China and Russia have signed the long-expected natural gas supply deal in a contract between CNPC and Gazprom worth USD 400bn

CNPC gets government nod for Sino-Russia pipeline plans

CNPC has received government approval for its design of the Chinese portion of the new gas transmission network planned to bring 38 billion cubic metres a year of Russian natural gas to China

The pipeline will connect to the Russian section at Heihe city, in the north-eastern Heilongjiang province

The Chinese state-owned oil and gas giant, China National Petroleum Company (CNPC), has released details about its approved plan to build its section of the pipeline to bring Russian gas to Chinese customers.

The pipeline will connect to the Russian section at Heihe city, in the north-eastern Heilongjiang province, before travelling through Jilin, Inner Mongolia, Liaoning, Hebei, Tianjin Municipality, Shandong, Jiangsu and its final destination, Shanghai.

CNPC has said that construction will begin in the first half of next year and is due for completion in 2018.

Russian president Vladimir Putin inaugurated the construction of the Russian section of the pipeline, dubbed Power of Siberia, on 1 September.

Gazprom head, Alexei Miller, has also suggested Gazprom and CNPC are in negations over a second transmission system further to the west, with an announcement planned for November.

On May 21, 2014 Gazprom and CNPC signed the USD 400bn purchase and sale agreement for the Russian pipeline gas supply to China. The 30-year contract stipulates gas supplies in the amount of 38 billion cubic meters of gas per year.

Over one trillion cubic meters of gas will be supplied during a whole contractual period.

Gazprom and CNPC sign historic natural gas deal worth USD 400bn

China and Russia have signed the long-expected natural gas supply deal in a contract between CNPC and Gazprom worth USD 400bn

The deal would mean Russia supplies China with a quarter of its domestic natural gas consumption, and will pull China away from dirtier coal-sourced power

Russia is to supply 38 billion cubic metres of gas a year to China for the duration of 30 years at a massive USD 400bn.

The deal includes the construction of a new eastern route gas pipeline to link Siberian gas fields to China’s industrial and urban coastal heartland.

The deal between the two national oil companies occurred during the state visit to Beijing of Russian president Vladimir Putin, and was signed at a ceremony witnessed by the heads of state of both nations.

“Russia and China have signed the biggest contract in the entire history of the USSR and Gazprom – over 1 trillion cubic meters of gas will be supplied during a whole contractual period. Russian gas will be sold at a brand new market with a huge potential," said Alexey Miller, Gazprom Chairman.

"The arrangement of Russian pipeline gas supplies is the biggest investment project on a global scale. USD 55 billion will be invested in the construction of production and transmission facilities in Russia. An extensive gas infrastructure network will be set up in Russia's East, which will drive the local economy forward. Great impetus will be given to entire economic sectors, namely metallurgy, pipe and machine building.

"Today we started the first page of a big book, a fascinating story of the Russian-Chinese cooperation in the gas industry, and many more essential chapters are yet to be written in it."

The deal would mean Russia supplies China with a quarter of its domestic natural gas consumption, and will pull China away from dirtier coal-sourced power.

Although this deal has been talked about for many years, many see the sudden agreement as a move by Russia to reduce dependency on a European market rocked by the recent crisis in Ukraine.

The eastern route stipulates the delivery of 38 billion cubic meters of natural gas from Russia to China via the Power of Siberia gas trunkline (unified gas transmission system encompassing the Yakutia and Irkutsk gas production centres designed for supplying natural gas to Russia's Far East and China). The bulk of pipes used in the construction will be domestically manufactured. Some 11,700 experts will be engaged within Phase 1 of the Power of Siberia project and some 3,000 employees will ensure the pipeline's operation.

CNPC is China's largest petroleum company wholly-owned by the state and is one of the world's leading integrated oil and gas production companies.

In 2009 Gazprom and CNPC inked the framework agreement on the major terms and conditions of natural gas supply from Russia to China. The agreement stipulates annual exports of up to 68 billion cubic meters of gas to the Chinese market. In 2010 the extended major terms of natural gas supply from Russia to China were signed.

In September 2013 Gazprom and CNPC inked the agreement on the major terms and conditions of pipeline gas supply from Russia to China via the eastern route.

Davy Stockbrokers is forecasting a recovery and tightening in global oil prices in the second half of this year, adding that numbers can rise from the current $59 to $60 per barrel level to a long-term price of $80 per barrel.

“While the edge may have come off demand growth, the primary driver of weaker oil prices has been the relentless increase in US light tight oil or shale-based oil that requires controversial methods, such as ‘fracking’ to find production and, to a lesser extent, sustained output from OPEC,” said Job Langbroek, Davy’s senior exploration and mining analyst in a new detailed report on the price of oil.

“We believe that US light tight oil will play the biggest role in determining oil pricing in the near future and possibly for the rest of the decade. While producing the same end product using the same industry technology, as a business model it is very different from conventional exploration and production.”

In its report, Davy also suggests that low oil prices will eventually lead to deferred drilling and a fall in production.

“This should begin to be visible in the second or third quarter and lead to tighter second-half crude oil prices. In the longer term, we think the progress in cost reduction, shown by the US light tight oil business and the depth of the service industry will enable it to restart drilling when pricing recovers,” said Mr Langbroek.

“Our calculations suggest that to achieve average industry returns, a trading range of $70 to $90 per barrel is required. With this as a template, our long-term forecast sits in the middle, at $80 per barrel.

“We believe oil markets will recover later this year, as evidence mounts that not enough wells are being drilled to offset the rapid production decline characteristic of light tight oil production.

“However, light tight oil also has the capacity to rapidly react to improving price trends.”

Davy’s $80 per barrel price estimate is a long-term target, however. For this year, it is predicting an average international oil price of $55 per barrel, with that price rising to around $70 per barrel next year, “as the effect of sub-$50 local pricing effects is felt through the US light tight oil industry”.

“We assume a longer-term oil price of $80 per barrel,” Davy’s added. The light tight oil sector, the report states, is the largest player in the recent oil price decline drama.

“This business was a catalyst for the price fall and, as long as viable drill targets exist, will form an effective ceiling for prices in the future” said Mr Langbroek. “As the US tight oil play matures and reaches a plateau, the tension between technology, costs and geology may well throw up different scenarios. For now however, it remains the key to how the oil price will evolve in the next few years.”

Davy says its price assumptions will help Irish exploration firms.

According to Mr Langbroek: “We think Tullow Oil has the most leverage to a recovery in oil prices in the second half of the year. Its west African operations will be extremely profitable at an $80 per barrel realisation and, while not as stellar, the east African projects in Uganda and Kenya are fundamentally sound and undervalued at this long-term price assumption.

“At $80 per barrel, our valuation for Tullow is 561p per share, compared to a share price of 398p at present.”

KEYWORDS: Oil prices, OPEC, barrel

Germany and the European Commission slapped down talk of a third financial rescue for Greece as premature, after Spain once again suggested yesterday that a new aid package for Athens was almost inevitable.

Athens, which says it does not need a new aid programme, averted a crisis yesterday by raising over €1bn in short-term debt as planned, but its long-term funding outlook appears increasingly uncertain.

The country has secured a four-month extension to its bailout programme until the end of June but remains shut out of debt markets and its new left-wing government has angered eurozone partners with its sharp anti-bailout rhetoric.

For the second time this week, Spanish economy minister Luis de Guindos said that Athens was unlikely to be able to return to capital markets by June, and that a package of between €30bn and €50bn would be needed.

“If Greece does not recover market access by June… we will have to establish some other type of agreement with Greece, call it a pact, a deal, a programme,” Mr de Guindos said.

“We have given ourselves these four months to, one, see what the real situation is, to see how Greece has met conditions, and to try and establish what happens next... which is fundamentally a third rescue.”

He was swiftly rebuffed by German Chancellor Angela Merkel, who said she was focusing on the current bailout.

“I think we now have all our hands full to make this succeed and that’s what I’m concentrating on,” she said at a news conference with European Commission president Jean-Claude Juncker in Brussels.

A German finance ministry spokesman also said no discussion of a third Greek aid programme was on the agenda for Monday’s eurogroup meeting of finance ministers, while Mr Juncker agreed with Ms Merkel on keeping the focus on implementing the extension to Greece’s bailout agreed last month.

“It is premature to talk about a third programme,” he said.

“That is speculation that is best avoided.”

The fresh talk of a bailout comes amid growing worries about a more pressing funding crunch for Athens in the coming weeks.

At least part of the state’s cash needs for the month will be met by repo transactions in which pension funds and other state entities sitting on cash lend the money to the country’s debt agency through a short-term repurchase agreement for up to 15 days, debt agency officials have told Reuters.

Greece is hoping EU and IMF lenders will relent and unfreeze some aid to ensure it does not default on its payments.

Athens is due to present a six-point reform plan to eurozone finance ministers on Monday to press its case.

IMF chief Christine Lagarde told MSNBC yesterday that the success of Greece’s reform plan would depend on the framework put in place and how the overhaul is implemented.

“They’ve made progress over the years,” Ms Lagarde said.

“But now clearly number one, they should not lose the benefit of that progress and, two, they really have to reform in-depth the economy so that it works, so that it’s attractive again and so that people want to invest in Greece, so that people want to lend to Greece.”

KEYWORDS: Germany, Greece, European Union, bailout

January saw further strong growth in the volume of consumer spending, cementing forecasts for growth in retail sales of up to 8% this year.

Fresh CSO figures, published yesterday, showed an 8.8% annualised jump in spending for last month and a 3.3% rise — boosted by car and furniture purchases, in the main — on a monthly basis. The figures follow on from a 5.1% year-on-year jump in December.

“Headline retail sales were up 6.4% in volume terms on average last year, while sales excluding cars were 3.7% higher in 2014,” said Alan McQuaid, chief economist with Merrion Stockbrokers.

“We are looking for a volume rise of 6% to 8% in headline sales this year, and 3% to 4% in core sales, which augurs well for Irish GDP growth in 2015, which is set to top the eurozone growth league table for the second year running.

“A key domestic driver of personal spending, going forward, will be the state of the labour market, and the signs are positive on this front, as we’ve seen with the most recent official employment and Live Register data.”

Retail Excellence Ireland has warned against complacency, however, saying aggressive discounting either side of Christmas has aided recent data.

“While the volume is up significantly year on year, the fact that value is not tracking volume is disappointing and shows once again that many parts of the country are still struggling,” said Retail Excellence Ireland deputy chief executive Sean Murphy.

“Annualised growth of retail sales volume, excluding motor trades was 4.8%, while the annualised value only increased by 0.9% excluding motor trades.

“This illustrates the impact of the aggressive discounting consumers availed of both pre- and post-Christmas. This discounting continued into January.

“It also shows why retailers are extremely nervous about any talk of wage increases in the absence of a broad-based recovery in the domestic economy.”

Mr Murphy said the figures show that there is no room for complacency regarding a perceived improvement in consumer confidence.

“Retailers continue to face challenges despite improvements in the economy and consumer confidence,” said Thomas Burke of Retail Ireland. “We must address the issues of unsustainably high rents and disproportionate local authority commercial rates if we are to achieve balanced regional growth.

“More also needs to be done to make town and city centres better places to visit and shop.”

KEYWORDS: consumer spending, Retail, CSO figures

Greece is running out of options to fund itself despite a four-month bailout extension, raising pressure on Athens to quickly implement reforms it has vocally opposed or default on debt repayments in a matter of weeks.

Eurozone and IMF creditors gave Greece extra time until the end of June to complete the bailout programme and receive the remaining €7.2bn, but it will not be allowed any funds until it passes a review that could take weeks to negotiate.

Shut out of debt markets and faced with a steep fall in tax revenues, Athens is expected to run out of cash by the middle or end of March. Its finance minister has warned that Greece will struggle to repay creditors starting with a €1.5bn IMF loan repayment due in March.

Athens has been looking for quick fixes to tide it over the coming weeks but has not yet found one.

Eurozone officials hope the liquidity squeeze will force prime minister Alexis Tsipras’ nascent government to agree reform plans more quickly than the end-of-April deadline set by creditors, paving the way for bailout funding to be released.

“The liquidity squeeze is being used to push the Greeks to very quickly start discussions on the review and finish that as soon as possible — not even waiting for the end of April,” said a eurozone source.

Other options all appear to have problems. One possibility — the transfer of €1.9bn worth of profits that the European Central Bank made on buying Greek bonds — will not be allowed until Greece has completed the bailout programme.

Greece had hoped it could tap the almost €11bn of leftover money in the Greek bank stabilisation fund, but eurozone finance ministers have decided the money would be returned to the Luxembourg-based eurozone bailout fund. While it would still be available for Greek banks, it could only be released on the say-so from the ECB.

The only source of quick cash left to the Tsipras government now is issuance of treasury bills, or short-term debt that matures in three or six months. However, Athens’ creditors have set a €15bn cap on such debt and it has already been reached.

Reuters

KEYWORDS: Greece, Bailout, IMF

A barometer of landowner interest in forestry was the recent turnout of 1,300 people at nationwide information meetings organized by Teagasc in association with the Forest Service.

Ireland’s new, six-year Forestry Programme, approved by the Government last December, consists of 11 separate measures and spending of €262m — with a further €220m in future commitments, from 2020, mostly in relation to premium payments.

Minister of State, Tom Hayes, said government approval of the programme was a milestone in the development of the sector and a vote of confidence in an industry that contributed €2.3bn to GDP in 2012.

“The new programme strikes a balance between meeting the needs of a growing, export-led processing sector and the need to maximize the environmental and social benefits that can be delivered by forestry and be enjoyed by society,” Mr Hayes said.

The new premiums are 20% higher than those in the previous programme, when compared year on year. Establishment grants have increased by 5%.

An important feature of the new programme is the €7m of funding to protect and enhance Irish native woodlands. Almost 2,000 hectares of these forests will be eligible for support.

The objective of the programme is to support the planting of over 43,000 hectares of new forests, and to support the construction of up to 690km of new forest roads.

New forests are also expected to make an important contribution towards meeting climate-emission targets, through carbon sequestration and fossil-fuel replacement.

Forests now account for 11% of the land area of the country and play an increasingly important economic, environmental and social role.

The forestry industry makes a significant, increasing contribution to the Irish economy and the industry employs 12,000 people directly.

Private owners account for 47% of forest cover in Ireland.

The majority of it is farm forestry, with the large majority of new plantations, in the past five years, undertaken by farmers.

However, the Irish Farmers’ Association warned last year that it is very concerned that the proposals outlined in the new programme will undermine the sector, particularly the small farmers who are considering forestry as a land-use option.

The forestry programme was initially set up to encourage farmers to permanently change their land-use and to view forestry as a viable economic alternative to other farming enterprises.

For continued participation of farmers and the growth of farm forestry, it is critical that forestry policy reflects the sector’s characteristics and interests.

The most recent proposals indicate that the Government’s policy has shifted to encourage the investor rather than the farmer, it warned.

Nuala Ni Fhlatharta, head of the Forestry Development Department, with Teagasc, said the recent meetings proved to be very successful.

The aim was to provide information to landowners on the significant opportunities provided by the new grants and premium payment scheme.

“With 15 annual premium payments of over €510 per hectare, for conifers, and approximately €600 per hectare for broadleaves, I would strongly recommend that landowners consider the potential that this offers.

“In addition to the annual premium, it will be possible for most farmers to hold onto their basic payments. In most cases, all the costs associated with the establishment of the crop in the early years are covered by an afforestation grant,” she said.

Frances McHugh, Teagasc’s forestry adviser in the South East, said many of the forest owners who planted in the past decades are now reaping the benefits with income from timber sales.

In addition to the returns from thinning and clear-felling, a forest enterprise on a farm is an ideal way for landowners to grow their own fuel and timber supply for the future.

New and expanding markets, including wood energy, have provided new opportunities for local sales. A well-planned forest can also benefit the countryside visually and can provide recreational opportunities on the farm.

Last year, the IFA launched a new service, Forest Assessor, in association with Treemetrics, which utilises the most up-to-date technology to accurately predict the quantities of log products that each tree can produce, and their potential value.

Minister Hayes said there would be an estimated 820,000 hectares of forestry in Ireland by 2020, over 50% of which will be privately owned.

One of the ongoing challenges faced by the forestry sector, in the coming years, will be to get the timber from privately owned forests onto the market.

“A service such as Forest Assessor, that helps owners to realise the full potential of their forestry when bringing their timber to market, is to be welcomed by all involved in the forestry industry,” he said.

Teagasc, in conjunction with Coillte and the Forest Service, is, meanwhile, organising two important demonstrations on reforestation at Rising Sun Guesthouse, Mullinavat, Co Kilkenny (February 26) and at the Community Centre, Feakle, Co Clare, (March 4).

These will provide guidance to those whose plantations are now coming up for re-establishment. They are also timely, as many owners had to clearfell, following the frequent and often ferocious 2014 storms, which caused extensive damage to private and State forests.

Increased Russian imports of dairy products represent a post-quota opportunity for Ireland’s milk processing industry, according to one Bord Bia analyst.

Emily McCormack of Bord Bia’s Moscow office said Russia has increased its imports of powdered milk and other dairy-processed products which have not been included in its bans on western imports.

With Russia’s inflation reaching 16% in January and food prices continuing to increase, imports of non-banned dairy industry ingredients are likely to keep growing.

“Remaining price competitive is a challenge,” Ms McCormack said in Food Alert, Bord Bia’s trade magazine.

“Despite these challenges, Russia remains an important long-term market for dairy and, as milk powders and lactose-free dairy products remain outside of the sanction list, opportunities for Irish exporters still remain.”

Russia has also boosted its domestic dairy output, but not dramatically. According to the Russian Ministry of Agriculture, milk production in Russia increased by 0.1% in 2014 to 30.8m tonnes.

Regions such as Altai and Bashkortistan recorded the highest increase in milk production. Soyuzmoloko, the National Union of Dairy Producers, in a plan for the Russian dairy industry to 2020, says it aims for domestic production to account for 78% of the share of domestically available dairy, an increase on current levels of 66.5%.

“The Russian dairy industry is, however, in much need of reform,” said Ms McCormack.

“With milk quality and production levels both needing improvement, the industry relies on imports to serve demand.” Russia was the EU’s largest dairy market in 2013, buying 416,000 tonnes of EU dairy, 63% of which was cheese. In 2013, Ukraine supplied 50,000 tonnes of cheese and 13,000 tonnes of whey.

“The bans imposed on EU, US, Canadian, Norwegian, and Australian dairy in August 2014 have resulted in imports increasing from Belarus and South America,” she said.

Price cutting and a weaker currency helped eurozone business activity accelerate in February, according to surveys published just before the European Central Bank embarks on a trillion-euro stimulus programme.

Survey compiler Markit said the surveys pointed to first quarter GDP growth of 0.3%, the same as at the tail-end of 2014, as business activity expanded in the bloc’s four biggest economies for the first time since last April.

That growth prediction matches the median forecast in a Reuters poll taken last month.

“The outlook has brightened for all countries. The weaker euro should help boost exports and, perhaps most importantly, the commencement of quantitative easing by the ECB should stimulate the economy as we move through the year,” said Chris Williamson, chief economist at Markit.

The euro has fallen nearly 8% since the start of the year against the dollar, helping drive Markit’s final February Composite Purchasing Managers’ Index (PMI) up to a seven-month high of 53.3.

Although weaker than a preliminary estimate of 53.5 it comfortably beat January’s 52.6 and achieved its 20th month above the 50 level that separates growth from contraction.

A PMI covering the eurozone’s dominant service industry rose one point from January to 53.7 but was similarly lower than a flash reading of 53.9.

To encourage demand firms have been cutting prices for almost three years – the output price index again came in sub-50 at 47.9 – and the ECB has been battling to bring inflation back to its near 2% target.

As part of that battle, the central bank plans to flood markets with cash. Service firms were optimistic as their business expectations for the coming 12 months were at their highest since May 2011.

KEYWORDS: European Central Bank, Euro

Gazprom Neft has completed testing of four directional wells (drilled to investigate reserves within the Bazhenov formation) at its concession within the southern area of the Priobskoye field (Khanty Mansiysk Autonomous Region)

The next stage of this project will involve the drilling of four horizontal wells and the identification of the most effective strategy for the commercial development of unconventional (tight) reserves at the Bazhenov formation. Source: Gazprom Neft

The results obtained have allowed the resolution of the key issue underpinning the first stage of this project; confirming the existence of live oil within the Bazhenov formation. Completion of hydro-cracking operations at all wells resulted in hydrocarbon inflow at varying degrees of intensity.

“Gazprom Neft continues to actively advance its independent investigation of the Bazhenov formation,” said Vadim Yakovlev, Gazprom Neft’s first deputy CEO. “Thus far, these resources have been considered ‘unconventional’, but their development is a key strategic objective in our development, and we will soon begin new projects in this area.”

The next stage of this project will involve the drilling of four horizontal wells and the identification of the most effective strategy for the commercial development of unconventional (tight) reserves at the Bazhenov formation.

Wide-ranging geophysical investigations were undertaken in the course of drilling to confirm current geological suppositions, including the extraction of a 190-metre core sample; something of significant and immediate interest to geologists.

The strata of the Bazhenov formation in the Southern Priobskoye field lie at a depth of 3,000–3,200 metres. The resources contained therein are categorised as “unconventional reserves”, analogous to shale oil. Analysis of geophysical data, specialist analysis of the well core, and repeated analysis of 3D seismic data was undertaken before drilling commenced at the Bazhenov-Abalaksky field.

Seismic investigations are set to continue, with the company planning to commence horizontal drilling in 2016.

The second phase of the project will be dedicated to resolving technological issues – selecting the optimum construction of wells and technologies for the implementation of multi-stage fracking, adapted to the specific conditions of the Bazhenov reserves.

“The development of tight reserves has long been a speciality of Gazprom Neft, insofar as this category constitutes a major part of the company’s resource base,” added Yakovlev. “And we have proved our effectiveness in working with these: the proportion of high-technology wells in our portfolio is now in excess of 30 per cent — a record within the Russian oil sector.”

Gazpromneft-Khantos has started drilling the first horizontal well to explore the Bazhenov complex of the Palyanovsky deposit at the Krasnoleninsky field, marking a new stage in Gazprom Neft’s study of shale oil deposits at the field

Three-stage hydraulic fracturing (fracking) will be performed at the deposits in order to increase efficiency

The depth of the first well exceeds 3,200 metres and the horizontal borehole extends approximately 300 metres.

Three-stage hydraulic fracturing (fracking) will be performed at the deposits in order to increase efficiency.

Overall, it is expected that four wells will be drilled during the new phase of the project in 2014-2015, increasing the length of the horizontal sections in consecutive stages and also increasing the number of fracking stages.

"The Bazhenov formation is an example of our work with non-traditional deposits, which is an area the company is focused on developing," said Vadim Yakovlev, first deputy CEO of Gazprom Neft. “By implementing pilot projects we determine the optimal method for working with these resources in order to develop further projects effectively.”

In 2013-2014, during the previous stage of the study of the Bazhenov complex deposits at the Palyanovsky field, Gazprom Neft drilled five controlled-directional wells, involving the use of fracking at four of these.

Commercial oil flows were achieved in all of these wells, which continue to be in operation.

Furthermore, these operations confirmed the possibility of effective fracking at the Bazhenov complex. The next stage of the project will determine the most effective method for extraction.

Work on a second Gazprom Neft project for developing shale oil deposits continues to take place at the Bazhenov-Abalak formation of the Southern-Priobskoye field. Gazpromneft-Khantos received the licence for geological development of this horizon in March 2014.

Geophysical analysis of the data has been conducted over the last six months, and specialised studies of the core samples were carried out, as well as additional studies of the 3-D seismic survey data.

The first stage of the programme has been planned, providing for the drilling of controlled-directional prospecting and appraisal wells during 2014-2015 in order to determine the horizon's potential, to specify its geological model, and to determine the appropriate extraction methods. Seismic studies of the deposits using the 3-D method are expected to continue in 2016, as well as the drilling of horizontal wells.

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