Caspian Energy Insight: September 13, 2017
After Hurricane Harvey pushed the oil prices upwards last week, the prices continue to stay higher, above $54, starting this week. Accordingly, Azeri light is also performing well in international markets, $55.86.
In the United States, due to Hurricane Harvey, oil imports have declined by 1M bpd in a week by week basis. For gulf refineries, the throughput declined by 3.3M bpd. This translated into crude and gasoline stocks as well. Crude stocks increased by 4.5M barrels while gasoline stocks fell by 3M barrels. There is clearly lower demand on American crude due to the refineries not working in full performance. This also led to an increase in the gap between WTI and Brent.
So far, out of the 20 refineries, eight of them are already back at their normal operational levels while others are still in preparation. Still, the low level of refinery production is putting a pressure on gasoline prices across the United States.
Russia, NATO, Hungary, and Turkish Stream
Russian troops are about to mobilize on the EU’s eastern border for training exercises. Representatives in NATO claim that according to the Vienna Document, Russia is not adhering to it responsibilities about being transparent with their military maneuvers by not allowing observers. NATO countries are worried that Russia might be using this as cover to permanently station troops in Belarus. Russia fervently denies these allegations and insists a number of troops conducting the exercise are under the amount of 13,000 in which each country agreed to notify the others of if being mobilized.
Russia and Hungary are already pushing for new natural gas and nuclear deals as reported last week. The reports show that Gazprom’s exports to Hungary have also increased by more than 25 percent in 2017, while the overall increase in exports to EU members is around 12 percent. The two sides are clearly showing intentions to increase natural gas trade while also bypassing Ukraine on the way.
At the current pace, Ukraine receives around $2 billion per year for its Russian natural gas transit while Russia is attempting to decrease its dependence on the conflict ridden post-Soviet country by establishing Nordstream II and the Turkish Stream. The eventual bypass will yield fewer transit fees for Ukraine although it will also have a huge construction bill for Russia as well as a series of legal troubles with the EU. With Russia exporting a record amount of natural gas to EU, 178 cm in 2016, Russia will be eager to solidify its route by mostly relying on its sea pipelines in North and South.
With pending legal backlash against Russian, recently, both EU and German courts ruled in favor of Gazprom, signaling that initial EU objections based on Third Energy Package might be softened in upcoming months.
Russia-Turkey: S-400 Deal & Turkish Stream Pipeline
Although Russia and Turkey are continuing to mend their ties following the downing of the Russian jet in November 2015 and the assassination of ambassador Karlov by a Turkish police officer in 2016, the two countries are also trying to solve some pricing disputes for previously agreed energy projects. Gazprom announced that the first hearing on the dispute is scheduled for the end of September while the two companies are trying to settle out of court. BOTAS was seeking arbitration at the end of 2015 while Russian PM Medvedev said that the two countries could find a solution now that they are cooperating in other projects, including Turkish Stream.
While Russia-NATO disagreements continue, the country is also about to finalize its sales of S-400 missiles to Turkey. Despite criticisms from the West, the Turkish president is pushing for the deal while citing the Greek acquisition of Russian s-300 systems in the 1990s. The missiles were originally purchased by Cyprus and diverted to Greece upon protests by Turkey in the late 1990s.
Since May the Turkish Stream pipe laying process is on its way with 220km is completed by Allseas’ Pioneering Spirit pipe laying ship. As per the announcements by Gazprom, the first line is scheduled to be completed in March 2018 while the second pipe will take another year. Although the pipeline’s intentions are to bypass Ukraine as a transit country, while capturing the expanding Balkan and Turkish markets, the objections by the European Union will continue to complicate negotiations between the EU member consumers and Russia.
While the United States announced new sanctions against Russia on energy field, UK’s Petrofac announced that it was awarded to build a terminal for Turkish Stream for $404 million. The company will also build the onshore section of the pipeline in Turkey. This announcement came at a time of new sanctions announcements while Russia clearly rejected any potential delays in the construction process. With the sanctions bill now is a law, the US president can take action against Western companies which continue to do business in Russian energy projects.
Azerbaijan, TANAP & TAP
The construction for TAP’s Greek phase is on its way in northwestern part of the country, in Kastoria. For TANAP, American GE’s Baker Hughes announced its willingness to help for the second phase of TANAP.
While Turkmenistan continues with its plans to use natural gas in its new petrochemicals plant, it is also going ahead with the construction of a new seaport, through which chemical products will be exported in the Turkmen city of Garabogaz. Currently, studies of the seabed and the coast of the Caspian Sea have been carried out, and initial beginnings of construction and installation work have begun.