Speaking at the ONS 2010 Conference in Stavenger, Norway, E. ON Ruhrgas CEO Bernhard Retersberg commented on traditional long term contracts (LTC), which have been the cornerstone of the European gas supply market.

This traditional business model involves the importer absorbing a volume risk and proceeding with a take or pay obligation. The producer takes a price risk and relies on “market reflective” price provisions.

Other main characteristics of LTC include support of long term investments in the supply chain, a contract duration typically around 25-30 years, volume flexibility defined by corridor with a maximum take and minimum take obligation, price indexation based on competing fuels and entitlement to periodic renegotiation to adapt pricing and overall contract situation to market developments.

With liberalization significantly changing the characteristics of the European gas market, Retersberg wondered if these traditional arrangement reflect today’s market features.

The market framework has changed with the abolition of destination clauses, unbundling rules, new capacity allocation and congestion management rules and the commitments of EU gas importing companies regarding release of entry capacities.

The global economic crisis combined with increased US unconventional gas production and new LNG liquefactions capacity coming onstream in places like in Qatar has resulted in a gas glut.

The resulting increased liquidity of spot gas markets have left customers facing intake problems, as conventional LTC policies no longer reflect market prices.

Retersberg concludes that the new market environment requires the traditional LTC pricing to be adjusted to new market conditions.

Read the E. ON Ruhrgas Presentation: Natural gas markets in Europe – Challenges and development

Search for Oil Alternative, Based on National Security, Goal of Clean Energy

There is a new source of energy which is really a primary focus of the State Department right now,” said David Goldwyn, U.S. State Department Coordinator for International Energy Affairs.  “And that’s natural gas”.

In an interview with Voice of America, Goldwyn says natural gas from shale is an excellent source of energy for many nations “so they’re not dependent on one country or one pipeline.”

The State Department recently hosted the Global Shale Gas Initiative to discuss expanding the safe use of shale gas. Twenty nations as well as US federal, state and local regulators met in Washington, D.C to discuss the importance of shale gas development for the 21st century.

In addition to helping the United States wean itself from its dependence on oil, the Obama administration believes that increased shale gas development will help reduce greenhouse gas emissions.

Other studies have also concluded that increased shale gas production in the United States and Canada could also help lower the price currently charged by Russia and Persian Gulf countries.

“This is not only a huge boon for energy security and economic development,” said Goldwyn, “but also, potentially for climate security if countries are able to move away from older coal plants and to natural gas instead.”

As Coordinator for International Energy Affairs at the State Department, David Goldwyn is at the center of U.S. energy security policy. His office supports initiatives that reduce U.S. dependence on foreign oil and also mitigate the impact of climate change.

Read the Full Article

News that the Nabucco consortium has shelved a plan to source gas from Iran to Europe via the EU-backed pipeline has made the project even less likely according to Chris Weafer, chief strategist at Moscow-based UralSib Bank

“Frankly, the only way the whole pipeline made sense was if it could eventually plug into the Iranian reserves. By excluding that, which I guess they had to do for political reasons because of the backlash to the Iranian nuclear program, definitely makes the project less viable,” said Weafer.

“The Nabucco pipe right now has clearly reached an impasse. The plan to build the pipeline as far as Turkey was signed but, when they got to the point where to plug the pipe in to get the gas, there is no obvious way forward. Having a long term objective of planning into the Iranian resources made sense,” Weafer said.

However, it doesn’t mean Russia will be able to accelerate the building of its competing South Stream project.

“The case of building South Stream is equally weak now than when it was first proposed,” he said. Firstly, the demand for piped gas in Europe, partly because of the increasing development of LNG, is a lot less now than was the case when South Stream and Nabucco were first conceived. Secondly, given the greatly improved relationship between Russia and Ukraine and Kiev’s efforts to remain an integral part of the European gas grid, upgrading the Ukrainian pipeline makes more economic sense. “Right now Europe can do without both Nabucco and South Stream. But obviously neither one is going to volunteer to go way first,” Weafer said, adding that both of them are going to move forward only in a theoretical planning stage. “When you look at how the gas world has changed in the last couple of years you get a sense of both South Stream and Nabucco as almost two ghosts dancing around each other. It’s only a question of which disappears first,” Weafer said.  “White Stream, the Georgia-Ukraine-EU gas pipeline planned to transport natural gas from the Caspian region, makes more economic and engineering sense than South Stream or Nabucco, he said.”

In the long term, Nabucco’s decision against a link with Iran may strengthen Russia’s position in the region. It also strengthens the case for the creation of a Gas OPEC. Tehran is likely to work more closely with Moscow and Russian companies will have more opportunity to jointly develop Iran’s oil gas resources. “In that case both the EU and the US are happy for Russia to stay engaged in Iran because it means that the backdoor relationship with the West stays open,” Weafer said. “Down the road there will be a regime change in Iran and it is very likely there will be a rehabilitation of the relationship between Iran and the West. But unless Russia stays engaged, it might find that when they arrive in a few years time all the road signs are in Chinese.”

Source: New Europe

Iraq has called the agreement between its autonomous Kurdistan region and the German energy firm RWE, “illegal”.

RWE Supply & Trading announced on Friday it has signed a cooperation deal with the Kurds “to develop and design its domestic and export gas transportation infrastructure — creating a route to market for Kurdistan’s major gas reserves.”

However the Iraqi central government in Baghdad is not happy.

“All (sales) contracts and agreements signed outside the legal framework, in other words with SOMO (State Oil Marketing Organisation), are illegal,” Iraq’s oil ministry said in a statement. SOMO  deals with sales of Iraqi oil and gas products.

“No one outside the ministry has the right to sign contracts for the exportation of oil and gas,” the oil ministry added.

Talks on the allocation of Iraq’s natural resources have been at an impasse, with Baghdad refusing to recognise contracts which the Kurdish regional government has signed with foreign oil companies.

RWE is a key shareholder in the Nabucco project, which aims to bring up to 31 billion cubic metres (1,100 billion cubic feet) of gas annually to Europe through Turkey. The agreement between RWE and Kurdistan foresees the negotiation of gas supply agreements to enable gas from the region to be transported to Turkey and Europe via the Nabucco pipeline.

The Kurdistan regional government halted oil exports in October last year due to a payment dispute with Baghdad.

In May, the oil ministry said it had reached a deal with Kurdistan, whereby all revenues would be handed over to SOMO, with Baghdad responsible for paying the extraction expenses in Kurdistan. But the agreement has not been implemented.

Nezavisimaya Gazeta is reporting that Albania could join South Stream project

Countries neighboring Albania have said they could build an offshoot from the planned South Stream gas pipeline to the Albanian port of Vlore. But analysts think Albania lacks promise as a potential transit country because of its internal political instability.

Albanian Prime Minister Sali Berisha said without elaborating that neighboring countries could build a branch from the South Stream gas pipeline to Vlore.

Berisha is reportedly on good terms with his Italian counterpart, Silvio Berlusconi, and welcomes Italian companies’ involvement in Albanian energy projects.

South Stream is a joint project between Russian energy giant Gazprom and Italy’s Eni estimated at 10 billion euros. It will deliver Russian natural gas to Europe through a route charted along the bed of the Black Sea, bypassing Ukraine.

Russia has signed intergovernmental agreements with Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria on the implementation of the onshore part of the project.

The European Union is considering a rival project, Nabucco, in order to reduce its dependence on Russian gas. However, Nabucco will not reach Albania or its closest neighbors, Serbia and Montenegro, or Macedonia and Greece.

Europe’s main gas pipelines bypass Albania, even though it is favorably located between eastern and western Europe. It could get gas in 2012 from the proposed Trans Adriatic Pipeline (TAP), which will transport natural gas from the Caspian and Middle East regions via Greece, Albania, across the Adriatic Sea to Italy and on to Western Europe.

Albania is not vital to the South Stream project, said Alexander Kurdin, an analyst with the Institute for Energy and Finance think tank. It should import gas to ensure better economic development but has no future as a transit country because of its internal political instability. However, the pipeline could cross Albania to help ensure the diversification of gas supply routes.

Viktor Markov, chief analyst at the investment company Zurich Capital Management, said: “The EU’s energy policy is based on a simple premise: The more pipelines, the better for consumers because competition between suppliers should push gas prices down.”

Therefore, alternative gas pipelines and transportation routes will always be on the agenda.

“Given this policy, transit countries are likely to sign up to several projects simultaneously to make sure they get their fair share of the profits,” Markov said.

Source: RIA Novosti

Russian energy giant Gazprom wants Lithuania to hold talks on plans to unbundle the gas sector.

Gazprom claims that such a move would hurt its investment in the country and has threatened court action.

Lithuania is highly dependent on energy imports from Russia. The country recently shut down its nuclear power plant in Ignalina, raising fears of even greater energy dependency on Russia. Lithuania is focused on diversifying its sources of energy.

The Lithuanian government has decided to separate gas supply and transport assets to increase competition and drive prices down. It says this policy is in line with European Union regulations, but it still has to approve a draft law.

“The draft law proposed by the energy ministry foresees the implementation of the [gas] directive in such a way that it would have the most negative effect on our investments,” Valery Golubev, the deputy chairman of Gazprom’s board, said in a letter to Lithuania’s prime minister.

Gazprom said in the letter it could turn to a court of international arbitrage to claim compensation for losses if Lithuania does not start consultations over its gas sector reform.

Lithuanian Energy Minister Arvydas Sekmokas said both Gazprom and Germany’s E.ON Ruhrgas had been invited to join the working group to draft the bill but added that Lithuania would not bend under pressure and would adopt the law by next March.

Sekmokas said demands from the two companies could be seen as “pressure from large companies on a small country”.

The government wants unbundling to be completed by March 2012, in line with an EU deadline, he added.

In 2004 Gazprom invested $35 million to buy 37.1% of Lithuania’s main gas company Lietuvos Dujos, of which E.ON has another 38.9% while the state owns 17.7%.

Lithuania won’t allow threats of legal action by Gazprom and E.ON AG, owners of the country’s natural-gas utility, to thwart efforts to open the market to competition, Energy Minister Arvydas Sekmokas said on 25 August, quoted by Bloomberg.

“The tone of the E.ON and Gazprom letters is in the spirit of an ultimatum addressed to the highest heads of the state,” Sekmokas said at a news conference in the capital, Vilnius. “Threats about arbitration” in this case “can be perceived as pressure by large companies on a small country,” he said.

The Russian press recalls that Lithuania had voiced its readiness to build the Amber pipeline, intended to link the three Baltic countries to the EU gas network, bypassing Russia. The new pipeline, with a capacity of 5bcm per year, would enter Lithuania from Poland. Its capacity is judged sufficient to satisfy the gas needs of Lithuania, Latvia and Estonia, and its cost is estimated at 600 million euros, RosBalt Business website writes.

Read the Full Article from Euractiv.com

An article from The Voice of Russia:

Competition between Nabucco and South Stream reaches fever pitch

Most experts believe that the wrestling match between the Russian gas giant, Gazprom and the European Nabucco reached a febrile point. Nabucco has resorted to making more combative statements – a sign of panic.

For now, the statements are limited to intentions. The latest information about the Nabucco project came from Ankara- the capital of Turkey. The participants in the meeting of the executive committee of the project have agreed to modify the concept of the line of the supply of gas; two lines have been touted: the Turkey-Georgian line and the Turkey-Iraq border.

Gas from Azerbaijan, Turkmenistan and Iraq is supposed to be pumped through the two lines.
The 3rd line-the Iran-Turkey one has been rejected because of the existing political situation, by which is meant the UN sanctions on Tehran. Some people have already said that the rejection of Iran’s gas has put paid to the entire Nabucco project.

But the participants in the Ankara meeting are upbeat about the Nabucco project. “Nabucco has many sources of getting gas and will not rely on a single one”, they chanted at the end of their meeting.
According to Valery Nesterov – an oil and gas expert, the optimism of the participants in the Ankara meeting is predicated more upon politics than on realities.

Nothing extraordinary has happened; it was a mere political ploy, Nesterov says. There are many ambiguities in the Nabucco project; the only thing that is clear is that the project has a powerful political backing plus serious shareholders, said Nesterov. A kind of cardinal decision may be taken this year on the project, or may be postponed. On the whole though, the future of the Russian South Stream project looks more promising, said Nesterov.

Be that  as it my, the EU regards Nabucco as a priority, and just recently, the EU Commissioner for energy, Gunther Oettinger said inter alia: “Nabucco, which is a  priority for us, will be implemented”.
On the other hand, the EU is having a crisis of tardiness. The Azeri President, Ilkham Aliyev says that the EU should adopt a more serious attitude to the Nabucco-Gazprom competition  and  when in July, the German Chancellor, Angela Merkel visited  Kazakhstan, the  Kazakh head of state, Nursultan Nazabayev almost angrily said that Europeans talk much about Nabucco, but are short on delivery, meaning that they do not put their money where their mouths are.

In a  word, the Nabucco project remains within the realm of a political war of words.

Source: The Voice of Russia

Just as we expected, Ukraine’s call for Russia to review it’s “extremely unfavorable” gas purchase agreement” with Kiev, is being linked to Russian control of Ukraine’s state-owned utility.

Russia has said it would drastically reduce its export gas price for Ukraine, if Gazprom were allowed to merge with Naftogaz Ukrayiny.

In the case of a merger, “the gas could be delivered to the population of Ukraine … at a price at which gas is delivered to the Russian households,” Gazprom Chief Executive Officer Alexei Miller Friday told state-owned television Rossia 24 TV.

The difference in pricing is vast. Russian customers pay around $60 for 1,000 cubic meters of gas, while the present price to Ukraine is around $230 per 1,000 cubic meters.

In April, Ukrainian President Viktor Yanukovych and Russian President Dmitry Medvedev agreed to a 30 percent discount of the gas price, which at that time was $330 per 1,000 cubic meters, over the next 10 years.  In return for the deal valued at $40 billion, Ukraine agreed to extend Russia’s lease on a naval base in the Black Sea.

Even with that discount, fuel costs are squeezing the Ukrainian economy.

The government is raising the gas price for households to help trim a budget deficit and qualify for future payments from a $15.2 billion loan program that the International Monetary Fund approved last month.

A Ukrainian delegation headed by the Energy Minister Yury Boiko, is traveling to Moscow for talks with Gazprom’s management, the Russian gas monopoly’s spokesman said.

“Cooperation in the gas sphere is to be discussed,” Sergei Kupriyanov said.

In May, Ukraine’s Yanukovych said that Gazprom may get some control over Naftogaz if it invests in the modernization of the Ukrainian grid. “But full Russian control? No, that’s empty words,” he said.

Russia covets the Naftogaz distribution network through which 80% of Russia’s gas exports to Europe pass.

Russia is planning several pipelines that would bypass Ukraine, including Nord Stream, which is being built across the Baltic Sea, and South Stream across the Black Sea.   Ukraine is seeking transit guarantees for the continuity supply.

Bulgarian Ambassador to the USA Elena Poptodorova, told Sofia News Agency that American companies are showing increased interest in various energy projects in Bulgaria and are researching their investment options.

Bulgaria’s Deputy Minister for Energy, Marii Kossev was in Washington DC this week to take part in the Global Shale Gas Initiative.  “Obviously, this is one of the areas where more US companies show interest,” Poptodorova explained.

US Ambassador to Bulgaria James Warlick has recently made public the interest of American companies in shale gas extraction projects in Bulgaria.

“I will be meeting with Chevron’s Vice-President Ian Macdonald on September 10. I will know more after the meeting,” said Poptodorova when asked about how US oil and gas giants view the large-scale future pipeline projects in Bulgaria – such as the Burgas-Alexandroupolis oil pipeline.

Unconfirmed reports say Chevron and Exxon Mobil would consider acquiring shares in the Burgas-Alexandroupolis pipeline, a Bulgarian-Greek-Russian project for transporting oil from the Black Sea and Caspian region to the Mediterranean by going around the Turkish Straits.

Source: Novinite.com

A division of the German utility RWE AG, has signed an agreement with the Kurdistan regional government to develop the northern Iraq region’s natural gas infrastructure and to provide a source of supply for the Nabucco pipeline.

RWE Supply & Trading said the agreement aims at helping the region “to develop and design its domestic and export [gas] transportation infrastructure” to market Kurdistan’s gas reserves.

RWE  hopes the partnership will help to negotiate “gas supply agreements to enable gas from the region to be transported to Turkey and Europe via the Nabucco pipeline”.

“We hope to very soon reach agreement on supplies of gas from the Kurdistan region of Iraq,” commented Stefan Judisch, Chief Executive of RWE Supply & Trading.

RWE  is shareholder of Nabucco pipeline consortium that includes MOL (Hungary), OMV AG (Austria),  Transgaz (Romania) and  Bulgargaz (Bulgaria).