Last month we took a look at how the UK survived its first tight winter for many years, despite many fears, predictions and the trouble at Rough (the UK ’s largest storage facility). This month we will continue the theme with a glance to the future and what that may, or may not, hold.  
Looking forward to next winter and at the moment you would hard pressed to buy gas for less than 75p/th. Good if you want to sell, but not so good for the buyer. In fact prices are pushing the high 50’s from September 06 onwards, which suggests that this winter has the potential to be harder than last.

Read the rest of this article

mWELCOME

Hello and welcome to the July issue of MZINE, our free monthly e-newsletter.  

I hope the picture above helps to cool you down, as summer is here with a vengeance. This month we continue our look at the UK Gas winter security, with a focus on 'The Winter to Come' see MSTORY for our main article. MPRICES  looks at the spot Oil Forward Curve, whilst at MPHASIS Derek solves the winter gas supply problem! Don't forget to check out our thought of the month at MPATHY.

Our latest list of training courses can be found at MTRAIN Our public course programme continues in September, ideal for graduates, or to relearn some old tricks that might help your company through the next six months.

MFEATURE has an article relating to Gazprom, reproduced with kind permission by Utilipoint.

Please feel free to contact me about this newsletter and let me have your thoughts, what you like and don't like, I am open to your suggestions.

And if you have enjoyed reading this newsletter and think you know someone who might also enjoy it then feel free to forward it on.

Kind regards.

Paul Cassar
Editor

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mTRAIN

All of our training courses can now earn, participating solicitors, CPD points from the law society. Attendance at any of our events may also contribute to meeting accountancy CPD requirements under the terms of the ICAEW’s CPD policy. Please visit www.icaew.co.uk/cpd for the ICAEW's CPD policy details.

Over the next few months the following one-day events are being held in London, England and Aberdeen, Scotland.

More information about these courses can be found by clicking on the course title or visiting energytrainingnetwork.com and clicking on public courses. Alternatively you can contact me by email or phone +44 (0) 1235 553917, fax +44 (0) 1235 553917.

Do you have six or more staff who would like to attend one of our courses? Would you like a mixture of two or more subjects, or something tailor made? Call  +44(0) 1235 211161 and speak to Nick our Training Manager for a training course to suit your needs.

OTHER DATES

http://www.theeagc.com

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mPRICES
Forward Oil Curve

THE FORWARD CURVE  

Rising concerns about inflation and the outlook for global economic growth are taking some of the heat out of commodity markets. Crude oil prices are lower all the way along the forward curve than they were a month ago and the contango extends nearly a year ahead. Crude stocks remain high, depressing prompt prices, but product stocks are tighter after an extended refinery turnaround season, supporting record crack spreads this summer.

Downstream, refinery capacity constraints are still providing longer-term support for prices as demand for transport fuels continues to expand. Tighter product specifications make it more difficult for refiners to meet growing demand as crude oil quality deteriorates with rising output. Calendar 2007 WTI edged down to just under $72/bbl – equivalent to $70.7/bbl for Brent or over $66/bbl for the new OPEC Reference Basket of crudes.

CGES Monthly Oil Report, 15 June 2006 www.cges.co.uk

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mPHASIS!
for the lighter side of life!

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mPATHY
thought of the month

There is no such thing as a problem without a gift for you in its hands. You seek problems because you need their gifts.

Richard Bach Illusions
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mFEATURE

Gazprom Warning has EU Worried

Source: By James Griffin Utilipoint

With energy security such a hot political topic in the European Union (EU), the uncompromising statement issued by Russian state gas giant Gazprom against interfering in the firm's desire to enter the European downstream energy market has caused much consternation amongst EU members.

Gazprom's April 18 statement said, “It is necessary to note that attempts to limit Gazprom's activities in the European market and politicise questions of gas supply, which in fact are of an entirely economic nature, will not lead to good results.” The group also suggested that, should its relationship with Europe sour over political issues, it would have little hesitation in focusing its expansion on other areas of major energy consumption, such as China .

Gazprom warned against the politicisation of energy supply following discussions between the firm's Chief Executive Officer (CEO) Alexei Miller and EU ambassadors. Its thinly veiled threats are being interpreted by many as a response to press rumours that the UK Government is looking into whether it has the legal means to block a potential Gazprom bid for Centrica, the UK-based energy major. Shares in Centrica have recently been enveloped by speculation that Gazprom is planning a takeover approach.

Given that Gazprom already provides about 30 percent of gas supplies for France , Germany and Italy , and over 90 percent to new EU member states in central and eastern Europe, it is easy to see why anxieties over EU energy security have been enhanced. In response, Ferran Tarradellas Espuny, spokesman for the EU's Energy Commissioner Andris Piebalgs, said that the statement “gives grounds to our concerns on the growing foreign dependency of European energy supply.”

EU alarm bells had initially started ringing back in January, when Russia became embroiled in a gas pricing dispute with Ukraine . There have been reports that the row with Ukraine resulted in gas deliveries to some EU states dropping by 40 percent. This dispute was followed by similar rows with Georgia and Belarus , which have centred on what analysts have called "the end of special rates for Russian neighbours." Whilst it is easy to understand that Gazprom wants a "proper price" for its gas exports, for many in the EU, the worry has been how it has gone about securing it. The question being pondered is: could the future for all EU countries be marked by similar disputes?

So where does this leave the EU and Gazprom today? It appears that Gazprom is advancing the concept pushed forward by Russian President, Vladimir Putin, of Russia as an "energy superpower." It certainly has both the necessary proven gas and oil reserves. Yet it is unclear how Russia 's position will play out in the forthcoming decades. For Russia and Gazprom, the focus is on political agreement between the energy consumer, the European Union, and it as the energy provider, backed up by supplemental long-term energy supply contracts.

Gazprom would argue that the outcome for such agreements is the protection of the consumer from gas price hikes. Given that gas wholesale and retail prices are rising across the EU, for example, over the past three years total retail gas price rises amongst the six main UK utilities have ranged between 41 percent and 95 percent, the potential benefits are clear. In turn, it would provide Gazprom with a guaranteed income—at today's prices, a high income—from gas sales for a defined and relatively long period of time.

Yet this path is a direct contradiction of the concept for the development of the EU energy market, which is based on the idea of diversified supplies and market liberalisation. In fact, comments from the EU after Russia 's dispute with Ukraine suggest that supply diversification is the only way forward. This was reiterated by Tarradellas Espuny following Gazprom's statement; the EU needs "to diversify both the origin of our supplies and our supply routes."

The issue is brought home further by Gazprom's pursuit of ambitious and rapid expansion in Europe aimed at taking it further down the value chain and away from its traditional gas production activities. In Gazprom's statement, Miller stated that the group is “interested to develop mutually beneficial energy cooperation with partners in Europe ” and specifically highlights the North European Natural Gas Pipeline Project. The project allows German companies to develop the South Russian gas fields jointly with Gazprom, in exchange for which the Gazprom will receive a share in the gas distribution assets of its German partners.

Today, alongside the Centrica rumours, talk appears focused on Belgium and Italy, with the CEO of Italy's main gas player ENI, Paolo Scaroni, recently quoted in the Italian national press as saying that Gazprom has shown an interest in both increasing the amount of gas it exports to Italy and potentially investing in Italian gas infrastructure. Yet the tone of Gazprom's April 18 statement highlights some of the stiff resistance it has encountered as a result of its expansions plans.

For the EU, its concerns surrounding over dependence on any one source of gas are exacerbated if the holder of that gas has made significant penetration further down the value chain. Its fears—justified or not—are being brought home by Gazprom's recent market positioning.

The current situation has the potential to develop into a political stand-off, but given that each side needs the other there are some flickers of light. In an effort to soften his comments and ally any concerns that gas supplies may dry up, Miller added that Gazprom understood its responsibilities as the provider of 25 percent of Europe 's gas and would honour existing contracts. Prior to the recent International Energy Forum meeting in Doha (April 23/24), Piebalgs underlined the importance of “cooperation and dialogue” with a specific focus on uncertainties and recent disruptions in gas supplies.

What needs to be recognised is that supply diversification is the way forward for all. The EU needs to bear in mind that Russia is not the only source of gas it can harness—not only does Norway continue to play a role as a significant gas producer, with considerable potential to continue doing so, but also the possibilities of LNG open up a much wider range of potential gas suppliers on a global scale. And Russia is already exploring possibilities to the east. Gazprom recently signed an agreement with China National Petroleum Corp to build two pipelines that will supply China with 60-80 billion m³ of gas a year.

The focus now turns to the G8 Summit in July in St Petersburg . Expect energy security to dominate once again as the address by Russian President Vladimir Putin to visitors to the official site of Russia 's G8 Presidency in 2006 stresses: “This year, we plan to urge our partners to redouble efforts to ensure global energy security. We believe that today, it is crucial to find a solution to a problem which directly influences the social and economic development of all countries, without exception.” As the furore over Gazprom's recent statement underlines, energy security is not an option, it is a necessity.

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