Weekly analytical report April 1 – 7, 2013
1. Offshore and unconventional fields are the biggest object of interest in the search for new sources of gas. The UK started gas production at the new offshore field, Rompetrol in Romanian also wants to intensify activity on the sea shelf. In Eastern Europe there is a continued activity on the development of shale gas, despite protests in some countries. The EU Commissioner G.Oettinger warned Germany of losing competitiveness in case of refusal from shale gas production. Discussion on shale gas is being held even in Russia: the CEO of Gazprom A.Miller argued on unprofitability of shale gas production in the United States and was accused by journalists of illiteracy. Meanwhile, Lukoil company announced its intention to repeat the U.S. success, but in regard to unconventional oil deposits in Siberia. Ukraine also draws its attention to offshore and unconventional projects. By the end of the year, hydrocarbons’ production in Black and Azov seas should grow by 25%, while already in Q1 it actually increased by 35.1%. During the meeting of the U.S. Ambassador J.Tefft with the head of Donetsk Regional State Administration A.Shyshatskyi, the parties discussed the benefits of unconventional gas production and its geopolitical significance. Meanwhile, the local officials claim that drilling will not be performed in protected areas. However, despite the official statements of informing the public about shale gas, there is already the fact of court action against the Donetsk Regional Council and a number of critical articles in the media, analyzing the PSA scheme, potential revenues of the government, and the role of the mysterious SPK-Geoservis.
2. On the eastern borders of Europe, a new oil and gas region with Turkey as key transportation hub is being formed. Israel started gas production from a large offshore field and offers Turkey the construction of a pipeline to export gas to world markets. Ankara is ready to negotiate with Israel and seeks to continue its extractive projects in Iraq. Cyprus also plans to build infrastructure for gas production and export.
3. Russia pursues a policy of "information provocations" to determine the actual position of the EU countries. Russian President V.Putin instructed to revisit the YamalEurope II project, which was also supported by Belarus, and Gazprom signed a memorandum with Europol Gaz and presented its plans to Poland. At the same time, the Polish Minister M.Budzanowski accused Gazprom in spreading false information about the memorandum and the Prime Minister D.Tusk refused to support it. According to Polish experts, Russia is using the Yamal-Europe II project to strengthen its position in the negotiations on the Nord Stream. Meanwhile, according to media reports, a memorandum with Gasunie on expanding the Nord Stream may be signed next week, and the Deputy DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
CEO of Gazprom A.Medvedev announced the possibility of constructing a separate line to the UK. 4. The Russians are losing the Ukrainian gas market – diversification projects continue to develop. In March, Ukraine consumed mainly gas from storages which contain 8.8 bcm, and the projected annual level of consumption will remain almost unchanged about 48 bcm. Meanwhile, imports from Poland increased 2.5 times, and experts predict increasing reverse supply up to 10 bcm of gas. The issue of energy independence was raised at the meeting of the Ministry of Energy and Coal Industry with the IMF. In addition, the discussion on restoring gas imports is being held with Azerbaijan, which is considering the proposal on swap supplies, as well as with Kazakhstan. Reaction of Russia is reduced to emotional statements. The CEO of Gazprom A.Miller called the reverse gas supplies from Europe to Ukraine a "fraud" and stated that the gas is de facto Russian. In response, RWE Supply & Trading reported that it supplies gas without reference to its origin, and the government stressed that the reverse scheme fully complies with the international law. The Energy Minister E.Stavytskyi said that Ukraine did not receive specific comments from the Russian party, and the results of the negotiations on gas prices are expected in 2 months. According to media reports, Russia has suspended talks on gas transportation consortium, but the Energy Minister E.Stavytskyi denied this information.
5. A major accident at the Vuglegirska TPP revealed the real state of energy infrastructure. There was a fire destroying four units of the plant which caused drastic fall of the indexes on the Ukrainian Exchange. According to officials, the recovery will take at least six months and cost for the state budget 173.5 mln UAH. As Energy Minister E.Stavytskyi said, the causes of the accident will be announced by April 15, and the government did set up a commission to check the status of all thermal power plants in Ukraine. According to environmental activists, the event is a sign of the critical state of thermal power generation, but experts point to the lack of operating funds to modernize and strengthen security. Against this background, there were also happening an accident at the Darnytska CHP, malfunction at the Kyiv CHP-6, and chimney collapse on the Lysychansk refinery. At the same time, the outcomes of the disaster are already reflected on the market of coal mining. The expected privatization of the PJSC Centrenergo is delayed, and the start of state-owned mines corporatization is postponed to 2014. According to media reports, this step was caused by a surplus of steam coal (on a background of introducing import quotas on coking coal) and will play for the benefit of the illegal mines. It was also announced that the coal for Vuglegirska TPP will be used for the needs of the DTEK holding. Meanwhile, the Energy Minister E.Stavytskyi promised to personally monitor employment on the mines because of the accident. Against this background, modernization of generating facilities – being implemented by the government and private owners – seems to be slightly delayed. The PJSC Centrenergo received an investment component in the tariff for the reconstruction of the Zmiivska TPP, and entered into agreements to repair the Trypilska TPP. The PJSC DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Ukrhydroenergo plans to complete the reconstruction of the Kyiv HPP and expects construction of new facilities. The DTEK holding started the reconstruction of the Kryvorizhska TPP unit, plans to modernize the electric filters of the Prydniprovska TPP, as well as announced a tender for the feasibility study of replacing the Burshtynska TPP units (with the USTDA assistance).
6. Against the background of declining global prices, Ukraine is trying to revive oil refining and transit. Because of the shale oil growth in the U.S., China may become the largest oil importer already in 2014, while Saudi Arabia sees no threat to its dominance as the major producer. World oil prices are decreasing as well as the cost of the OPEC Reference Basket, and export duties were reduced in Russia and Belarus, respectively. In Ukraine, the prices of oil products have not changed. However, the new owners of the Odessa refinery plan to produce Euro-5 petroleum and consider proposals for oil transportation via different routes. According to experts, the enterprise will work on Russian oil. Along with the reduction of oil transit, the government continues to negotiate on restoring supplies from Azerbaijan and Kazakhstan, which raised export duty by 50%. According to the PJSC Ukrtransnafta, documents for the extension of the Odessa-Brody pipeline will be completed by the end of the month. In particular, the interest in supplying Kazakh oil was expressed by the First Vice Prime Minister S.Arbuzov, and the Energy Minister E.Stavytskyi announced plans to increase its transit. Also, it was reported on adapting the conditions of oil transit to the proposals of Kazakhstan.
7. Change of working conditions on the market of renewable energy does not affect investment attractiveness of the projects yet. Since April 1, Ukraine has a new legislation to stimulate the industry. Also, the NERC set new feed-in tariff rates for small, mini and micro-HPPs, and by July the regulator promises to adopt the new procedure on defining "local content". Changes are also expected by the Energy Community: Ukraine should present the National Renewable Energy Action Plan by July. In turn, experts point out new incentives for investment in renewable energy. Evidence to it are the facts of solar power capacities doubling and implementation of "green" projects in the regions: construction of the Botievo wind farm (second phase) is prepared in the Zaporizhzhya region, solar power plants are planned in the Dnipropetrovsk region, a project to construct CHP on biomass is considered in the Kherson region. However, the development of small HPPs is still treated with caution, especially in the Ivano-Frankivsk region.
DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org