand, voices rejecting such proposals can be heard (for example, Igor Sechin in his statement in October this year pointed only to the need for ongoing solutions to problems concerning tariffs for gas transport using Gazprom-controlled pipelines). Nevertheless, this option has not been ruled out by the Russian Minister for Energy, Aleksandr Novak. Furthermore, Rosneft’s deputy CEO, Vlada Rusakova (who is in charge of the gas sector at the company) said that this scenario was very likely.
Although the new regulations do not provide for any special mechanism for the coordination of Russian LNG exports de iure, the arbitrary manner of granting export licences by the Ministry for Energy de facto will mean that ultimately it is the state who will decide on export directions and volumes. Another instrument for export control is export duty imposed on liquefied gas. The fact that a 0% rate has been imposed means that the financial effect will be the same as if the duty had not been imposed. However, the imposition of this duty means major procedural restrictions during the customs clearance of goods and can be seen as a form of registration of LNG export volumes.
The consequences of the liberalisation for Russia’s position on external gas markets
The changes may turn out to be beneficial for Russia as its position on foreign gas markets could become stronger.
This primarily concerns the South-East Asia region, one proof of which are the contracts already concluded with potential importers of Russian gas (Appendix I).
At the World Economic Forum in Saint Petersburg in June 2013, Rosneft signed LNG supply contracts with Japan’s Marubeni and SODECO, and with the trading company Vitol. In turn, Novatek signed initial agreements with China’s CNPC (general contract terms and conditions were agreed in September, and the contract is to be signed by the end of this year). Another consequence of the liberalisation is the intensification of actions by Gazprom itself; by announcing the decision to expand its LNG plant operating as part of the only active LNG project (Sakhalin-2) and by building another one as part of the new project, Vladivostok LNG, it hopes to increase its share in the Asian liquefied natural gas market.
The new regulations may also result in Russia’s position on the European gas marketbeing reinforced. This will mean both an increase in its share in LNG trade and the emergence of new Russian gas exporters in Europe. This has been illustrated byNovatek’s plans: the company announced on 1 November 2013, one day after the bill was accepted by the government, that it has signed a 25-year contract with Spain’s largest importer of liquefied natural gas, Gas Natural Fenosa. In May 2013, (unconfirmed) information was leaked that Yamal-LNG and Britain’s BP had signed a framework agreement on supplies of liquefied natural gas to the United Kingdom. Seeing Novatek’s activity, Gazprom has also intensified actions in the LNG sector aimed at supplies to Europe. Gazprom’s board of directors updated the company’s strategy of 2008 regarding the production and supplies of liquefied natural gas already in October 2012. The company also announced in May 2013 that it would embark on new LNG projects by the Baltic Sea: the construction of a new LNG plant in Leningrad Oblast (the exact location is not certain yet, probably the Ust-Luga port) and a regasification terminal in Kaliningrad.
The fact that Gazprom’s competitors have been granted the right to export LNG to Europe poses no essential threat to the interests of this state-controlled company. This is because Russian gas exported to Europe in liquefied form would be supplied primarily to those countries which do not import gas via pipelines (Spain, Portugal and the United Kingdom). A certain degree of rivalry could only be expected should Gazprom become more active on the European LNG market. However, it seems quite unrealistic that Gazprom will achieve its ambitious plans, considering its financial troubles and the fact that infrastructural pipeline projects (South Stream) are being pushed through. The adopted solution thusde facto means that the European market might in a way be divided between Russian exporters. It cannot be ruled out that the emergence of many new Russian suppliers on the European market will trigger a broader process of demonopolisation of Russia’s gas presence in Europe; this would facilitate Moscow’s functioning under the conditions of the third energy package which is being implemented by the EU member states.
Both the change process itself (it took longer than expected) and the final form the changes took prove that rivalry between Russian energy companies is intensifying. The position of energy lobbyists in the Russian economy and their personal links with Vladimir Putin are making it difficult for him to play the role of arbiter and key decision-maker in this strategic sector of the economy. This is illustrated by the form of the regulations adopted, which are an expression of a kind of compromise. It was the president’s intention on the one hand to take into account the interests of Novatek and Rosneft, and on the other hand to protect Gazprom which, despite its weakening position resulting from rivalry in the Russian energy sector at home and also the difficult situation on foreign markets, is still an important source of funds needed for the implementation of Russia’s flagship projects (including financial support for Sochi 2014) and probably a major source of income for members of the Russian political elite.
The new regulations will not bring about any major changes in the system. Instead, they will rather serve to legally sanction a reconfiguration of influences in the Russian gas sector (the weakening position of Gazprom, and the increasing significance of Novatek and Rosneft). However, it cannot be ruled out that the scope of liberalisation will be extended to gas exported via pipelines as the ambitions of the ‘independent’ gas players grow and the needs to recapitalise the Russian energy sector become greater, and also considering the challenges resulting from the evolution of foreign gas markets. However, a complete system change would require not only ownership transformation but also a revision of the principles upon which the functioning of the energy sector is based. This is rather unlikely in the immediate future.
Szymon Kardaś for the The Centre for Eastern Studies. The Centre for Eastern Studies is a research institution dealing with analyses and forecast studies of the political, social and economic situation in the countries neighbouring Poland and in the Baltic Sea region, the Balkans, the Caucasus and Central Asia.
 The options being considered included splitting Gazprom by establishing separate companies in charge of gas production and transport (this was suggested by German Gref in 2000, who was then minister for the economic development of Russia) and restricting the company’s export privileges (a proposal from the Federal Anti-Trust Service).
 Regular output growth (during the first two quarters of this year it was 9% higher when compared to the same period last year) and an increase in the share in the gas trade on the Russian domestic market (a 17% growth in the first two quarters of this year);http://vid1.rian.ru/ig/ratings/oil11.pdf
Novatek argued that the agency agreement it concluded in 2010 with Gazprom Export failed to offer it the opportunity to gain adequate financial support from banks or foreign partners. An anonymous source from the ministry for energy stated that some banks (for example, Société Générale) would be ready to provide financial backing at a level as high as US$18 billion, but only on condition that Novatek has obtained the right to export LNG on its own.
 This concerns primarily Rosneft. Rosneft plans to have increased it to 100 billion m3 annually by 2020 (in 2012, it was 12.6 billion m3 according to data from CDU TEK; and 16.4 billion m3 according to data published by Rosneft), which will account for 20% of total Russian output. This goal will be achieved partly owing to the takeover of Itera and several gas companies from Alrosa group.
 Gazprom has been operating on the LNG trade market since 2005 via Gazprom Global LNG Ltd. However, over the past few years its LNG output has not increased, and its turnovers in LNG trade have fallen (Gazprom’s share in LNG trade fell from 1.3% in 2011 to 0.6% in 2012). In 2003, Gazprom’s share in domestic output was 97%. At present, its share has shrunk to around 70%. As regards foreign markets, its position has been undermined most visibly in Ukraine. A. Topalov, ‘Monopoliya prevyshe vsego’, 9 July 2013,http://www.gazeta.ru/business/2013/07/09/5418225.shtml
 Initially, the draft changes were to be ready by the middle of March 2013. The government accepted the final version at the meeting on 31 October 2013, and the State Duma passed the act on 22 November. At the final stage of the legislative work, Rosneft made an unsuccessful attempt to limit the scope of the liberalisation, suggesting an amendment following the first reading of the act. Pursuant to this amendment, the energy company holding an export licence would have the right to export LNG only from the fields it operates by itself. This would exclude the possibility of exporting Russian gas in liquefied form obtained on the secondary market. Should it be adopted, this amendment would most of all have adversely affected the interests of Novatek.
Saturday saw a reported 400 protesters gather at Chevron’s shale gas exploration site in the Vaslui area after the multinational announced an resumption in its activities.
Shale gas opponents threw stones and demolished the company’s fences, resulting in a strong intervention by the gendarmerie in an attempt to re-establish security of the site.
According to reports from the area late Saturday, approximately 100 people were being held in custody at the County Police Department in Vaslui.
On Saturday afternoon, the gendarmes had evacuated the area where the tents and sheds were located in Pungesti and the protesters were advised to leave the perimeter area. A special security area has been declared in Pungesti, which will see the deployed of additional police and some restrictions in area.
Amongst the protesters were members of environment protection organizations and of civil rights organizations who came in the area to support the locals in their protest against Chevron’s desire to resume activities at its first planned shale gas exploration bore.
In a press release, the gendarmerie said that their invention was directed at restoring order and to prevent any actions that might heighten tensions. Shale gas opponent decried the use of police intervention to facilitate exploitation of Romanian resources by the US based company against the wishes of the local community.
On Saturday evening, the center of Bucharest saw approximately one thousand protesters shouting slogans against the government and against Chevron, gather in support of the communities at risk. The gathering was not without incident, as the protesters were angered by the fact that law enforcement denied them access to the roadway and forced them to identify themselves.
George Epurescu, of the “Romania without Them” movement (www.romaniafaraei.ro) said: “the law says that an action that can be considered a crime is not punished if it is done in order to stop another crime in progress. This situation is serious because we are talking about the armed assault of the state against its citizens. In Pungesti there is a military dictatorship.”
Georgian Enache, spokesman for the Bucharest Gendarmerie said: “by limiting perimeters with gendarmes the protesters were prevented from blocking the traffic and were not allowed to go to other areas. We mention that the protesters have no permit for their manifestation and blocking an access way is a crime. When a group of people want to move and to force the perimeter established by the gendarmes it is normal to stop them.”
Cam Van Ast, External Communications Advisor Chevron Europe, stated: “Chevron can confirm that it has resumed operations activities in Silistea, Pungesti commune, Vaslui County. Chevron will undertake only exploration activities with conventional technologies in block EV-2, under our existing permits and approvals, which we obtained at the start of October 2013. Our priority is to conduct these activities in a safe and environmentally responsible manner consistent with the permits under which we operate. Chevron is committed to building constructive and positive relationships with the communities where we operate and we will continue our dialogue with the public, local communities and authorities on our projects. While we respect the right of individuals to express their opinions, it should be done within the law.”
Epurescu stated that the actions of the protesters will not until Chevron its development activities.
“The right of the community comes first in face of other business, as long as they are not of national interest. The action of Chevron is illegal because the Government Decision approving the oil agreement is not about shale gas. Thus the agreement and the subsequent documents are illegal. The exploitation can be made only based on an organic law and for shale gas there is no law. Chevron does not have the agreement of the neighbors of the plot and the lease contract contains abusive provisions. But the justice system is slow and, until we reach a decision, the exploration will be over.”
Text: Silviu Molnar
It is not yet time for presents. Christmas approaches, but the gas industry hardly moves on from the autumn fevers. The only exception came from the United Kingdom, with the British government paving the way to shale explorations through consistent tax incentives.
At the same time, the bickering between Brussels and Moscow, the whirligig in the relationship between Ukraine and Russia, and the long time needed by the Polish industry suggests that Santa Claus is still in front of his chimney. Boxes full of good news are resting under the first snow of the year, while a colder winter than usual is expected to push gas prices up; especially in Southern France.
THE UK: WHEN AN AUTUMN STATEMENT SOUNDS LIKE A CHRISTMAS PRESENT
Despite the difficulties, the 49th week gave relief to the British industry, with the government dealing some heavy cards on Friday. The Chancellor of the Exchequer George Osborne did indeed announce a new tax allowance to sustain the shale gas industry. The measure reduces the tax rate from 52% to 30% of the companies’ early profits. Shale gas operators will receive an allowance equal to 70% of capital spent on projects.
“The country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy like shale gas because it’s all too difficult,” commented Osborne in his Autumn Statement.
The move, already discussed earlier this year, is meant to reap the financial benefits of shale gas. Despite the opposition of Friends of the Earth, which said the moves could be illegal, the Government reassured investors on its willingness to sustain indigenous production. The message came across.
The enthusiasm was already clear on Friday. While the Government was spelling out its support to the gas and oil industry, iGas Energy announced the acquisition of Caithness Oil. In this sense, the jittery British industry showed that investors are willing to voice and contractualize their interests. After GDF Suez stepped into the British shale gas industry in October, other heavyweights could soon follow, with Barclays Bank already at the forefront. As disclosed by The Sunday Telegraph last week, the London-based bank could soon fund fracking in Yorkshire through its equity arm Barclays Natural Resource Investment.
This Christmas could be nice and cosy for the British gas industry. The spring will soon arrive and could bring a new flurry of protests but, in the meanwhile, operators can enjoy their warm chimneys in the UK’s countryside.
NO FANCY GIFTS FOR EUROPE
The 49th week of the year was not equally rosy for the rest of European gas industry. The arm-wrestling between Brussels and Moscow could further freeze the hopes for a calm winter in Europe. The tit-for-tat resembled the Cold War, with a long series of actions and reactions.
On Monday, Russia liberalized its liquefied natural gas (LNG) exports in order to decrease its dependence on Europe, which accounts for two-thirds of Gazprom’s. At the same time, Moscow started negotiations with Kiev, after successfully pushing the country away from the free trade agreement with Brussels.
Alexander Medvedev, Deputy Chairman of the Management Committee and Director General of Gazprom Export, intervened in the attempt to calm the tensions. On Wednesday, he tried to defuse the recent concerns with a speech in Brussels, while his company was opening an office there. Those are all proofs of the fact that Gazprom’s short-term future depends on Europe.
On the other hand, Brussels said that the bilateral agreements signed for the construction of the South Stream were in breach of the European Law. The European Commission told Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria to renegotiate theirs deals with Gazprom.
The consequences of this bickering will become clear in the next months, possibly in spring. In the while, conditions will remain harsh.
European gas prices could rise sharply in the next weeks over colder-than-usual winters. Forecasts indicate that the UK and France could suffer from colder than average temperatures. In particular, Southern France prospects seem grim and dark.
‘The gas market in southern France is facing major tension at the start of winter,’ Commission de Regulation de l’Energie (CRE) wrote on the note released on Thursday, explaining that France needs LNG imports as soon as possible.
Prices in the south have been higher than in the north due to diversion of imports from Europe to Asia and to “structurally” tighter supply. Cold weather and low stocks at the southern French hub of Marseille added further pressure.
The country that should take advantage of the situation is Norway. And it will probably do so despite its internal tensions. Local companies are proceeding with legal actions against the country to claim compensation for losses due to the cuts in gas transportation tariffs, which were introduced by the previous government and confirmed a few days ago. On Friday, the coalition led by Prime Minister Erna Solberg upheld the decision on the gas transportation system Gassled.
The measure will affect gas transported after 1 October 2016. It could encourage energy firms to explore for more gas in the Arctic Barents Sea, where only a few discoveries have been made thus far.
Given the uncertainties related to the other gas suppliers, it is in Norwegian interest to maintain hydrocarbon production at the present levels. The government was said to be working on new measures to reduce costs in its offshore industry. The new laws could be introduced toward the end of next year.
The end of 2014 will mark the Norwegian approach toward hydrocarbon production for the coming years. According to present estimates, investments are indeed expected to start declining in 2015 after peaking in 2014. At least for now, Norway can enjoy the Christmas spirit.
Poland is the country that could follow the footsteps of Norway in the coming years. It could capitalize on the tensions in the next 5-10 years. Polish government hopes so.
Maciej Grabowski, who formally replaced Marcin Korolec at the helm of the Polish Environment Ministry, tried to prove he is the right man to lead Poland toward shale gas production. He speeded the process of writing a new law on shale exploration, while showing signs of consistency. He tried to remain as practical and realistic as possible.
On Friday, he said that the country could wait for other four years to know if the exploitation of shale gas is profitable.
“There are not enough wells, there has to be at least five times more," he said on Polish radio.
Europe cannot wait so long to find alternatives. Its problems are extremely urgent and, with months of snow ahead, the Old Continent may shiver. Governments have to find ways to curb prices.
The European Commission has suggested that Russia should proceed with making an application for an exemption to EU rules for the South Stream gas pipeline.
"We would like Russia to ask formally for exemptions so that we can actually look at them," said Marlene Holzner.
Ms. Holzner, the spokesperson for Energy Commissioner Oettinger, made the comments Friday, following the public disclosure of a key element of the EU's position on Wednesday.
Speaking at an EU Parliament event hosted by Natural Gas Europe | Gas Dialogues, Klaus-Dieter Borchardt, director for energy markets at the European Commission, said that bilateral agreements between Russia and the countries through which South Stream is to transit, were not in line with present EU policies, that the EU member countries involved in the project need to amend the agreements accordingly.
“The Commission has looked into these intergovernmental agreements and came to the conclusion that none of the agreements is in compliance with EU law," Borchardt said.
Russia has entered into bi-lateral agreements for the construction of the South Stream pipeline with EU members Bulgaria, Hungary, Greece, Slovenia, Croatia and Austria, as well as Serbia, which is a member of the Energy Community.
"What I can say is the intergovernmental agreements will not be the basis for the construction or the operation of South Stream. Because if the member states or states concerned are not renegotiating, then the Commission has the ways and means to oblige them to do so. And South Stream cannot operate under these agreements,” continued Borchardt.
Holtzner said that the European Commission expects member countries to ask Russia for new negotiations on the agreements to bring them in compliance with EU law.
As Borchardt outined on Wednesday, Holtzner pointed to key points at odds with EU legislation.
One of these is "unbundling," which requires the separation of producers and suppliers of natural gas from ownership of the transmission network.
The two other key issues are third party access of other users to the pipeline and the issue of the setting of tariffs that European countries will have to pay for using the gas pipeline.
"We believe that in the European energy market, gas security and also competition is best served if there is not one company importing and producing gas and owning the pipeline, fixing the tariff, but we would like to see that there is an unbundling," Holzner said.
Borchardt said that the EU was open to the discussion of an exemption for South Stream, but that those discussions would open up only when gas capacities would start to be allocated to the different segments of the pipeline. This timing appered to be confirmed in comments by Alexander Medvedev, Deputy Chairman of the Management Committee; Director General of Gazprom Export, who also spoke at the Natural Gas Europe event.
But Alan Riley, Director of the LLM Programme, City Law School, says that the road to receiving an exemption is not so clear.
Professor Riley, an expert in energy competition issues, explained that present EU laws state that new supply that adds to competition is a requirement to receive an exemption, while South Stream is a "diversion pipeline," which effectively is delivering established supply.
Extending environmental regulations to all drilling—including exploratory wells—will cut the EU out of the global oil and gas boom.
In October the European Parliament narrowly voted to extend the EU's Environmental Impact Assessment (EIA) directive to the drilling of a single shale-gas well. National ministers are due to vote on the move in the EU Council this month. If they uphold the measure, all shale exploration underway in Europe—from the Bowland Basin in Lancashire, England, to Lublin Province in Poland—will face significant new delays.
The larger danger for Europe is that energy investors may take such a decision as a signal to give up on the EU as a place to develop shale oil and gas. There are now so many more opportunities world-wide for shale-gas development that the industry may conclude its best strategy in Europe is to stay out of it.
The EIA directive has been in force since 1985 as a key plank of EU environmental regulation. It mandates the standards and procedures for environmental assessments and provides a list of projects that must be subject to them. The list, known as "Annex 1," has so far been limited to major energy and infrastructure development, chemical and steel installations, and work with a well-established risk of hazard—asbestos extraction and processing, radioactive waste disposal and so forth.
Currently the rules only require an EIA for gas drilling if the commercial extraction exceeds 500,000 cubic meters per day. That excludes the overwhelming majority of commercial shale wells that Europe might see in the future, and certainly the test wells it will take to get there. Most operating shale wells in the U.S. and China produce less than 100,000 cubic meters apiece per day.
The EIA rule-change would require that all "exploration and exploitation of non-conventional hydrocarbons"—i.e., every hydraulically fractured shale well—be subject to a complex and costly assessment, regardless of how much gas the well produces. The assessment would add approximately a year-long delay to development, and would be mandatory even for test wells that might never turn a profit. That would include, for instance, the exploratory well in Poland that's been producing about 8,000 cubic meters of gas per day since the summer.
It's not as if the industry isn't already facing national and local regulation. There is not yet a single shale-gas well anywhere in Europe producing commercial flows. Cuadrilla Resources started looking into British shale in 2008 and is still waiting on the permits and approvals to commercialize the gas.
So why are EU regulators in such a rush? Surely it would be wiser to wait for Poland, the U.K. and others to proceed with exploration and commercial development. Then, after more national regulatory experimentation, EU institutions would be better able to work out where European regulation could add real value.
Then again, from an environmental perspective it may be that EU-wide regulation is of little value at all, given the nature of environmental impact. The EU's 28 nations cover 4.4 million square kilometers and come with vastly different geologies and natural resources, not to mention different property rights and legal systems. What's good for the Baltic Basin might not work at all for the Fylde Coast.
The controversy also raises a major constitutional question: Under the EU principle of subsidiarity, how could European officials even propose a rule that would regulate down to the level of a single test well? Article 194 of the Treaty on the Functioning of the EU states that European environmental policy "shall not affect a Member State's right to determine the conditions for exploiting its energy resources." That appears to be exactly what Brussels is trying to do.
Before the shale revolution, capital chased fossil-fuel resources. That meant that governments had considerable leverage to decide how to regulate development; capital holders had little say in the matter if they wanted to develop.
Now, however, with the immense shale-gas resources available around the globe, the situation has reversed: Resources are chasing capital. Governments or organizations like the EU that seek to impose burdensome, unjustified or premature regulatory structures, will find the capital quickly heading elsewhere. Oil and gas will still be plentifully produced, just not in Europe, which will be relegated to importer status.
This Op-Ed by Alan Riley was first published in The Wall Street Journal Europe. Mr. Riley is a professor of law at City Law School in London.
The 2nd Lebanon International Oil and Gas Summit (LIOG) took place on fourth and fifth December 2013 at the Phoenicia Hotel in Beirut. The LIOG Summit was held under the patronage of the Ministry of Energy and Water (MEW), in collaboration with the Lebanon Petroleum Administration and was endorsed by the International Gas Union (IGU). H.E. Eng. Gebran Bassil, Minister of Energy & Water officially inaugurated the first day of the conference.
In his speech, Bassil talked about what he called the ‘golden era’ of natural gas that the world is entering today. He tackled the question of whether Lebanon will be able to enter the game in time or whether Lebanon will be a late comer that will eventually only benefit partially. Bassil answered by stressing that it is crucial for Lebanon not to enter the market too late, highlighting however that a precipitated entry would be equally detrimental.
Bassil added that despite the several delays in the bidding round, investors should not lose hope as Lebanon will certainly overcome all obstacles. Its need for stability and its determination to monetize its riches and achieve energy security will prevail and turn it into an energy producer. The ministry of energy and the petroleum administration are both working hard towards this goal, balancing speed and precision and putting transparency, professionalism and expertise at the core of their efforts, he added. Lebanon’s strategic geographic location and cultural diversity will allow it to be the ideal working partner of major international oil and gas companies. Lebanon offers a favorable economic environment for companies to operate freely taking advantage of the advantageous tax system, said Bassil.
Lebanon has achieved good progress in the recent years: to name just a few the petroleum law was issued in 2010 followed by several decrees, the petroleum administration was formed, a pre-qualification round was completed and received substantial interest from major international companies (at the end of which 46 companies were successful: 12 as operators and 36 as non operators) and the Lebanese waters were surveyed.
Despite the fact that two crucial decrees are still pending (one delimitating offshore blocks and their coordinates and the other approving the model exploration and production agreement), Bassil insisted that the first licensing round will be opened by 10 January 2014. Bassil added that it would be a great loss for Lebanon not to take advantage, and in a timely manner, of the natural wealth in its waters and on its shore. According to the most recent estimates, there is a 50% chance that 45% of Lebanon’s waters contain 96 Tcf of natural gas and its shore 850 million barrels of oil. The hydrocarbon wealth offshore and onshore Lebanon will allow the country to readjust its economy and achieve major projects that will benefit all Lebanese.
Bassil assured that the oil and gas deposits will be a source of stability and cooperation amongst the Lebanese and in the region rather than a new cause for discord. He added that there should be no room for doubt in the country’s capability to bring its national energy project to fruition and that disagreement should be leveraged to ensure that Lebanon benefits fully from its wealth and for the longest period of time possible. Bassil also mentioned the importance of creating jobs for the talented and skilled Lebanese workforce and ensuring that 80% of new jobs created are filled by Lebanese. He ended his speech with a message of hope saying that they will continue believing in what they do and doing what they believe in to achieve Lebanon’s national goal.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on email@example.com. Follow her on Twitter: @karenayat
At the beginning of this week, Chevron began works on the leased perimeter in Silistea, Pungesti, part of Vaslui County. Exploration works will ascertain the plot’s shale gas potential.
According to Razvan Mitroi, spokesman for Chevron Romania: “the company restarted works in Silistea… equipment has arrived that will make the platform on which the first shale gas exploration bore will be located.”
The start of the works were not without barriers. Equipment reached the site with the help of police as locals attempted to prevent equipment from passing through. Around 30 people staying in tents from the Silistea-Pungesti camp claimed that police used force on Monday morning. Two protesters were taken by ambulance to the County Hospital in Vaslui City.
On October 3rd, Chevron obtained the building permit necessary to build in Vaslui County, which would be Romania’s first shale gas exploration bore. Around 500 people protested on October 16th in the area. Tom Holst, Chevron’s country manager for Romania announced that shale gas exploration in Pungesti will be suspended until the safety of the company’s employees, builders and of the community is ensured and until people understand that Chevron’s methods are of top-quality.
Despite the opposition of the locals and police intervention, the first exploration bore should be operational in January 2014. According to Chevron's Externaml Communications Advisor Cam Van Ast, “Chevron can confirm that it has resumed operations activities in Silistea, Pungesti commune, Vaslui County. Chevron will undertake only exploration activities with conventional technologies in block EV-2, under our existing permits and approvals, which we obtained at the start of October 2013.”
He stated further “Our priority is to conduct these activities in a safe and environmentally responsible manner consistent with the permits under which we operate. Chevron is committed to building constructive and positive relationships with the communities where we operate and we will continue our dialogue with the public, local communities and authorities on our projects.”
The situation in Pungesti remains serious with police still present. George Epurescu, a representative from Romania without Them, one of the strongest environmental protection organizations involved in organizing the resistance against Chevron said that police intervention is an abuse made by the state:
“The intervention in Pungesti took place as a result of a direct order that Ponta received from Washington, as a result of the visit from a month and a half ago. The will of the community has no value, although the government brags about the decentralization law… this proves through unconstitutional laws, they are trying to eliminate all the power of the civil society or of the citizen to defend themselves against the state. The creation of an isolated area and the seizing of the activists in the Resistance Camp represent a cynical game, an attempt to humiliate the population, but the environmental activists will still oppose and will still organize the opposition against shale gas exploitation.”