Fuel for Thought – 2nd Sep

02 Sep, 2011

Gazprom Export defends oil indexation: As we explored in a recent article, the de-linkage of oil indexed contract prices from European hub prices in 2009/10 has imposed great financial stresses on some of the major European gas wholesalers. Understandably, Gazprom is seeking to defend a profitable negotiated position and won’t be responsible for what it calls customer’s “strategic mistakes”. However the economic logic for the continued prevalence of oil indexation in Europe remains unclear given the pace of development in the global and European gas markets.

Autumn Qatari LNG Maintenance: The announcement of the rolling autumn maintenance schedule affecting 3 Qatari LNG trains has increased volatility in European gas markets over the last week. The NBP front winter price rose over 6% last Friday as the announcement increased market nervousness as to the availability of incremental cargoes.  However the threat of a slowdown in global growth may dampen the impact of these events across the NBP forward curve.

International Oil Majors face losing Iraqi natural gas reserves:  Many of the world’s biggest energy companies, including BP, Exxon and China’s CNPC, may have to surrender most of the gas in Iraq’s southern oil fields to a Shell lead processing and export project.  It appears likely that the gas will be allocated to a potential 4 mtpa LNG export plant. If confirmed this wouldn’t be the first time BP has had to give up assets in the Middle East. In 1953, then as the Anglo-Persian Oil Company, BP had its assets nationalised by the Iranian government.

EU’s energy commissioner backs Nabucco pipeline: The European Union’s energy commissioner, Guenther Oettinger, suggested that the Fukushima disaster and Germany’s subsequent decision to remove nuclear from its generation mix increases the chance of the Nabucco gas pipeline project going ahead. Reducing Europe’s reliance on Russian gas has historically been one of the key drivers behind the project but the logic behind this has been somewhat complicated by the recent announcement of Gazprom’s potential investment in RWE, a partner in the project. Idle LNG regasification capacity and a price tag of over $11 billion are also likely to weigh heavily on the project’s prospects.

 Picture of the week:

A satellite view of Hurricane Irene which left a trail of destruction down the east coast of the United States earlier this week. The storm claimed the lives of over 40 people and left over 4 million without power.  North American energy companies have historically invested heavily in meteorological resources but the impact hurricanes have on the North American of natural gas market has been steadily reducing over the last few years as the proportion of gas produced by offshore facilities has been in decline.