From May 23rd 2019 to May 26th 2019, the citizens of the European Union voted for the renewal of the Parliament. According to most analysts and the media, the result of the European election seems to have confirmed that the so-called “sovereigntist” pressures did not break through (with the exception of Great Britain) and pro-European parties, starting from the conservatives and the socialists, maintained the majority in the Parliament, despite a significant loss of consensus. On May 30th 2019, Gianni Bessi, author of the essay “Natural Gas – the energy of tomorrow” and political representative of the Democratic Party in the legislative assembly of Emilia Romagna region, published an article on the portal Start Magazine dealing with the European elections. In particular, he wrote: “The European Union is not immune to criticism, on the contrary: it is precisely its supporters who know what is really wrong. Starting [...] from a real integration, not only economic-financial, among the elements on which nations are based: infrastructures, trades, the army, taxation [...], emphasizing how a European energy integration would be desirable. It is a question of understanding how it is possible to translate the will to build a European energy network into concrete actions, without being distracted by nationalistic nostalgia”.
Given that each Member State should have the aim of creating an integrated system of European gas pipelines, especially if this concerns a net importer of energy such as Italy, are we so sure that the European Union is really pursuing this goal while creating at the same time a barrier to the nationalistic re-emergencies?I would like to suggest a brief analysis of the main political issues, which lay behind the most important European natural gas projects to help the reader understand the matter at hand.
In fact, the impression is that Italy lost the opportunity to become a gas hub when the South Stream pipeline, which would have started from the Russian port of Beregovaja, then through the Black Sea to the Bulgarian port of Varna with two extensions towards Italy and Austria, was cancelled due to the strong pressures exerted by the United States of America over Bulgaria and the strong opposition implemented by the European Commission against the project too (unlike what happened to other similar pipes, no exemption related to the Third Energy Package rules were granted). In particular, on June 8th 2014, former Prime Minister, Plamen Orecharski, “ordered to stop the works” after having met with U.S. Senators John McCain, Chris Murphy and Ron Johnson.
The building of the Trans Adriatic Pipeline (TAP) – that will form the Southern Corridor together with the South Caucasus Pipeline and TANAP – will not make Italy an important energy crossroads. In reality, TAP, exploiting the Azeri gas fields in the Caspian Sea (Shah Deniz II), will grant a partial, but important diversification of the Italian suppliers (nevertheless, the full utilization of the pipe transport capacity could possibly need Russian gas too). However, to the detriment of Italy, the Nord Stream pipeline, which lays on the Baltic Sea floor and which Gazprom is currently doubling, will allow Germany to become the new European sorting hub of Russian gas. Moreover, the extension of the Turkish Stream pipeline, a sort of South Stream new pocket edition, which will give to Gazprom the opportunity to supply South Europe with an outside EU landing (Turkey), with high probability of it being re-directed to the Balkans rather than to South Italy.
In fact, the interests subtending the construction of the “European energy network” of which Bessi writes have already taken shape at Italy’s expense and in favor of Germany. It would not be by chance that, on September 5th 2018, Giuseppe Cucchi, former NATO General and chief of the Italian secret services during Massimo D’Alema’s and Romano Prodi’s governments stated: “As for Germany, it is enough to mention how in the energy sector with the right hand blocks the construction of the South Stream pipeline, which was supposed to pass through Italy, while with the left propitious the doubling of Nord Stream, in Germany”. With the understanding that the national security of any country depends also on energy policy, the concrete risk is that this EU instead of representing a barrier against the new re-emerging nationalism, could be the main cause of it.
Latest data and estimates on oil & gas
Thanks to the figures provided by the Oil Market Report, published in the International Energy Agency on May 15th 2019, world oil supply dropped by 300,000 b/d in April, to 99,300,000 b/d (775,000 b/d more y-o-y). In particular, OPEC crude output rose by 60,000 b/d in April to 30,210,000 b/d as higher flows from Libya, Nigeria and Iraq offset Iranian losses. OECD commercial stocks fell by 25,800,000 barrels in March 2019 (month over month) to a total of 2,849,000,000 barrels after three months of consecutive increases. Global oil demand growth in 2018 and 2019 was respectively revised on the fall at 1,200,000 b/d (-70,000 b/d) and at 1,300,000 b/d (-90.000 b/d) with China and India growing by 700,000 b/d in the current year.
Based on the Drilling Productivity Report figures issued by the Energy Information Administration on April 15th 2019, the American unconventional crude output is expected to increase by 83,000 b/d to 8,495,000 b/d in June 2019. The U.S. crude production, after the former peak of 9,627,000 b/d gained in April 2015, decreased to its lowest of 8,428,000 b/d on July 1st 2016. It then started increasing to 12,300,000 b/d, which was reached on April 26th 2019 (weekly forecasts).
Thanks to the statistics provided by Baker Hughes on June 7th 2019, the 988 current U.S. active rigs, of which 789 (80.9%) are oilrigs and 186 (19.1%) are gas rigs, were 13 less than May 10th 2019, the lowest level since February 16th 2018, decreasing for the eighth time in 9 weeks. On May 14th 2019, Bloomberg reported that “the boom in American shale output risks masking ongoing woes at a number of lower-tier explorers, as well as some oilfield servicers. Sixty-dollar oil is good if you’re a low-cost producer without a ton of debt in the Permian or maybe the Bakken or one of the better basins”. In March, U.S. crude oil imports increased by 107,000 b/d to 6,759,000 b/d. They were 6,652,000 b/d in February 2019 and 7,520,000 b/d in January 2019. The 2019 U.S. crude oil imports average stands at 6,977,000 b/d, on the fall in comparison with 7.757.000 b/d in 2018 and 7,969,000 b/d in 2017.
Oil and currency trends
In May 2019, oil prices strongly decreased due to the commercial tensions between the United States of America and China, which could affect global oil demand. “It seems like we’re going to be entrenched in a trade war, which is really going to hurt demand for crude oil”, said commodity manager Tariq Zahir. In particular, Brent North Sea quality opened the listings at $72.03/b and closed at $64.47/b (-10% month-over-month), while West Texas Intermediate crude started the quotations at $63.68/b, closing at $53.4/b, the lowest level since February 12th (-16% m-o-m). At the time of writing (on June 11th), Brent is trading at $62.45/b and WTI at $53.75/b, because on June 10th, Chinese General Administration of Customs showed that China’s crude oil imports dropped from the record high of 10,680,000 b/d in April to 9,510,000 b/d in May (-11%). On May 23rd, U.S. stockpiles increased by 4,740,000 barrels to a total of 476,775,000 barrels. According to the U.S. Energy Department data, this is the highest level since July-2017. In addition to the U.S. record output of 12,200,000 b/d, the U.S. crude inventories have been determining the current $11/b Brent/WTI spread. The compliance to the OPEC+ agreement signed on December 7th 2018 (-1,200,000 b/d) reached 168% in April 2019 in comparison with 138% gained a month earlier. For this reason, during the next meeting in Vienna on June 30th 2019, oil producers could decide to eliminate the over compliance, maintaining the stipulated output deal levels and prolonging it in the second half of the year. In such a case, Saudi Arabia, the OPEC leader, and the Russian Federation, the leading non-OPEC producer, may achieve a viable political balance.