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Saturday, February 19, 2011

Busy but lost months in EU gas projects, 2011

  1. Banks start appraising €4bn loans for Nabucco
  2. Four countries team up for 'LNG Nabucco'
  3. Parliament approves rules to secure gas supply
  4. EU insists on 'unbundling' Ukraine's Naftogaz
  5. Commission urges Bulgaria to change Gazprom clause
  6. Polish-Russian gas treaty receives EU blessing
Quote of the day: Isn't it ironic that instead of Europe diversifying Russian gas, it's Russia who diversified its exports?  
If you read trough the whole issue, you'll see how old-fashioned is the whole EU politics when it comes to gas. They try to secure the big countries interests, they try to secure their own projects, they try to do everything Germany and France considers good while ignoring other countries. I believe this attitude is very dangerous and sooner or later it will lead to problems. Because as you can see Russia has its new gold mine - Chine. They have the production, they have the market, they are happy. While Europe is a great market but a buyer who does not respect the seller is not a good start for business (and vice versa). And while the EC tries to balance between France, Germany and all the annoying little other countries, the world goes on and it changes. And basically, we're not ready to face that change.

    Banks start appraising €4bn loans for Nabucco

    07 September 2010
    The consortium behind the Nabucco gas pipeline announced yesterday (6 September) that three international public banks are to start due diligence for loans of up to €4 billion.

    Under the finance plans, the European Investment Bank (EIB) would contribute €2bn, the European Bank for Reconstruction and Development (EBRD) €1.2bn and the International Finance Corporation (IFC) - a lending arm of the World Bank - €800 million.
    The appraisal mandate signed by the banks and Nabucco shareholders is a step forward for the €7.9bn pipeline, which is designed to bring gas from Central Asia to Europe. The pipeline would have the capacity to transport 31 billion cubic metres of gas per year from the Caspian Sea and Middle East to Austria via Turkey and Eastern Europe.
    While any future funding would be subject to the results of the appraisal, the banks gave assurances that they would not embark on it unless they believed the money could be committed at the end.
    Reinhard Mitschek, managing director of Nabucco Gas Pipeline International GmbH, said he was not worried about the pipeline being able to get a reliable gas supply from countries like Azerbaijan, Turkmenistan and Iraq, despite political tensions.
    In an attempt to alleviate concerns over the environmental impact of the 3,300-kilometre pipeline, the banks stressed that the appraisal would ensure financing to the highest environmental and social standards.NGO group CEE Bankwatch Network pointed out that the pipeline would cross protected Natura 2000 sites at 12 points in Hungary alone. source
    My comment: Yeah, I wonder what's the purpose of Natura 2000 if you can build pipelines trough it. Or if you can modify its boundaries depending on your mood and business needs. Oh well, I guess one can say the same for most of the EU projects - very good ideas, very bad implementation.

    Four countries team up for 'LNG Nabucco'

    22 September 2010
    Two EU members, Romania and Hungary, have joined forces with Azerbaijan and Georgia around a project to ship liquefied Azeri gas to their region. Supporters argue that the project could be implemented quickly, but critics point to high costs and vulnerability.
    The state-owned energy companies from Azerbaijan, Georgia and Romania have signed a memorandum of understanding on 14 September in Baku to launch the Azerbaijan-Georgia-Romania Interconnector (AGRI) project.
    A new company has been created with the initial task of organising a feasibility study and attracting funds.
    On Monday (20 September) Hungary announced it could become a shareholder in AGRI. In that case, each country would hold a 25% stake in the project.According to reports, AGRI will be designed to transport Azerbaijani gas by pipeline to a Black Sea port in Georgia for liquefaction. Further transport will take place via tanker to the Romanian Black Sea port of Constanta. From there, the gas will be pumped through Romania's pipeline system to Hungary and on to the rest of the European market.
    The project envisages the construction of a liquefaction plant for LNG exports at the Azerbaijan-owned oil export terminal of Kulevi in Georgia, as well as the construction of a terminal for importing liquefied gas to a re-gasification plant in Romania.
    The project, which in various guises could handle one, five or eight billion cubic metres a year, is seen as a competitor to Nabucco and other projects in the southern gas corridor, as in the same way, it taps into the gas resources of Azerbaijan.sourceMy comment: ROFL! Now we have LNG analogue to Nabucco. Cute. Or almost. First, I'm not sure how much gas exactly Azerbaijan has. Because they appear to be willing to supply all the new gas projects for Europe. And second - I don't exactly like all that dependency on unstable countries like Georgia. True that big projects can stabilize them politically, but they also can make them targets for terrorists or for political abuse. And anyway, I don't get it why Europe waste money on so many projects, when they could finance one or two projects all the way to the end. I wonder what's actually better from environmental point of view - well-built pipes on the bottom of the sea or surface transport trough tankers. 

    Parliament approves rules to secure gas supply

    22 September 2010
    The European Parliament yesterday (21 September) endorsed a new regulation to prop up Europe's preparedness to deal with gas supply crises.
    An overwhelming majority of MEPs voted in favour of a political compromise reached on the Regulation on Security of Gas Supply in June.
    The new rules seek to give the EU the capacity to respond to gas supply disruptions and step up the development of interconnections.
    They require member states to establish preventive action and emergency plans and grant the European Commission a strong role in coordinating emergency responses. The EU executive will also scrutinise the prevention plans with a view to ensuring that they do not endanger another member state's security of supply.
    The agreement also seeks to correct the lack of interconnections, which was identified as having greatly contributed to the difficulties in getting supplies to Eastern Europe, where gas was largely cut off during the January 2009 Russia-Ukraine gas row.
    EU countries will have four years to get their gas networks up to a standard where they can meet gas needs on days of "exceptionally high demand" - which statistically occur once every 20 years - even when their biggest source of gas or a major section of the network fails. Moreover, they will have to put in place reverse flow technology in all cross-border interconnections within three years.
    The regulation also seeks to shield European consumers from the impact of supply disruptions. It obliges gas companies to guarantee supplies to householders for at least 30 days during periods of exceptionally high demand or in the event of infrastructure disruption under normal winter conditions.
    sourceMy comment: Interesting. I thought that the EC wants to "personally" control the gas flow in time of crisis. Obviously this desire didn't happen the way the viewed it. Anyway. I support such measures as long as they put the whole Europe on equal footing. Meaning, if the gas stops, that there will be gas for homes and hospitals in Bulgaria even if German production lines suffer from that. Because recently I have some doubt on the priorities in the EU. And that the EC still considers all the European citizens equal in rights and obligations. 

    EU insists on 'unbundling' Ukraine's Naftogaz

    28 September 2010
    The European Commission said on Friday (24 September) it expected Ukraine's state energy company Naftogaz to separate its gas transit pipelines from other businesses.
    The statement was made as Ukraine signed its accession to the Energy Community, which extends the EU's internal energy market to South-Eastern Europe.
    About 100 billion cubic metres (bcm) of natural gas a year transits from Russia to Europe via Naftogaz pipelines. At the same time, Naftogaz buys 30-40 bcm a year from Russia to supply local consumers at a heavily subsidised price.
    As a result, to the dismay of international lenders and potential investors, the company has routinely reported losses for the past years that were covered by capital injections from the government – estimated at almost $1 billion this year alone.
    In July, Ukraine adopted a law requiring legal separation of gas shipping, distribution and sales businesses from 2012. It has also started raising domestic gas prices to gradually eliminate subsidies.
    Some analysts, however, have expressed doubts regarding the new law's actual impact, pointing out that Naftogaz already runs different businesses through subsidiaries which are separate legal entities.
    The "unbundling" requirement also raises doubts about the prospects of a joint venture between Naftogaz and Russia's Gazprom  which is being discussed by Moscow and Kiev.source
    My comment: I'm not sure why the EC thinks that will help Ukraine or the EU in anyway. The problem are not the money, the problem is the lack of political responsibility of Ukraine. But that's not up for bargain I think.

    Commission urges Bulgaria to change Gazprom clause

    19 November 2010
    The European Commission has asked Bulgaria to change a 2008 bilateral agreement with Russia, providing for full and unrestricted transit of Russian gas across the EU newcomer, a spokesperson for the EU executive told the press today (15 November).
    As Russian Prime Minister Vladimir Putin visited Bulgaria over the weekend to seal a joint venture, which will build and operate the Bulgarian section of the South Stream gas pipeline, questions emerged regarding the compatibility of the agreement with EU law.
    Marlene Holzner, spokesperson for EU Energy Commissioner Günther Oettinger, said Bulgaria had asked the Commission to provide assistance in helping negotiate the agreement. Consequently, a number of amendments were made to the accord, signed in Sofia on 13 November.
    The draft initially said South Stream shareholders would enjoy exclusive gas transportation, while a sentence has since been making such a possibility conditional upon the Commission's approval, Holzner explained.
    However, the biggest problem was an intergovernmental agreement on building South Stream, signed in 2008 between Russia and Bulgaria, she explained.
    "This intergovernmental agreement needs to be changed," Holzner said.
    The agreement, signed in January 2008 by the previous Socialist-led government of Prime Minister Sergei Stanishev, states that the Bulgarian government will ensure full and unrestricted transit of Russian gas. The agreement was ratified by the Bulgarian parliament in July 2008.
    Under EU law, the principle of third party access allows pipelines like South Stream or Nabucco to be used by other companies, Holzner said.
    Holzner explained that the EU had wanted to encourage the construction of a new gas pipeline infrastructure and was ready to grant exemptions to the exclusive use of sections of pipelines, according to strict procedures.
    In Bulgaria, Putin complained of EU legislation which in his words was allowing small players to threaten security of supplies and causing gas prices to increase. He said that while big players such as Gazprom would be forbidden to build gas infrastructure, small and inexperienced companies would put at risk huge investments like South Stream."The Commission proposals aiming to liberalise gas transportation networks are well-intended. But it is difficult to estimate the consequences of their implementation," he stated.
    TV footage showed Putin hugging and kissing a two-month old puppy of the unique Bulgarian shepherd species Karakachanska ovcharka, offered to him by Borissov. source
    My comment: Though this is somewhat old news, I still don't feel very comfortable with the way the EC get involved in a bilateral between two countries. I'm not very sure in how many other occasions this happen in such a way. For example how many EU countries sign conditional clauses depending on EC's approval. It sounds much more normal to first check how what you're doing goes with the EU law, to obtain all the needed approvals and then to sign anything. I have the feeling the Bulgarian government acts like children requesting their parents approval on every step. That's so pathetic. And I also agree that EU laws are very partial - they appear to protect small players, but if you look what's happening in Western Europe, you won't see small players happy and protected. You'll see French or Spanish or German big monopolies all over and nobody will ask for approval in their contracts. Not the same for Eastern Europe. Though if the pipe was built by Gazprom for example, I don't see what will stop Gazprom from asking for impossible prices from other "players" or from preferring their own production. After all, there is no unbundling in Russia. It's hard to imagine how a company may unbundle itself on foreign territory and transport other people's production at loss. This doesn't sound very capitalist-like. But in any case, if we are to respect EU law, then all the contracts should have been for pipes only and leaving the gas itself outside of this particular contract. The EC should have said so. But again, investing money to build a pipe without a contract to secure the gas trough it sounds very stupid. And then, we're back to problem number one - Gazprom produces the gas. And the EC is hypocrite in the case. And I believe the whole relation between EC and Bulgarian authorities is very very wrong. And the Europeans should be the first to object to such relationship, because once the beast gets unleashed, sovereignty will be hard to protect.

    Polish-Russian gas treaty receives EU blessing 

    04 November 2010
    Poland and Russia are due to sign an agreement in Brussels today (4 November) that will see Gazprom increase its deliveries to Warsaw by 38%. Energy Commissioner Günther Oettinger said the treaty would have "EU legitimacy".
    Oettinger announced that he was going to look today "at the latest draft of the treaty on a confidential basis" but expressed confidence that the agreement would comply with EU legislation.
    Under the deal, Gazprom will supply Polish gas company PGNiG with up to 10.2 billion cubic metres (bcm) a year, according to media reports in the two countries. The volume under the previous contact was 7.45 bcm.
    Polish Deputy Prime Minister Waldemar Pawlak said the transit of Russian gas through Poland was guaranteed until 2019, according to the Moscow Times, but the two sides reached agreement on the possibility of prolonging the agreement until 2045.
    A key part of the agreement lifts a clause that currently prevents Poland from re-exporting natural gas surpluses to other countries without Gazprom's consent (the so-called 'non re-export clause'), according to a statement by PGNiG.
    This clause had caused a substantial delay in finalising the agreement, with the European Commission warning that it was against EU rules and that Poland risked gas shortages (see 'Background').
    Poland will also benefit from a price discount if it buys more gas than agreed. PGNiG said this might save it as much as $250 million by the end of 2014 if it uses the full discount offered by Gazprom.
    Oettinger, who has just returned from a visit to Russia, said the Commission had provided advice to the Polish and Russian authorities, as well as to energy companies on both sides.
    Critics also point out that although a clause forbidding Poland to resell excess gas to third countries was removed, there would be no gas available for sale most of the time. source
    My comment: The question for me is why there should be excess gas?! I mean, doesn't Poland have the right to secure its gas need with a contract with Russia without taking into account any possible desires for export? I really get very worried about what's happening in Europe. It begins to smell like communism. And not the one that people in Europe are used to.

    Putin warns EU energy laws hurt business - "What are we proposing?[...] The creation of a harmonious community of economies from Lisbon to Vladivostok," Putin said, referring to Russia's far eastern city.
    "And in the future, possibly, a free-trade zone and even more advanced forms of economic integration,"
    German Chancellor Angela Merkel responded by lambasting Russia's protectionist trade measures, which are hurting German exports, and said that Putin's policies contradicted his stated aim of creating a free-trade zone stretching from Lisbon to Vladivostok. - I think the main problem in front of any such free-trade zone is that neither Russia, nor Germany actually favor free zones. They are both so extremely protectionists, it's absurd to even think of freeing the market in some areas.

    Russian oil flows to Central Europe 'to dry up' -Russia's growing oil exports to Asia and the Baltic have unsettled European traders and refiners, who fear shortages on the Black Sea and in Central Europe should Russian output stall or decline.

    Jonathan Kollek, vice-president for trading at TNK-BP, Russia's No. 3 oil firm, which is half-owned by BP, said the shift from the Black Sea and Druzhba to Asia and the Baltic would continue. - Isn't it ironic that instead of Europe diversifying Russian gas, it's Russia who diversified its exports? Welcome to the new world!

    EU pushes pipeline merger in Southern gas corridor - EU officials are pushing for a merger of two strategic pipeline projects – Nabucco and its smaller Italian rival ITGI – to help secure gas supplies from Azerbaijan to Europe, according to news wire reports yesterday (17 February).
    One option is to start off with the low-cost ITGI pipeline plan, estimated to cost €2.5 billion compared to Nabucco's €7.9 billion price tag, and then expand at a later date, one industry source told the Reuters news agency on condition of anonymity. - So, there finally got it that they cannot find so much gas. Oh, well, it was about time...

    Political pipelines 'not cost-effective' - Pipeline projects with a political design, such as the EU-favoured Nabucco pipeline and the Gazprom-sponsored South Stream, are expensive compared to similar projects based on cost effectiveness, Kjetil Tungland, managing director of the Trans-Adriatic Pipeline (TAP), told EurActiv in an interview. -

    Turkmenistan claims ‘huge gas reserves’ to supply Europe - Turkmenistan's president said yesterday (30 September) that his country had the capacity to almost quadruple its gas exports in the next 20 years and was ready to meet demand from Europe, AFP reported. The discovery of a major gas field was announced three days ago.
     According to the US Energy Information Administration, Turkmenistan's reserves rank fourth worldwide by volume. Those are estimated at 265 trillion cubic feet and represent 4% of the world total, it said. - How convenient, huh?

    Nabucco in 'David vs. Goliath' battle for Azeri gas - Pressure is growing on the Nabucco consortium to reveal its hand over its tender for Azeri gas. The winner, to be announced in April, will be master of Europe's Southern Gas Corridor, designed to bring gas from sources other than Russia. 
    Elshad Nasirov, the country's top negotiator for a tender to access ten billion cubic metres (bcm) of Azeri gas from the Shah Deniz II field, said that two Nabucco competitors, namely the Turkey-Greece-Italy Interconnector (ITGI) and the Trans-Adriatic Pipeline (TAP), could "turn out to be more attractive".
    Nasirov was referring to the fact that Nabucco has a designed capacity of 31 bcm, while for the time being, no gas is available to fill the pipeline – except for the 10 bcm at Shah Deniz. -

    'Milestone' pipeline starts delivering Russian crude to China - Russia, the world's biggest producer and exporter of oil, began delivering crude oil to China on 1 January via a newly-built pipeline hailed as a 'milestone'. Until now, Russia had only delivered oil to China by rail.
    The cost of the pipeline, which links the Siberian city of Skovorodino to the Chinese city of Daqing, is 25 billion dollars (18.7 billion euros) and has been largely supported by Beijing, the Russian press writes.
    Russia and China have built independently their sections of the pipeline and they connect in the middle of the Amur river, which forms the border between the Russian Far East and North Eastern China.
    Some 2,700 kilometres of pipeline have been built so far. When the second stage of the 4,070 km pipeline is completed in 2013, the pipe will be the world's longest. -

    Barroso tops Azeri gas deal with visa facilitation - On a visit to Azerbaijan yesterday (13 January), European Commission President José Manuel Barroso signed a deal expected to bring ten billion cubic metres of gas each year to Europe, promising in return "visa facilitation" for Azeri nationals.
    Azerbaijan is currently in negotiations with several Western companies to grant access to ten billion cubic metres (bcm) of Azeri gas in the Shah Deniz II field. The Nabucco consortium is one of the bidders, alongside other projects such as ITGI and TAP.  

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