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EMEA Oil & Gas winners and losers in Ukraine crisis: Fitch

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Reuters – Fitch Ratings says BG Energy Holdings Ltd, BP plc, Royal Dutch Shell plc and Total SA are among the rated oil and gas companies in EMEA that stand to gain from a potential shift in EU countries’ energy links with Russia over time, while OAO Gazprom and NJSC Naftogaz of Ukraine, are most likely to find themselves at a disadvantage.

The latest global diplomatic dispute with Russia over the crisis in Ukraine could prompt a change to European energy security, which has traditionally focused on diversifying gas transportation routes into the EU through a network of new pipelines while doing little to diversify the actual sources of gas supply. In a report published today, Fitch analyses a scenario where EU countries could be forced to “recast their approach to energy and economic links with Russia over time” to quote UK Foreign Secretary William Hague.

The US is considering increasing the pace of LNG export license approvals to non-Free Trade Agreement nations. BG is participating in three of the six projects already approved by the US Department of Energy to export US LNG. Construction for these projects begins between 2014 and 2015, with first gas anticipated between 2017 and 2019.

BP completed the final investment decision for the Stage 2 development of the Shah Deniz gas field with its local partner State Oil Company of the Azerbaijan Republic (BBB-/Stable) in December 2013. The expansion of the southern corridor gas link to Europe puts these companies in a unique position to diversify EU gas supplies. First gas to Europe is expected by 2019.

Shell is the first company in the world to develop floating LNG facilities (FLNG). FLNG technology is an important development for the LNG industry as it reduces both the project costs and environmental footprint of an LNG development. If Shell is able to replicate the FLNG technology it is deploying in Australia to diversify European supplies, this could give the company a competitive advantage over peers.

Total continues to invest in UK shale gas production that could provide it with valuable experience not gained by other European peers. Total became the first Western oil major to invest in UK shale after agreeing to take 40% in two licenses that are part of the prospective Bowland Shale in northern England. This investment could give the company a head start if European shale gas production begins to ramp up in a meaningful way.

On the other hand, Gazprom faces the prospect of diminishing market share if Europe seeks alternative gas supplies instead of simply alternative gas routes from Russia around Ukraine. Gazprom supplied 30% of European gas volumes in 2013. Europe may find the political will to reduce this percentage, especially given the potential of US LNG exports.


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