FORTNIGHTLY OVERVIEW
There has been much excitement over the rise and rise of LNG . In a surprising rhetorical flourish , Russia ’ s president , Vladimir Putin , said at the World Energy Congress this month that he expected more gas to go by tanker than pipes in the near future . But pipelines remain indispensable for some projects . Not every customer is far enough away to merit a liquefaction terminal .
The Nord Stream 2 discussions were held between Gazprom and the five western gas companies earlier in October . There is still no news on how that will be financed , if not entirely by Gazprom .
Also Gazprom is still awaiting to hear the outcome of the anti-trust probe and also how much capacity it may use in the Opal line , which takes gas south from the Nord Stream 1 terminal in Germany .
So one of the reasons for Putin to attend the WEC was to sign the intergovernmental agreement on the ill-defined Turkish Stream pipeline , its alternative project .
As it seems unlikely that the European Commission will concede that Gazprom can transport and also trade its gas in the European Union , Gazprom ’ s customers will have to come and fetch the gas from a second line from the border with Turkey , as Putin pointed out when he scrapped South Stream a few years ago .
Meanwhile at least there is now an IGA to regulate the construction of the offshore section of Turkish Stream , and the two sides have resumed talks on the price discount , which was suspended earlier this year .
Also present at the WEC were representatives of the $ 38bn southern gas corridor ( SGC ), the EU-backed ‘ diversification ’ route which Baku says is commercial but which is looking more and more political as gas prices remain low and competition between suppliers grows . It could compete with Turkish Stream if the latter extends beyond that country .
The last leg of the SGC , the TransAdriatic Pipeline ( TAP ) is even facing local opposition in Italy , despite the jobs and investment it represents .
The referendum on constitutional reform in Italy in early December is still a hurdle for TAP ’ s backers , as the regional mayor challenges the authority of Rome and tries to derail the final stage of the project , perhaps proving popular at home .
But unfortunately with a gasline as distinct from an LNG terminal , all you can do with it in the commercial world is ship gas through it and hope there is someone willing to buy it at the other , equally fixed , end at a price that works for both sides and the certainties of that business model have long gone .
Looking at Europe more broadly , there is also a question over whether these and other pipeline projects intended to improve security of supply are essential , at a time of shrinking demand and idle capacity .
The creation of more stranded assets that consumers will still have to pay for is an unwelcome possibility as other forms of energy become relatively cheaper for technological or political reasons . The single market is neither single nor a market , given the different rules and regulations and financing structures coexisting in Europe affecting gas supply .
The companies that agreed to extend existing gas sales and purchase agreements in the uncompetitive days of the last decade – such as Eni and Engie – might have chosen to ignore the writing on the wall .
But while the advent of gas to gas competition was foreseeable , the rate of subsidised growth of other forms of power and heat generation caught many by surprise . Showing some dexterity , some of these have moved into the other camp , buying technology firms and developing businesses that conflict with their core business , if they have not already sold the latter off .
But those who signed contracts in the last couple of years , seeing so many other contracts being torn up or extensively rewritten at radically lower prices with no sign of the gas glut vanishing soon , must be worrying how they can lay off the risk .
This is not only a European problem : there has been talk of some relatively recent US liquefaction contracts no longer being in the money .
The buyers are looking at depressed spot prices in Asia and Europe and wondering how much it would cost to break the agreements . Russia is pumping more gas than ever to Europe this year as it meets demand for cheap gas .
These new pipeline projects share a common feature with another tubular , immovable piece of expensive infrastructure , Eurotunnel , built to link the UK and France . Its investors , keen to make it happen , massively over-estimated the amount of passengers it would carry each year and eventually its shareholders had to bail it out .
Eurotunnel ’ s successful gas industry analogue is the UK-Belgium Interconnector : it was built in order to ship gas out of the UK to continental markets where – typically high – oil prices held sway .
Operational since October 1998 , the owners of that line too are facing a challenge : how to persuade shippers to invest in it so that it continues to pump gas in either direction for the next 20 years , once the current contracts expire in 2018 .
Shippers cannot predict their own supply and demand needs for much more than a year or two ahead , even in markets as stable as northwest Europe .
Network codes too incentivise short-term capacity bookings which can be picked up free , with perverse consequences for a region that is devoting so much time to the long-term matter of energy security . Will a government intervene if the market won ’ t ?
But low-pressure pipelines are still seen as a sound investment in these volatile times , whatever the fate of the commodity flowing through them : Abu Dhabi sovereign wealth fund offered a generous chunk for just a sixth- of the Scotia Gas Networks business in the UK , which could augur well for the sale of National Grid ’ s four networks which it retained at the time it sold off the other four . The premium to the regulated asset value will not be clawed back through higher tariffs as the prices are regulated . But the buyers must be hoping that if new houses are built , the gas will come .
NGW