JULY 21 2016 (The Conway Bulletin) — Tengizchevroil (TCO), the Chevron- led consortium exploiting the Tengiz oilfield in western Kazakhstan, issued a $1b 10-year Eurobond with a 4% coupon, lower than previously forecast, RIA Novosti said. Earlier in July, TCO approved a $37b expansion plan, which will boost production at Tengiz by 45% by 2020.
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(News report from Issue No. 290, published on July 22 2016)
JULY 20 2016 (The Conway Bulletin) — Azerbaijan’s finance minister Samir Sharifov said that his country is in talks with several international financial institutions to raise funds to pay for the construction of the so-called Southern Gas Corridor, a network of pipelines that will pump gas from the Caspian Sea to Europe. Mr Sharifov told the FT that the World Bank, the European Bank for Reconstruction and Development and the Asian Development Bank are all considering supporting the project.
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(News report from Issue No. 290, published on July 22 2016)
JULY 22 2016 (The Conway Bulletin) — The brief closure of the Bosphorus Strait to oil tankers for a few hours on July 15/16 during a failed coup attempt was a reminder of just how critical a stable, reliable and open Turkey is for trade flows into and out of Central Asia and the South Caucasus.
The Bosphorus Strait connects the Black Sea with the Aegean Sea and the Mediterranean Sea. If it is closed, Georgia’s Black Sea ports of Poti and Batumi are cut off – key gateways for the region for a variety of goods.
It’s an essential corridor too for oil shipments from the Chevron-lead Tengizchevroil project in western Kazakhstan which sends oil via a pipeline around the Caspian Sea to the Russian Black Sea port of Novorossiysk where it is loaded onto tankers and sent out to the rest of the world via the Bosphorus Strait.
But it’s not just the Bosphorus Strait which makes Turkey a vital transit route for Central Asia and the South Caucasus. Turkey also hosts a series of oil and gas pipelines which will link the Caspian Sea to Europe, set to become an increasingly important market.
Samuel Lussac, Caspian research manager at Wood Mackenzie, said international conventions should prevent Turkey from closing the straits but, if it did, it would have major repercussions.
“This would have a massive impact, as you have more than 1 million barrels per day of Kazakh and Russian crude shipped from Novorossiysk,” he said.
He also said the BTC oil pipeline that runs from Baku to Ceyhan on Turkey’s Mediterranean coast was an important route.
“From a transit perspective, Turkey is critical for Azerbaijan. Most of Azerbaijan’s crude is transported via BTC which goes via Turkey,” he said.
And the region’s reliance on Turkey as a transit partner is growing. New gas pipelines connecting the Caspian Sea to Europe are currently being built, underscoring the importance of Turkish stability.
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(News report from Issue No. 290, published on July 22 2016)
JULY 22 2016 (The Conway Bulletin) — Kazakhstan’s oil and gas sector seems to be in a muddle with the corporate battle between Kazmunaigas, owned by the country’s sovereign wealth fund Samruk-Kazyna (90%) and the Central Bank (10%), and its London-traded upstream subsidiary, KMG EP.
The power struggle between the two seems complicated, but it’s not. Kazmunaigas’ covert intention is to increase its 57% stake in KMG EP because it wants to take more control of its profitable upstream business, especially now that oil prices are low.
KMG EP’s independent directors, on the other hand, want other minority shareholders to resist Kazmunaigas’ pressure. The alternative, according to them, will be a de-listing from the London Stock Exchange, as independence would not be guaranteed.
Kazmunaigas has always said that its primary intention is not to buy out its subsidiary, but to change the terms through which the two companies interact, to smooth bureaucracy and make the businesses more agile.
But that’s not its real goal. If it was, it would have not have raised its initial offer to minority shareholders of $7.88/GDR to $9/GDR. And it would have not have made concessions on its corporate governance plans immediately after the first negative reaction from KMG EP’s independent directors.
If Kazmunaigas gets its way and buys out most of the minority shareholders, it may force independent directors to resign and the company to de-list from London’s GDR market.
For investors looking for a transparent sector to bet on, this won’t be good news.
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(News report from Issue No. 290, published on July 22 2016)
JULY 18 2016 (The Conway Bulletin) — Azerbaijan’s state-owned energy company SOCAR posted a fall in oil and gas production data in June, in line with this year’s downward trend. In H1 2016, SOCAR produced 3.7m tonnes of oil and 3.2b cubic metres of gas, down 8.6% and 6.2% respectively. Sustained low oil prices, the sharp depreciation of the manat currency in December and a storm at a platform in the Caspian Sea which caused a fire and killed several people have all contributed to lower production.
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(News report from Issue No. 290, published on July 22 2016)
JULY 20 2016 (The Conway Bulletin) — Iran increased gas supplies to Armenia to make up for a drop in Armenian imports from Russia, imposed by repairs to a pipeline crossing Georgia.
The deal highlights the rivalry between Moscow and Tehran for gas supply contracts to Armenia and, more widely, the South Caucasus.
For one month from July 10, repair work will halt gas flows along the Russia-Georgia-Armenia pipeline, Kazak-Saguramo.
Analysts have said the maintenance work on the pipeline from Russia has given Iran a chance to position itself as a reliable alternative supplier of gas.
Armenia imported 818m cubic metres of gas in the first half of 2016 from Russia, a drop of 7.7% from 2015. This is around five times more than Iran currently exports to Armenia.
Levon Yolyan, Armenia’s minister of energy, was due to visit Iran on July 25, to negotiate the gas supplies.
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(News report from Issue No. 290, published on July 22 2016)
JULY 20 2016 (The Conway Bulletin) — A deal for Azerbaijan’s state-owned energy company SOCAR to lead a takeover of Greece’s gas pipeline network DESFA could collapse after the Greek government agreed a lower-than-expected gas price rise. SOCAR has been working on putting together the deal to buy up Greece’s pipeline network since 2013.
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(News report from Issue No. 290, published on July 22 2016)
JULY 20 2016 (The Conway Bulletin) — A deal for Azerbaijan’s state-owned energy company SOCAR to lead a €400m takeover of Greece’s gas pipeline network DESFA could collapse after the Greek government agreed a lower-than-expected domestic gas price rise.
Anar Mammadov, CEO of SOCAR’s Greek subsidiary, said after a meeting with Panos Skourletis, Greece’s energy minister that the gas price increase undermined DESFA’s profitability.
“If implemented, those changes would reduce the value of the company and its future profitability
dramatically,” he told media. “The only thing I can say right now is that I can’t see how the tender could be salvaged if those changes are implemented as planned.”
The Greek parliament still has to approve the price rise for it to be implemented.
In 2013, SOCAR won a bid to buy 66% of DESFA, Greece’s gas distributor. The deal was later frozen by the European Commission, citing the so-called Third Energy Package, a 2009 regulation designed to counter vertical integration between gas suppliers and distributors.
In recent months, though, Italy’s Snam has come forward as a potential partner for SOCAR. Snam would buy 17% and SOCAR would take 49%, which mean the takeover complies with the EU’s requirements.
Buying DESFA is important to Azerbaijan because Greece will play a major role hosting part of a pipeline network that will pump gas from the Caspian Sea to Europe.
The EU has called this new pipeline network a vital strategic goal to reduce its reliance on gas supplies from Russia with which it has had increasingly strained relations.
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(News report from Issue No. 290, published on July 22 2016)
JULY 19 2016 (The Conway Bulletin) — In an increasingly vicious argument, Kazakhstan’s state-owned energy company Kazmunaigas accused independent directors of its London-traded upstream subsidiary KMG EP, of misrepresenting its position over a buy-out scheme it was trying to promote. Kazmunaigas’ letter, published by Kazakhstan’s stock exchange, said that its purchase offer for KMG EP’s GDRs still stands and that the independent directors had overesti- mated KMG EP’s operational performance.
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(News report from Issue No. 290, published on July 22 2016)
JULY 15 2016 (The Conway Bulletin) — In a move that took observers by surprise, Turkmenistan abolished its oil and gas ministry which had, officially, run the most profitable economic sector in the country, part of a wider structural reform of the government.
At a cabinet meeting, President Kurbanguly Berdymukhamedov justified the move as an effort to improve management and governance systems n the energy sector.
Turkmenistan is considered an important stakeholder in the world’s energy nexus, and the move shook analysts. It holds the fourth-largest gas reserves in the world and exports gas mostly to China via pipeline. For over a decade, European and US lobby groups have pushed for a Trans-Caspian Pipeline to pump Turkmen gas to Europe. Turkmenistan is also building TAPI, a gas pipeline to export gas to India, via Afghanistan and Pakistan.
Simon Pirani, senior research fellow at the Oxford Institute for Energy Studies, said that aside from internal causes, which are hard to guess, a range of external factors could have played in Turkmenistan’s decision to reorganise its hydrocarbon sector.
“The continuing relationship with China, despite lower off-take of gas than Turkmen officials had hoped, the improved ties with Iran and the quite bad relationship with Russia could all be relevant factors,” he told The Conway Bulletin.
The change, however, is unlikely to shift the way that Turkmenistan does business, a system that revolves around the whims and decisions of President Berdymukhamedov.
“Companies and international organisations are aware that Turkmenistan is a centralised system,” Mr Pirani said.
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(News report from Issue No. 290, published on July 22 2016)