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Weekly News – 29 February 2012

POLAND STEPS UP GAS PROGRESS Seeking energy independence, Poland takes Gazprom to court and declares shale gas deadline GAZPROM TAKEN TO ARBITRATION OVER COMMERCIAL SHALE GAS ‘BY 2015’ – PRIME MINISTER Poland will likely tax shale gas production from 2015, its Deputy Finance PRICES Poland’s PGNiG has instigated an arbitration lawsuit against Gazprom. PGNiG petitioned the Arbitration Tribunal in Stockholm to refigure the pricing terms of its contract with Russia, which it signed in 1996. The current terms are oil-linked with a nine month lag, lasting until 2022 and with an 85% take-or-pay requirement. The two parties were in unmediated discussions until October 2011, when Russia refused to concede more ground and PGNiG announced its intention to seek arbitration. Poland’s Treasury Minister Mikolaj Budzanowski said to Reuters that “the price Poland now gets [for gas] under its largest contract is absolutely not acceptable because it’s not a market price.” Simultaneously, Poland’s energy regulator URE is hoping to begin a new tariffing regime from tomorrow to prevent it from losing money selling high priced Russian gas on the Polish market for less than it cost to buy.

Minister told Reuters. “The goal is to provide a predictable environment for investors” by that date, when the country expects the first commercial production from its 5.3tcm of shale gas reserves (below) ( over 100 exploration licence areas. as. Poland’s Prime Minister, Donald Tusk, is eager for shale gas production to remove reliance on Russian imports. » http://reut.rs/ygymvL

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“Gas markets will remain tight over the next two years,” believe Bernstein Research, “which will favour companies exposed to LNG trading, shipping and selected infrastructure and construction plays.” LNG prices will therefore remain firm in 2012, but spikes could occur if there are any export interruptions or delays in projects under construction. Reuters’ own research indicates that 2012 LNG supply will outstrip demand by 6% - or 22bcm, equivalent to Trinidad & Tobago’s LNG exports.

India’s first shale gas bidding round has been delayed to December 2013, write the NewsBase AsianOil Monitor. Oil Minister Jaipal Reddy told reporters that six basins will be offered up to companies, who will be bidding to buy into a country that may have an estimated 182.6tcm of shale gas in place, 20tcm of which is recoverable. The bidding round is much delayed, having been originally scheduled for December 2011. India’s ONGC are a major player in the country. »

Price swings are at a two year high, according to Bloomberg. The 30-day 30 historical volatility in NBP day-ahead day gas was 156% in the first half of February – three times the normal level and the highest since October 2009. Rising volatility may be here to stay, st according to Bank of America, whose commodity strategist Sabine Schels said that “there is a misperception that the UK will continue to receive high LNG imports.” Trevor Sikorski of Barclays was similarly concerned: “risk is rising in the UK gas market,” market he said.

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Germany will begin harmonising products offered on its NCG and GASPOOL hubs from Q3 2012. This will increase the likelihood of the two German gas zones (slimmed down from 14 in October 2008) being combined into a single German gas hub, in line with EU Third Package goals.

Nigeria, together with joint venture partners Shell, ExxonMobil and Chevron, is to invest US$100bn in oil and gas exploration over the next five years, Bloomberg report. The West African country has reserves of around 37bn barrels of crude, and Africa’s largest gas reserves of 187tcf.

KOGAS plans to import 36.46mtoe of LNG in 2012, it says. The figure was revealed in a document disclosed in documents submitted to the South Korean Stock Exchange. South Korea is the secondsecond largest LNG importer in the world, behind Japan. Together they account for nearly 50% of global LNG demand.

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Weekly News – 29 February 2012 UNITED KINGDOM

WORLD Total and Gazprom are discussing further the development of their joint Shtokman gas field project in the Barents Sea, the UPI report. Deliveries from the field, which holds an estimated 134tcf of gas, are expected to begin as early as next year. » http://bloom.bg/yrPOQ6 http://bloom.bg/yrPOQ6

British households may overpay on energy bills if shale gas is ignored, according to a new report by think tank Policy Exchange. While the think tank report explains that “no “no-one can predict future gas prices, shale gas developments suggest prices may be lower than previously assumed.” Households may pay £22 billion more for their electricity than necessary because of this price differential, the report finds. » http://tgr.ph/xec6LM

EUROPE The Irish regulatory agencies are “difficult to deal with,” says Shannon LNG’s CEO Pat Keating. He told the Midwest Regional Authority conference in mid-February mid that the €1 billion Shannon LNG project is at risk due to “bureaucracy” within the Commission for Energy Regulation. Plans for for the LNG terminal have been held up in consultation for 14 months now, report the NewsBase Global LNG Monitor. » http://bit.ly/rsYeCo

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OMV has discovered “the biggest gas find” in its history in Romania, report Reuters. The Domino-1 well is the first deepwater Black Sea well drilled in Romanian waters, located 170km offshore the country in the ExxonMobil operated Neptun Block. Preliminary estimates put gas in place at anywhere between 1.5-3tcf, with the companies hopeful production will begin at the end of the decade.

Japan began drilling for methane hydrate – flammable ice – on 15 February, according to the NewsBase AsianOil Monitor. As we reported two weeks ago, methane hydrate deposits around Japan could total 7.4tcm – or 100 years of domestic gas consumption. Four wells will be drilled 300 metres below the seabed until late March. All being well, commercial production produc will begin in 2018.

The Ukraine has announced two shale gas tenders, according to the Financial Times. This move is “the biggest tenders Ukraine has so far organised, and the first for unconventional gas,” said Volodymyr Ignashchenko, a government official. The Ukraine has 42tcf of recoverable reserves, according to the EIA. It hopes to exploit its shale reserves to avoid dependence on Russian imports, which were cut off in 2009 due to a pricing dispute.

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“It would be a mistake” to say that there is inherent confidence in the offshore industry, says trade body Oil & Gas UK. An unstable fiscal regime is preventing “long term confidence across the industry,” said Oil & Gas UK’s CEO Malcolm Webb. The healthy state of affairs on the UKCS for 2012-13 is due to decisions made before the 2011 rethink of offshore E&P taxes; since then, investment has stagnated, an action which Webb believes will make itself evident by 2014. » http://bit.ly/ywbXY3

A bidding war is underway for the London based company Cove Energy, Bloomberg report. Two Indian statestate owned companies, Oil and Natural Gas Corp (ONGC) and Gail India are expected to jointly offer US$2bn, eclipsing previous bids of US$1.7bn from Bangkok based PTT Exploration & Production and US$1.6bn from Shell. Cove’s primary asset is an 8.5% stake in the Rovumba gas fields in Mozambique, where Anadarko has made discoveries of 30tcm. » http://bloom.bg/yrPOQ6

Iran has been unable to find a buyer for its embargoed oil. The country pre-empted its EU embargo (due by mid-summer) mid by withdrawing sales to France and the UK, but the Financial Times reports that nearly a quarter of its total annual exports are struggling g to find a buyer. China and India have been unwilling to take the oil without deep discounting; if a home is not found by mid-March, March, Iran will have to place the oil in floating storage or reduce its output. » http://bit.ly/z2vmeR

ASIAASIA-PACIFIC The considerable oil and gas reserves of the South China Sea (an estimate by the US EIA puts oil reserves at up to 213 billion bbl) are attracting major investment, particularly in deep-water water prospects, the NewsBase AsianOil Monitor reports. Nowhere is the deep-water water drilling sector more vibrant than in South-East East Asia, with projects underway in Indonesia, Malaysia, China, and Thailand. Western companies have been quick to join the party; last week BP announced their second deep-water water venture offshore China, meanwhile me Chevron and ExxonMobil are already involved, and continuing to invest, in deep-water deep drilling in the waters of eastern Indonesia. The continuing deep-water deep bonanza is taking place against a backdrop of growing regional tensions; a vast area of the South China Sea, some 3.5m square kilometres, is disputed (see map, right).

AFRICA Fires are still burning at the Chevron owned KS Endeavour gas exploration rig offshore Nigeria, more than a month after an explosion that killed two workers, the BBC reports. A Chevron spokesman told the BBC that the fires, burning over a 40m stretch of the sea, could take ”conceivably months” to put out with attempts underway to stymie leaking gas. » http://bbc.in/xpJ6q9

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Tethra Weekly News Highlights 29 February