Week in Review October 10 – October 16

Kelsey Zimmerman, Daniel Tsvetanov, Alberto Perego, Elisabeth Nguebana, Glenda Pavon, Bogdan Polishchuk, Alexander Geysman

Turkish Stream to Move Ahead

During his official visit to Turkey, Russia’s President Vladimir Putin announced a revival of the Turkish Stream pipeline project. The new pipeline would run under the Black Sea to Turkey before continuing onwards to Greece. Thus, enabling Russian natural gas colossus Gazprom to deliver natural gas to the European markets while avoiding the use of existing pipelines in Eastern Europe. This would enable the company to potentially cut off gas supplies from neighboring countries like Ukraine without jeopardizing supply to European customers. Russia has been attempting to build such a pipeline since another potential pipeline through Bulgaria was blocked at the behest of the European Union after the onset of the Ukrainian crisis. The chief executive of Gazprom, Alexei Miller, had said that the agreement foresees the construction of two pipelines on the bed of the Black Sea. One line with a capacity of 15.75 bcm would supply the Turkish market while the other would carry gas to Europe. Construction could start by the end of 2017 with the estimated completion date of the first pipeline in 2019. Turkey, the second biggest consumer of Russian gas after Germany, imports around 30 bcm annually through two existing pipelines, the Blue Stream, which passes under the eastern Black Sea, and the Western Line through the Balkans. With the new Turkish Stream pipeline, Gazprom would reduce the price of natural gas sold on Turkey’s domestic market.

Neil MacFarquhar, 2016. Warming relations in person, Putin and Erdogan revive pipeline deal. New York Times, 11 October, 2016. http://www.nytimes.com/2016/10/11/world/europe/turkey-russia-vladimir-putin-recep-tayyip-erdogan.htm l

Daily Sabah, 2016. Erdogan, Putin sign agreement on Turkish Stream gas pipeline project. Daily Sabah, October 10, 2016. http://www.dailysabah.com/energy/2016/10/10/erdogan-putin-sign-agreement-on-turkish-stream-gas-pipeline-project

Igor Sechin Opposes the OPEC Oil Deal

Russia’s most influential oil executive and the head of Rosneft, Igor Sechin, said his company will not cut or freeze oil production as a part of a possible agreement with the Organization of the Petroleum Exporting Countries. Rosneft is not the only Russian company that express an opinion against the official Kremlin position to join the production cut, which was reported on last week. Moreover, heads of Lukoil and GazpromNeft commented that the production freeze is technically possible, but they are not ready to consider this option, because it will lead to a decline in future production. Sechin doubted that all of the significant players, namely Iran, Saudi Arabia and Venezuela, would cut their production. It is expected that OPEC output will reach its highest in recent history, as Iraq boosted northern exports and Libya reopened some of its main oil terminals. The main concern of Mr. Sechin is that the price rise that results from either an actual freeze or the discussion thereof would improve conditions for shale producers in North America, who seem to be in the position to benefit most from actions by OPEC. Rosneft is responsible for 40% of Russia’s crude oil output. Lukoil and GazpromNeft are the second and fourth biggest oil producers in Russia respectively. Russian officials have not yet commented on the position of Rosneft, GazpromNeft and Lukoil.

Olesya Astakhova, 2016. Russia’s Rosneft Boss Sechin says no to OPEC oil cap. Reuters, October 11, 2016. http://www.reuters.com/article/us-oil-opec-russia-sechin-idUSKCN12B0J1

BRICS Summit in Goa: Rosneft Acquires New Assets

On the 15th of October, a consortium led by Rosneft and comprising of the Dutch commodities giant Trafigura and United Capital Partners (UCP) agreed to buy oil refining and port assets from India’s Essar Group. Essar is the second largest oil refining company in India (supplying 20 million tons per year and 9% of the local market for refined products). This deal took place at the BRICS Summit in Goa, India. The deal will give Rosneft a 49% stake in Essar Oil. Another 49% stake will be split equally between Trafigura and UCP in order to avoid the western sanctions against Russia that are currently in place. Essar oil is present in several fields; oil, gas, steel, ports, and power. However, in the last several years it is has accumulated a substantial debt burden. The Indian market for refined oil is set to grow in the coming years. Therefore, Essar’s 20 million ton refinery in Gujarat and its retail fuel outlets in India are seen as strategic investments for Rosneft in this dynamic market. India is one of the most promising and quickly growing markets of the world and the deal opens other perspective markets in the Asia Pacific region such as Indonesia, Vietnam, Philippines and Australia.

Douglas Busvine and Denis Pinchuk, 2016. India’s Essar agrees to sell oil arm to Rosneft-led group. Reuters, 16 October, 2016. http://www.reuters.com/article/us-essar-oil-m-a-rosneft-oil-idUSKBN12F05P

Simon Mundy, 2016. Mumbai, Rosneft Leads $13bn purchase of Essar OIl. Financial Times. 17 October, 2016. https://www.ft.com/content/9756ccca-92d7-11e6-a1dc-bdf38d484582

The Dismantling of North Sea Oil Wells

Many offshore oil-rigs in the North Sea are nearing an end of production as their reserves are depleting. The lower the reserve levels get, the more expensive the rigs are to keep in production. Added to this is the low price of oil, which means that a third of the oil fields in the North Sea are operating at a loss. Many rigs are now being shut down, but the decommissioning is not so simple. The structures must be removed. According to the protocol signed by 15 countries called the Convention for the Protection of the Marine Environment of the Northeast Atlantis, or OSPAR, offshore platforms must be removed and not simply shutdown. Simply shutting them down means that they may rust and disintegrate and lead to damage to marine ecosystems. OSPAR, which came into place after a battle between Greenpeace and Shell in 1995, demands that the topside of the structure must be dismantled and recycled. Only in certain cases of rigs weighing more than 10,000 tons or having been built prior to 1999, can much of the rig be left in place. In those instances, oil companies must dismantle the top portion so that sea vessels can freely move over the structure. Removal of any of the rigs is extremely difficult, however, as they are built to withstand hurricane force winds and very turbulent waters. There are currently 470 oil and gas rigs and 5,000 wells that need plugging with cement. The first step in decommissioning is plugging the seabed wells and then there are three major options to remove the structure. All processes involve the removal of the metal top structure and subsequent recycling. It is in this step that new technologies are coming into play. Technologies involving high pressure, abrasive water jets, hydraulic shears, and diamond saws. Some even involve robot submarines and remotely operated vehicles. The most efficient method is, for now, very much still in research phase. This involves the use of lasers, which would consume less power and are much more feasible in terms of weight of machinery. The future of these technologies will be instrumental in offshore wind turbines in the future. Since OSPAR covers any man-made structures that may adversely affect marine life, wind turbines will also need to be serviced and disposed of in the future.

Paul Marks, 2016. What It Takes to Dismantle an Oil Rig. BBC.com. 5 August, 2016. http://www.bbc.com/future/story/20160804-what-it-takes-to-dismantle-an-oil-rig

Iran Opens an International Tender on its Oil and Gas Fields

Iran opened the bidding application process for foreign companies willing to explore its natural resources for the first time since the sanctions were lifted a year ago, hoping to attract up to $150 billion USD of investment by 2020 and get a boost in oil production.

The Associated Press,2106. Iran to Invite Foreign Companies to Bid on Oil and Gas. The New York Times. 16 October, 2016. http://www.nytimes.com/aponline/2016/10/16/world/middleeast/ap-ml-iran-oil-bid.html

Oil and Gas Development plans in New Zealand

New Zealand has begun exploration in the Canterbury Basin off the Eastern coast of South Island. The Barque prospect, where the test wells will be drilled, is estimated to hold 530 million bbl of crude oil equivalent. New Zealand is not a popular hydrocarbons exploration region, because it is generally considered a high investment risk by international major oil companies. According to the article however, “NZOG is optimistic, however, with chief executive Andrew Jefferies saying the block could yield a “game-changing” find for the whole region.”

Irina Slav, 2016. New Zealand Company to Drill in Risky 530M Barrel Deposit. Oilprice.com. 14 October, 2016.

http://oilprice.com/Latest-Energy-News/World-News/New-Zealand-Company-To-Drill-In-Risky-530M-Barrel-Deposit.html

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