South of europe battle of pipes


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Konstantin Simonov’s speech presentation at 2011 South East European Oil & Gas Conference.

Belgrad, Republic of Serbia, November, 11, 2011.

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South of europe battle of pipes

  1. 1. South of Europe: Battle of Pipes Konstantin Simonov Belgrade 11-11-11
  2. 2. Problems of Diversification <ul><li>Resources </li></ul><ul><li>Investment </li></ul><ul><li>Transit Routes </li></ul><ul><li>Political unstability </li></ul>
  3. 3. Resources <ul><li>It is impossible to evaluate the structure and quality of gas resources in the Caspian region due to insufficient data </li></ul><ul><li>As a rule, Caspian gas does not contain a lot of sulphur; it requires deep and expensive processing to prepare gas for transportation; capacities for waste utilization are needed. Moreover, substantial part of reserves is hard to recover and thus economically unprofitable </li></ul><ul><li>This is true for Karachaganak deposit in Kazakhstan and at Turkmen fields </li></ul>
  4. 4. Investment <ul><li>According to Azerbaijani estimates, the second phase of Shakh Deniz development with production of up to 16bn cu m per year not taking into account expansion of the South Caucasus gas pipeline and building a gas pipeline to European markets will cost $20bn </li></ul><ul><li>The estimated costs of construction of two production complexes at the South Yolotan deposit of up to 30bn cu m capacity are $10bn </li></ul><ul><li>LUKOIL is to invest $4bn in production development in Uzbekistan to raise output by 10bn cu m per year </li></ul>
  5. 5. Political Unstability <ul><li>After Geidar Aliyev passed away in Azerbaijan power was handed over to his son and successor Ilkham Aliyev </li></ul><ul><li>After Saparmurat Niyazov’s sudden death, his personal doctor Gurbanguly Berdymukhamedov took over </li></ul><ul><li>But what will be with Kazakhstan? With Uzbekistan ? </li></ul><ul><li>Kurdistan? « Big Azerbaijan ?» </li></ul>
  6. 6. Turkish Factor Source: BP, Botas, Gazprom
  7. 7. Expansion of Azerbaijan <ul><li>Unique situation for Azerbaijan – a seller’s market amid obvious oversaturation of the European gas market from other sources. For buyers this promises hard price conditions </li></ul><ul><li>Moreover, the question of connecting Turkmen gas to Southern Corridor projects also substantially depends on Baku; actually it is impossible without Azerbaijan’s consent. Thus, the value of agreements with Azeri authorities is high for Europe </li></ul>
  8. 8. Russian Benchmark Price for Azeri Gas Source:Gazprom, RWE, NESF calculation Source: RWE
  9. 9. Cheap Gas?
  10. 10. Expansion of Azerbaijan <ul><li>It means Europe has to offer some other form of compensation to Baku. Azerbaijan has already declared it needs a stake in the gas pipeline project on transporting gas to EU markets; it also intends to receive a possibility to independently market gas in Europe. Azerbaijan intends to follow Gazprom in its ambitions to expand onto infrastructure and sales markets </li></ul><ul><li>SOCAR in fact already controls the gas distribution infrastructure in Georgia; it is almost a monopolistic gas supplier to the republic, except minor supplies the Georgian state company receives from Gazprom in exchange for gas transit to Armenia </li></ul>
  11. 11. Expansion of Azerbaijan <ul><li>Turkey and Greece with its economic problems are the next. SOCAR already owns Turkey’s Petkim oil and gas facility and intends to increase its participation in the Turkish retail and wholesale gas trade business </li></ul><ul><li>Within the framework of talks on deliveries of Azeri gas to Greece, SOCAR is going to get a controlling block of shares in the national gas company DEPA that the Greek government plans to auction. The state possesses a 65% stake in DEPA; 55% is to be privatized and 10% will remain with the state </li></ul><ul><li>Greece is interested in buying Azeri gas and this gives SOCAR a competitive advantage in the tender on purchasing the country’s gas assets (except a gas pipeline owned by a separate state company) </li></ul>
  12. 12. Turkmenistan <ul><li>Main Problem: insurance arrangements </li></ul><ul><li>Ghost of 08.08.08 </li></ul><ul><li>Don’t forget about China </li></ul>
  13. 13. Russian Transit Problems <ul><li>Turkey and EU </li></ul>South Stream AG New Ownership Structure Gazprom; 50% Eni; 20% EdF; 15% Wintershall; 15%
  14. 14. C ase for Russia <ul><li>Qatar moratorium </li></ul><ul><li>Fukushima and the end of “nuclear renaissance” </li></ul><ul><li>“ Arabian spring” </li></ul><ul><li>Budget crises in EU and future of renewables </li></ul>
  15. 15. C ase against Russia <ul><li>Second wave of economic crisis </li></ul><ul><li>Shale gas ? </li></ul><ul><li>LNG ? </li></ul>
  16. 16. Possible Future
  17. 17. <ul><li>Thank you! </li></ul><ul><li> </li></ul>