Oil After the surge of oil prices within the past few weeks, the oil prices slumped this week. This week, Brent is trading just above $62 with constant decline in three consecutive days. Accordingly, Azeri light also corrected itself downward around $64. The traders potentially took some profits home although the direction should still be upwards in the medium to long-term. The oil prices have already increased more than 10 percent this year, a healthy and steady progress after the sharp and continuous decline since mid-2014. Also, the new IEA report is also calming the eager expectations of the oil market. IEA revised down its oil demand estimate by 100K bpd for 2018. Still, ahead of the oil producers’ meeting at the end of November, continuing with its commitment in cuts, Saudi Arabia plans to reduce crude exports by 120K barrels per day in December from November, reducing allocations to all regions. Crude exports to the United States will be more than 10 percent lower than November levels.   Natural Gas, Europe, Tap and Nordstream Meanwhile, Germany’s new energy policy negotiator for Angela Merkel, Armin Laschet, claims that Germany could eradicate coal-based energy production by 2030. He also advocates the introduction of speed limits to the German autobahn to decrease emissions and fight climate change. Given the move towards renewables and fighting climate change, we can see more inclination towards natural gas usage as well. Despite the rising interest towards natural gas, European Union is also looking deep in energy supply diversification. At the Greek Energy Forum, Commission Vice President for Energy Union Maroš Šefčovič and US Ambassador to Athens Geoffrey Pyatt both stressed this point. While the American counterpart stressed the importance of American LNG supplies to Europe and their critical role in securing European energy supply, Pyatt also stressed the role of the Trans-Adriatic Pipeline (TAP) and Azerbaijani natural gas. Pyatt also openly promoted any non-Russian natural gas to Europe. He stressed the balance of supply for Europe so that a Russian supply stoppage would not cause long-term issues for the continent. Šefčovič agreed with the ambassador, recalling the supply crises of 2006 and 2009 when European nations had to wonder how they were going to make it to the next week. Although, Russia is much more confident for Nordstream, compared to the Turkish Stream pipeline project, there are still EU level objections to both. Russia currently is able to garner German support for the former but even for that project, there are EU level legal procedures to be followed. This week, once again, European Commission suggested applying the Third Energy Package to all the gas pipelines entering EU gas market from third countries. Although the TEP aims to establish better competition in the European energy markets, it is clearly directed to Russia and its natural gas export projects at this point. The commission’s press release also praises the Southern Gas Corridor as a major alternative for Russian natural gas exports even though the SGC is currently much smaller in its size. On the other hand, several Russian officials and energy experts are blaming the EC for abusing the EU laws and policies to exert political pressure over Russia. From the perspective of the member countries, although some (Hungary and Serbia in particular) favor Russian natural gas, all countries welcome the SGC pipelines through their countries. The support of Greece and Italy already exists due to TAP. However, the Balkans and Central Europe are essential for SGC’s expansion. To that regard, this week Slovak Economy Minister Peter Ziga and Hungarian Minister of Foreign Affairs Peter Szijjarto signed a Memorandum of Understanding on Eastern gas pipeline project while also showing their interest in potential natural gas delivery through the SGC.   Russia, Turkmenistan and Iran On November 1st President Putin paid a visit to Tehran, Iran. During the visit, Russia and Iran signed a series of energy deals worth $30 billion dollars. The deal has both economic and political implications for the two countries and beyond, especially at the expense of the United States. Russia will be helping Iran to increase output. The deal also includes Iran gaining Russian military technology as well as intelligence. Finally, the transaction will take place in Rubles and not in Dollars, helping to de-dollarize Iran’s economy, which also protects it against further US sanctions. American rivals have started a trend doing this in an effort to undermine the dollar in world markets but also risking their economies with hedging in volatile local currencies. Part of Russia’s expansion in the south also continues with its negotiations in Turkmenistan. Turkmengas CEO Myrat Archayev announced the recent negotiations with Russia to export Turkmen natural gas to Eastern European customers. The infrastructure for export already exists and Gazprom used to be the largest buyer of Turkmen gas until it started cutting purchases beginning in 2010. Since then, Russia eventually stopped buying Turkmen gas and Turkmenistan started exporting into China.   Saudi Arabia, Iran, Turkmenistan: Regional Competition over Turkmen Resources Grows Amid soaring tensions with Tehran, following the abrupt resignation of Lebanon’s Prime Minister, Saad Hariri, Saudi Arabia has decided to present itself as a potential investor in Turkmenistan’s oil and gas industry. Back in May 2016, it was Turkmen President, Gurbanguly Berdimukhamedov, who had paid an official visit to Riyadh, suggesting that KSA take part in the implementation of the transnational Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, among other vital projects in Turkmenistan’s petrochemical and gas-chemical industries. At the time, Mr. Berdimukhamedov had highlighted three priority areas for collaboration on TAPI: supply of pipe products and gas equipment, construction loans, investments in the development of the giant Galkynysh onshore gas reservoir, from which the pipeline is going to originate, and participation in TAPI’s consortium. Last week it was Saudi Energy Minister’s turn to express its country’s support for TAPI, on the sidelines of the fifth convention of the Saudi-Turkmenistan Joint Committee for Economic and Trade Cooperation, held in Riyadh. In particular, Khalid al-Falih, who also acts as Chairman of Saudi Aramco’s Board, committed that the Kingdom will supply necessary pipeline material for TAPI. It should be noted that, since Berdimukhamedov’s aforementioned meeting with representatives of Saudi business circles, Ashgabat has only managed to secure a $700M loan from the Islamic Development Bank to finance TAPI, a drop in the bucket considering the pipeline’s overall $10bn cost. However, in the midst of the unfolding domestic tumult, topped by the recent purge of royal family ‘’rivals’’ by the Crown Prince Mohammed bin Salman, Saudi Arabia appears more interested in getting involved in Turkmenistan’s gas exploration activity. According to Mr. al-Falih, ‘’Aramco is looking at any possibility for investment in oil and gas production globally, including countries overlooking the Caspian Sea, and Turkmenistan, as I mentioned, is among the countries that have the most reserves, especially in gas.’’ Whether Saudi investment intentions extend to the lodging of an application for a tender launched by Turkmengaz regarding the third development phase of Galkynysh was not specified. Up until now, a group of Japanese and Turkish companies has offered to build $20bn worth of natural gas processing facilities in Turkmenistan, designed to remove carbon dioxide and water from gas extracted from Galkynysh. Moreover, the Chinese national oil and gas firm CNCP, earlier in 2017, also declared readiness to participate both in the tender and TAPI construction, further increasing geopolitical antagonism over who’s finally going to unleash reserves of the much in need of opening up Turkmen market. Total resources of Galkynysh are estimated at approximately 26.3TCM of commercial gas. The 1.814km TAPI will cover 214km before reaching the Turkmen-Afghan border. In Afghanistan, it will traverse 774km through the provinces of Herat, Farah, Helmand, Nimroz and Kandahar. The 826km-long route within Pakistan will pass near Quetta, the provincial capital of Baluchistan, and Multan in the province of Punjab, finally reaching India at Fazilka. The pipeline was first launched in December 2015 and is expected to carry 33BCM. Pipeline laying operations until the border with Afghanistan are scheduled to have been finalized by July 2018, in line with the existing timetable. Nevertheless, construction on Afghan territory is likely to suffer delays due to the current decline in natural gas prices, Afghan ambassador to Turkmenistan Mirwais Nab announced last month. Turkmenistan’s contribution to the rising needs for natural gas supplies in India and Pakistan predicted to expand by a further 50% until 2030, is seen as a means to escape from its nearly total export dependence on China, following Russia’s 2016 decision to resume imports of Turkmen gas. This is why TAPI project is considered a crucial piece of infrastructure for the achievement of the desirable eastward diversification objective by Ashgabat. And since security always remains a matter of concern, TAPI Steering Committee now holds consultations in order to address security challenges that could stand in the way of the project, Indian Ambassador to Turkmenistan Dr. Thatipamula Venkata Nagendra Prasad announced on November 13. KSA support for TAPI has been affirmed at a time when its other regional heavyweight in the Middle East, Iran, is softening its stance, putting forward a settlement of debt-management issues with Ashgabat through dialogue, instead of suing Turkmengaz in the International Court of Arbitration, as managing director of the National Iranian Gas Company (NIGC), Hamidreza Araqi, stated last week. With Armenia’s latest proposal to pay off Iranian debt to Turkmenistan by barter likely to be rejected by the cash-thirsty Ashgabat, Tehran needs to work on a compromise, so that the Turkmen spigot reopens and the winter needs of the poorly supplied Northeast Iranian regions are covered.   Turkey, Azerbaijan: Azerbaijani Energy Minister Discusses TANAP Prospects with Turkish Counterpart On November 7, Energy Minister of Azerbaijan, Parviz Shahbazov, met in Ankara with his Turkish counterpart, Berat Albayrak, in what was Mr. Shahbazov’s first foreign visit since its appointment, in October 2017. The selection of Turkey as the first international destination for Azerbaijan’s Energy Minister is a sign of the firm energy ties between the two countries. The two Ministers underlined the significant progress made on the implementation of the Trans Anatolian Pipeline project and its importance regarding the transportation of Azerbaijani gas to the Turkish market. TANAP is going to receive a total of 16BCM of gas from Azerbaijan’s Shah Deniz field, 10BCM of which will be pumped into the Trans Adriatic Pipeline (TAP), intended for European consumption, whereas remaining 6BCM will be used to satisfy Turkey’s domestic gas needs. TANAP capacity is expected to increase up to 23-31BCM/a by 2023-2026. The prospects for a capacity extension in all three segments of the Southern Gas Corridor route (South Caucasus Pipeline, Trans Anatolian Pipeline, Trans Adriatic Pipeline) was discussed by Ministers Shahbazov and Albayrak. Finally, projects implemented by the State Oil Company of Azerbaijan (SOCAR) in Turkey, such as Star oil refinery and Petkim petrochemical complex, were also put on the table.