“To those who want to cooperate with us on shale gas and earn money with us, we promise reliability, stability and fair attitude towards our common goal.” – said the Prime Minister at the opening of “The Second Shale Science Conference” in Warsaw.

Fair share

Donald Tusk assured that a new legal framework would guarantee profits for the country as well as stability and profitability for companies. Continuing works on new regulations, as the PM said, would lead to the creation of a legal system “allowing to plan for long-term costs and profits”.

The PM added that the existence of proven reserves in Poland, its level of import dependence, combined with a vision, should allow foreign companies and the Poles to make profit together and share it “fairly among all interested parts”.

Donald Tusk emphasized that the government was ready to spend public money on investments needed by the industry. “We speak of long-term investments, not only drilling and extraction costs, but also soft infrastructure and environmental protection. The system of gas pipelines alone will cost up to 8 billion zlotys”.

The prime minister also mentioned the outstanding level of public support for the development of shale gas reserves in Poland, “both on the local and national level”. 

Oasis of growth

"Investors are not going to risk their money in a place that does not guarantee stability" – observed the head of government, who said his cabinet is creating a solid base for overall economic and financial stability in Poland for decades to come.

Acknowledging that “without foreign technologies and often also without foreign financial effort the undertaking would not be possible” the PM noted that Poland has become a unique place to invest.

Comparing stable economic, political and social conditions in Poland to the turmoil in some EU states - “past oases of happiness” - the PM argued, that “significance of this stability is comparable to the importance of the reserves” .

“The starting point is very important” – added Donald Tusk - “I`m convinced, we`re lucky, because we are well over three years away from elections and have a stable majority in the parliament.

(Donald Tusk is the first Polish prime minister in post-communism era to win a second term last year. On the other hand, the highly unpopular pension reform and extending the retirement age has reduced his popularity and the latest poll by CBOS shows that for first time since 2007 his ruling PO party has lost its lead over the main opposition party)

The rally is set to continue, with Singapore-based traders saying strong demand and production outages are likely to push LNG spot prices in Asia to a record high this summer.  MORE (Registration required)

In response to a petition that garnered the support of 50,000 residents concerned about the environmental impact of drilling, along with the criticism of several regional governors, Environment Minister Tomáš Chalupa (Civic Democrats) has said he will propose a moratorium on shale gas exploration for up to two years until clear rules for the sector are established.

The proposal backpedals on the ministry's decision last year to allow companies interested in shale gas exploration to apply for permission to research potential sites for drilling.  MORE

Speaking to the Trend news agency, an unnamed source within the European Commission said that a number of financial institutions may be involved in the financing.

"The European Financial Institutions, mainly the European Investment Bank, could potentially leverage support to infrastructure projects, such as Trans Caspian gas pipeline via loans and guaranties," the source said.

This source also told the news agency that negotiations were already underway on this financing.

Earlier this week at the CIS Oil and Gas Summit in Paris, Pierre Morel, EU Special Representative for Central Asia commented that the  EU is willing to fund a good part of the Trans-Caspian pipeline.

Currently, the Trans-Caspian pipeline, which is estimated to cost $5 billion (USD), has a number of possible finance routes available to it, including the EU, and the countries of Azerbaijan and Turkmenistan, two of the route countries of the pipeline.

More recently, Ukraine has publicly given its support to the project, with Prime Minister Mykola Azarov pledging up to ten per cent of the cost of the pipeline at €790 million. This investment would be contingent on the pipeline linking to the Kulevi liquefied natural gas terminal (LNG) terminal in Georgia, the prime minister said.

Through the agreement, the companies will take a 15.09 per cent stake in the underwater gas pipeline.

"Today's announcement represents a further confirmation of Snam's commitment to becoming a major integrated player in the European regulated gas business through the development of the North-South corridor and the creation of a Southern European gas hub," CEO of Carlo Malacarne said.

"The agreement also fosters our partnership with Fluxys and gives a further contribution to enhancing flexibility and security of supply in Europe, in line with the recommendations and provisions of the EU’s third legislative package."

Walter Peeraer, Managing Director of Fluxys, said the sale would enabe gas flow between the UK and Italy.

"This new agreement strengthens our partnership with Snam to enhance security of supply by enabling South to North flows between Italy and the UK," he said.

"Our venture will connect the gas trading places in the Northwest and the South of Europe and stimulate deeper liquidity across the European gas system."

The sale once more increases Fluxys' and Snam's interest in the UK pipeline. Earlier this year, both parties took Eni's entire 16.4 per cent stake in Interconnector (UK). 

The E.ON sale must now be approved by Interconnector's Board and by the relevant authorities.

The announcement comes following a meeting at Gazprom's headquarters yesterday between CEO of Gazprom Alexey Miller and Bulgarian Minister for Energy Delyan Dobrev.

A statement from Gazprom yesterday afternoon that everything was coming together as planned, especially an agreement signed last month.

Through this agreement, the shareholders for South Stream Bulgaria AD approved an agreement to carry out the spatial planning, an environmental impact assessment and to prepare the project documents for the Bulgarian section of South Stream.

Bulgaria is one of the main transport countries for the South Stream project linking to the Russian compressor station Russkaya.

Gazprom and Bulgarian Energy Holding are equal partners in South Stream Bulgaria AD with a 50 per cent stake each.

He said to build South Stream, Russia is spending 50 billion Euros, while the modernization of Ukrainian gas transport system needs 1.5 billion Euros.

"Through the Ukraine’s territory passes three pipelines that can deliver 150 billion cu. gas to Europe. And if carries out modernization of our gas transportation system, valued to 1.5 billion Euros, we will be able to supply 200 billion cu. gas to Europe that is to completely cover the gas needs for Europe. However, Russia plans to build the South Stream. So, Russia for its part wants to completely abandon the transit services Ukraine provides. And we are forced to completely get rid of gas supplies from Russia. Is it not absurd situation, especially given the instability in world markets?" Mykola Azarov declared.

At this he stressed that due to onerous gas contracts 2009, Ukraine forced to buy Russian natural gas at the highest prices in Europe. PM recalled that overpayment for Russian gas exceeds the annual state expenditures on medicine. Therefore, he noted, Ukraine has to minimize the consumption of energy resources, increase domestic production of hydrocarbons, and seek alternative sources of energy, as well as to switch its power units from gas to coal.

Prime Minister emphasized that for these needs are being directed considerable financial resources that could have be guided to solving other social issues. "In terms of volatility in global financial markets it would have been better to send the money to modernize our industry, structural reforms and more. But in Russia there are lots of problems to which could have been send huge amounts of money that are being invested in the South Stream construction. We sincerely determined to good relations with Russia, to mutually beneficial partnership," said Mykola Azarov.

Source: Department of Information and Communication of the Secretariat of the CMU

The modified concept of the original "base case" for the Nabucco project, foresees the construction of a 1,300 km pipeline running from the Bulgarian-Turkish border to the Central European Gas Hub in Baumgarten, Austria.

The shorter “West” pipeline option reduced the length and cost of the originally submitted design by starting at Turkey's western border, leaving gas transport through Turkey to existing infrastructure or a new pipeline such as TANAP.

The Nabucco corsortium said that Nabucco West is designed to transport gas initially from Azerbaijan, but is fully scalable to meet future gas transport demand from the Caspian Region and Middle-East to the European markets.

The consortium stated that Nabucco West will benefit from the existing legal framework, namely the Intergovernmental Agreement, Project Support Agreements and third party access exemptions as the Nabucco base case and will follow exactly the same route on European Union territory.

“We are convinced that we have submitted a competitive and comprehensive proposal to the Shah Deniz II Consortium, and that this proposal represents a win-win situation for our shareholders and for suppliers alike”, said Reinhard Mitschek, Managing Director of Nabucco Gas Pipeline International.

The Nabucco consortium consists of Austria's OMV, Germany's RWE, Hungary's MOL, Turkey's Botas, BEH of Bulgaria and Romania's Transgaz.

Both MOL and RWE have indicated that they are re-considering their participation in the project, with MOL saying that it is prepared to sell it present shareholdings.

Asian LNG buyers will be the most affected by these geopolitical and political risks confronting key gas exporting and importing countries. Asia has the world’s fastest growing LNG consumption supported by record levels of LNG imports into Japan post-Fukushima, but which is also driven by the booming economies of China and India, along with the growing niche market of South East Asia. Japan, Korea, and Taiwan (JKT) together accounted for 52% of the global LNG trade in 2010 and 84% of Asia Pacific trade. Natural gas will continue to play a major role in Japan's energy portfolio, substituting for nuclear energy in the medium-term. But by 2030, JKT’s share of global and Asian trade is projected to decrease to 37% and 59% respectively. By contrast, together China and India could represent around 32% of Asian trade by 2030. There will definitely be an uptick in Chinese demand in the coming years for both contracted LNG volumes and spot purchases. The 12th FYP goals call for 260 billion cubic meters (bcm) of gas demand in 2015 with domestic output planned at 170 bcm. Similarly, India's natural gas needs are expected to reach 88 bcm by 2016 and 132 bcm by 2030, compared to 63 bcm in 2010. For both countries, this surge comes predominantly at the expanse of coal, even if coal remains the dominant fuel by far in their power generation mix. In addition to this North Asian demand, South East Asia is becoming a major importer of natural gas, notably via LNG with five Southeast Asian nations set to import LNG by 2013.

Japan is by far the most vulnerable LNG market. Japanese LNG demand has never been higher and LNG imports will still max out this year. Even if Eurasia Group's basecase scenario for nuclear reactor restarts plays out and the government brings nuclear power back online gradually, demand for LNG and other replacement fuels will remain high this summer and likely through the rest of the year. LNG imports are likely to be higher than 2011 and reach a record 87 million tons as utilities continue buying historically large quantities of LNG to guard against the risk of few or no reactor restarts. With this increased reliance on LNG imports, Japan will remain highly vulnerable to developments in the global LNG market and critically dependent on flexible supplies available through spot purchases. If a rush of restarts occurs, which is unlikely, Japan's utilities will stop buying spot cargoes and could opt to resell excess LNG back into the market, possibly causing a glut. In a zero nuclear case this year, gas would account for 42.1% of the power generation mix. In the medium-term, gas-fired capacity will increase with about 20 GW planned by electric companies. There are also more than 15 LNG regasification terminals undergoing expansion or under construction.

This has led the Japanese government to rethink its long-term post-Fukushima gas strategy, focusing on guaranteeing stable and diversified procurement of LNG and eliminating the Japanese gas pricing premium via measures such as joint procurement of LNG and self-developed LNG. As a result, Japanese utilities are getting more involved upstream and are developing new Japan-made projects such as Inpex's majority-owned Ichthys LNG project in Australia and Abadi LNG in Indonesia. Those self-developed LNG projects are helped by a strong yen and government funding. Osaka Gas announced at the end of March that it received $302 million in financing for a 1.25% stake in Australia's mega Gorgon LNG project. Gorgon stake will give Osaka the right to offtake 187,000 tons of LNG a year in addition to the 1.3 million tons it already has purchased under long-term contracts. Japanese companies are also eying stakes in recently announced LNG projects in Canada's Kitimat LNG, and in Mozambique.

As demand for natural gas accelerates in Asia and new trade patterns emerge, the growth of the LNG trade will depend on continued geopolitical stability and open sea lanes. Asian gas buyers are developing aggressive import strategies that could spur competition and geopolitical strains, but which could also create opportunities for cooperation. Both Korea and India have already secured US LNG supply from the Cheniere’s Sabine Pass liquefaction project in the Gulf Coast. Tensions in the disputed areas of the South China Sea are likely to persist this year, driven by nationalistic pressures in the individual countries and a desire on the part of Vietnam and the Philippines to hedge against the potential rise of China as a regional hegemon. Amid the territorial tensions, however, there also signs of cooperation. Japan and South Korea are showing signs of cooperation with efforts to jointly procure LNG, in the hope of lowering import prices.

Another key geopolitical angle for Asian gas is the big push from Russia, which is trying to export more gas to the east, by adopting a notably more aggressive approach to gas sales to post-Fukushima Japan. Russia remains committed to developing a long-term gas relationship with China, but other Asian markets beckon as well. Russia is moving ahead with a new export LNG project, the 10 million tons per year Vladivostok LNG. Negotiations with the Japan Far East Gas Company, a consortium of five Japanese firms, have moved fast from a feasibility study to development of the investment rationale. If the partners decide to go ahead, a landmark decision on the project could be made this year before the Asia-Pacific Economic Cooperation summit meeting, which is being held in Vladivostok in September. First LNG could be online by 2017.

Leslie Palti-Guzman is a natural gas analyst at Eurasia Group, a global political risk research and consulting firm headquartered in New York

The Polish Geological Institute, on 11 May, said it is to publish an updated version of its latest shale reserves in late 2013 and suggested future estimates would be higher than the most recent figures released. Latest shale reserve estimates from the Polish Geological Institute, in March 2012, were revised downwards significantly – from 5.3tr cubic metres (tcm) in April 2011 to 346-768bn cubic meters (bcm) - necessitating a revision of prospects for providing cheaper alternatives to Russian conventional gas. Poland's state-controlled oil and natural gas company, PGNiG, on 24 April said that it will be crucial for Poland to be clear on its shale gas potential by 2019 in order for it to gauge terms of negotiation for Russian gas imports. Within such a timeframe, Poland will have three years before the expiration of its current deal with Russian gas major Gazprom in 2022, to decide on an appropriate energy mix consisting of domestically produced unconventional gas and conventional gas imports.

However, a definitive assessment that would enable the government to strategise about its energy security over the next two decades has yet to be made. Such estimates will underpin PGNiG's operations in the country and, in turn, dictate foreign involvement in the sector. For instance, investment decisions are being delayed in anticipation of regulatory and tax changes currently being drafted for the sector and due to be passed during 2012.

Significance

PGNiG's proclamations signal that the government continues to broadly support development of shale gas. It also confirms that Poland's long-term energy strategy to become self-sufficient remains at the forefront of the government's concerns. That the actual size of Polish deposits has yet to be confirmed is a critical issue for the governing Civic Platform (PO) as it endeavours to push forward and commence production in 2014.

Depending on the level of shale reserves in Poland, the government will wish to minimise costly Russian imports in the composition of its energy balance. Poland is currently signed to an agreement which stipulates that Gazprom will supply PGNiG 11bcm through the Yamal pipeline from 2012 (increasing from 9.7bcm in 2010 and 2011) until 2022 for domestic use and until 2019 for transit on to other European customers. Given the costly nature of importing Russian gas, in addition to the fact that Poland will remain in Russia's strategic influence, a deadline of 2019 would enable Warsaw to at least attempt to negotiate future energy deals with Moscow which exhibit more beneficial terms.

Poland's high dependence on Russian supplies has left it vulnerable to Moscow's influence of late. A disagreement in early 2012 over the terms of supply has amplified calls for Warsaw to diversify its energy supply away from Russia. In November 2011, PGNiG sought an arbitration ruling in a Stockholm court, which aimed to reduce the price paid for gas under its arrangement with Gazprom. PGNiG sought at least a 10% discount on the price it was paying, to be retroactively applied to April 2011 – and would follow similar discounts to the Italian energy supplier ENI and France's GDF Suez. In February 2012, PGNiG denied reports that it had received a proposal on price deductions in exchange for increased purchase volumes being agreed.

If Poland is successful in reducing its dependence on Russia, which currently accounts for approximately two-thirds of its annual 14bcm gas consumption, and can make the conversion from a mix heavily weighted in favour of coal (in which it is also increasingly dependent on Russian imports), the country has the potential to become self-sufficient in terms of energy. It may even eventually become a net exporter, as some have suggested.

Uncertain role for unconventional domestic production

As the government envisages a future energy strategy centred on shale production, politicians are divided over what role foreign entities should play in the country's shale gas sector. The Treasury Ministry's backing of state-owned companies to take a lead role in production has instigated concerns over a possible trend towards resource nationalism and disadvantageous conditions for small investors. Although there is consensus that fiscal burden on companies should increase, a moderate rise would be preferable to retain foreign investment, and its benefits, in the country.

Continued dominance of PGNiG at the expense of foreign operators, meanwhile, could impede Poland's campaign towards shale production. At present, PGNiG lacks the resources to fund the intensive exploration required, or the technological know-how held by foreign companies. PGNiG has sought out various options to increase licensing possibilities, and negotiations are underway to create a new joint shale gas company, or special purpose vehicle, between PGNiG and power groups PGE, Tauron and Enea, and copper and silver mining giant KGHM. This could open up new financing possibilities.

Nevertheless, foreign operators have yet to be deterred by the lack of regulatory clarity or concrete estimates. Drilling is expected to double in 2012 from 2011 levels, with activity executed by foreign companies including Chevron, ENI and ExxonMobil. Such optimism could be down to the fact that, although exploration costs are high, gas prices are up to seven times higher in Poland than in the US.

Forecast

The next milestone looks set to be at the end of 2013, when the Polish Geological Institute releases more definitive estimates for future shale reserves. Such certainty will not only provide PGNiG and foreign investors a more complete picture of potential shale gas production, but will allow the government to shore up the regulatory framework. A new tax for hydrocarbons is due to be formalised in the second quarter of 2012, and will impact upon shale extracts. It comes in response to concerns that the lack of certainty on the percentage of royalties that the government will seek on shale extractions could result in an earnings shortfall for the government. Additional regulatory changes are likely to be made once a more definitive estimate is ascertained.

Poland may also be sending a message to Russia that it is committed to overhauling the composition of its energy supplies and reduce its relationship of dependence. However, claims that shale gas production could start by 2014 are unrealistic when the required technological expertise from foreign companies are considered. While Russia may be aware of the dynamic rise of unconventional natural gas extraction, it has little cause to suppose that Poland will shed its dependency on Gazprom imports in the near future, particularly considering the political divisions emerging around the subject.

Jamie Scudder is an analyst at Maplecroft, a leading source of global risks intelligence.  Maplecroft has recently produced a Country Risk Report on Poland covering the economy, the regulatory environment, governance issues and environmental concerns affecting companies looking to invest in shale gas extraction.  For more information, please contact jason.mcgeown@maplecroft.com

"We would clearly welcome an Italian partner or one coming from one of the countries the pipeline passes through," Mr. Schaefer said at the Reuters Energy and Environment Summit in London.

German E.ON Ruhrgas, is one of three shareholders in TAP with a 15 per cent stake. Switzerland's EGL and Norway's Statoil hold the remaining two stakes, at 42.5 per cent each.

TAP has previously stated its interest in attaining a partner from Italy or Greece, with Country Manager for Greece Rikard Scoufias saying the consortium was open to discussion from potential shareholders from those countries.

"We’re open to discussing new partnerships at a shareholder level and looking at our host countries, we’d welcome a Greek and/or Italian partner," he said.

Last month, CEO of Italian power company Enel, Fulvio Contel said that Enel would consider any project which would bring gas to to Italy, including the Trans Adriatic pipeline. 

Italy is an important country for the Trans Adriatic pipeline, which is designed to open up the Southern Gas Corridor. The pipeline will carry gas via Albania and Greece through the Adriatic Sea, passing through Southern Italy before being supplied to the rest of Europe.

The operation, which began yesterday, used the West Phoenix semi-submersible rig to pump heavy mud into the G4 wellhead, the source of the leak, through a temporary pipeline. 

Total had expected to see a result from the intervention within days, but said today that the well intervention appeared to have already stopped the leak.

The company says it will now continue to monitor the Elgin complex to be sure that the well intervention operation remains successful.

President of Exploration & Production for Total Yves-Louis Darricarrère today welcomed the news and said that the company would continue to take lessons from the leak.

"Today, a major turning point has been achieved," he said. "Our absolute priority was to stop the gas leak safely and as quickly as possible.

"Since March 25th, we have been working closely with the authorities and we have communicated transparently and will continue to do so. We shall now fully complete the ongoing task and take into account the lessons learnt from this incident."

Speaking at the CIS Oil and Gas Summit in Paris today in an expert role, rather than that of a government representative, the ambassador said that Ukraine saw the pipeline as "good business", one that would be beneficial to the country, even if it did not off-take any gas supply for itself from the pipeline.

Currently, the TANAP project has three shareholders, the State Oil Company of Azerbaijan Republic (SOCAR) at 80 per cent and TPAO and Botas each holding a 10 per cent stake.

While operator SOCAR currently holds a massive stake in the pipeline, it is aiming to open up the project to other shareholders, with an undisclosed percentage of its stake up for grabs. However, it has said previously that preference in the project will go first to companies with an interest in Azerbaijan. At the moment, Ukraine is not involved in any projects in the Azeri gas sector.

Despite this, Ukraine has previously publicly stated its interest in the project, with Ukrainian Prime Minister Mykola Azarov saying earlier this month that Ukraine was ready to "make a financial contribution and provide pipes and compressor stations" to the TANAP project.

The search for projects in which it could play a role is part of Ukraine's attempt to break its dependence on Russian gas, currently imported through major Gazprom.

The Trans Anatolian pipeline is just one of several projects Ukraine is interested in so far, with the Trans-Caspian pipeline and reverse flow of existing pipelines also on the agenda.

Natural Gas Europe is a media partner of the CIS Oil and Gas Summit

The news means Total, BP, Chevron, Eni and Sonangol are approved to enter a joint venture to acquire the Angolan company Angola LNG. Through the venture, the companies would export liquefied natural gas (LNG) produced in Angola to various customers across the world. 

The European Commission said its decision to approve the transaction came about because the transaction was not likely to negatively affect competition on the market. It said there were enough viable competitors on the market to ensure a lack of monopoly.

"Given the JV’s (joint venture's) moderate anticipated market share and the presence of a number of credible competitors, the Commission found that the joint venture and its parent companies will continue to face sufficient competitive constraints on the market for the wholesale supply of LNG," it said today in a statement.

Despite Total, BP and Eni's access to re-gasification terminals, the European Commission said this would not impede competitors from accessing these terminals, due to EU laws surrounding the practice.

Chevron holds the majority stake in the Angola LNG joint venture with a 36.4 per cent share. Angola's Sonagol holds the next largest stake at 22.8 per cent. The three remaining shareholders, Eni, Total and BP, each hold an equal stake, at 13.6 per cent.

Nevertheless, Tusk said that there was still much to be done before the project could be effectively realised, and that a legal framework needed to be formalised.

“No one will risk large sums of money in such a place that will not guarantee a continuity of investment,” he said.

Tusk outlined the need for “a tax system concerning this wealth, and a legal system that will be profitable not only for our own country, but also friendly for those who will cooperate with us on this venture.”  MORE

By the end of next month Ankara will conclude an agreement with Azerbaijan to set up a new pipeline to transport gas from the Caspian state’s giant Shah Deniz field, Taner Yildiz, Turkey’s energy minister, told the FT.  MORE (Registration required) 

The move brings E.ON to within €3bn of its goal of generating €15bn from the sale of assets by the end of 2013. The company has earmarked the proceeds for reducing debt and investing in renewable energy plants.  MORE (Registration Required)

The council members remark, in keeping with the law, the inter-agency commission for organizing competitions for conclusion of production sharing agreements must comprise representatives of local authorities too, but they were not invited.

The Regional Council opines, this is a blatant outrage.  MORE

On May 10, a Ukraine government commission awarded global energy companies Shell and Chevron the development tender for the Yuzovsky shale gas deposit, in the Kharkov and Donetsk Region in eastern Ukraine, and the Olessky field, in the Lvov and Ivano-Frankovsk Regions in the west of the country.

The other tender bidders included Italy’s Eni, U.S. major ExxonMobil and the Russian-British oil joint venture TNK-BP.  MORE