Weekly analytical report September 2 – 8, 2013
1. Gazprom continues to lose in the gas price in the European direction. Companies of the EU member states continue to demand lower gas prices from Gazprom – both under the "price adjustment right" and by preparing a new contract (Lithuania). Italian Eni has started to get Gazprom’s gas previously paid under the "take or pay" clause. Cyprus refused to accept cost proposal of the Russian company Itera, hoping for own gas resources on the Mediterranean offshore which are considered by the IEA as promising. In the eastern direction, Gazprom demonstrates reaching agreement with China, but misses the main detail – the price. Gazprom and CNPC signed a deal on key conditions of gas supply. At the same time, the pricing formula, which is promised to become "innovative", remains unclear. CNPC also acquired 20% of the Yamal LNG project from the Russian company Novatek. Against this background, China deepens energy cooperation with Turkmenistan: the parties have agreed to increase gas purchases, to construct a new pipeline section and to support Ashgabat initiatives in the UN. Instead, for the post-Soviet countries, Russia either uses threats or offers concessions in exchange for refusal from the European integration. After the formal start of construction of the Ungheni-Iaşi gas pipeline, the Russian deputy prime minister D.Rogozin resorted to threats against Moldova – which, however, were not taken seriously. Armenia declared its readiness to join the Customs Union, a step associated with the lower prices of Russian gas. As for Ukraine, Russian president V.Putin spoke on possible trade and economic difficulties due to signing of the Association Agreement with the EU. The advisor to Russian president S.Glazyev has promised Ukraine to decrease gas prices to 166 USD/tcm in case it refuses from the EU integration – much less than the expected 416 USD/tcm in Q4 of 2013. Also, the European Commission has for the first time openly acknowledged Russia's pressure on the neighbouring countries to prevent them from the European integration. As a response, Ukraine actively reduces purchase of Russian gas, increasing imports from Europe. The President V.Yanukovych announced the intention to further cut gas imports from Russia; particularly, only 18 bcm will be purchased in 2014. According to media reports, the imported volumes decreased by more than a third year-to-date. Meanwhile, gas imports via Poland were restored, and the minister E.Stavytskyi held negotiations with the EU Commissioner G.Oettinger on the reverse supply from Slovakia, which has not yet started.
2. Full implementation of the single market rules remains a priority for the EU member states. Presidents of the Baltic countries and the U.S. supported the implementation of the Third Energy Package, which was also discussed at the 23rd Economic Forum in Krynica-Zdrój (Poland). The European Commission is starting a court suit against Bulgaria for the lack of DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
reverse interconnections with neighbouring countries. At the same time, the Southern Gas Corridor project is gaining momentum: construction of the second stage of the Shah Deniz field will start in 2014, and the selected pipeline consortium TAP is ready to accept new shareholders, including those from Turkey. At the same time, Azerbaijan declares still high interest to Nabucco West pipeline project. 3. Support of unconventional hydrocarbons’ production in Europe increases. One of the exploration wells in Poland produces 8 tcm of shale gas daily. In Lithuania, Chevron won a tender to develop one of the fields, and the most benefits are promised to local communities. The EU Commissioner for Energy G.Oettinger recommends Germany not to refuse from hydraulic fracturing technology. Even Russia stimulates the production of tight oil and expects lower prices for oil and gas. In Ukraine, the government makes concessions to local authorities, trying to speed up the start of projects to develop unconventional hydrocarbons. The minister E.Stavytskyi expects billion-dollar investments in the unconventional gas exploration; the same prospects were mentioned by the U.S. Ambassador. Amendments were made to the draft PSA with Chevron (Oleska field) which will be repeatedly considered by the Ivano-Frankivsk Regional Council in September. Also, it is planned to sign the PSA with ExxonMobil (Skifska field) soon. At the same time, Shell is already fulfilling its social commitments in the Kharkiv region (joint activity with Ukrgazvydobuvannya). The issues of unconventional hydrocarbons’ production have been also raised in other parts of Ukraine – in particular, Poltava and Lugansk regions.
4. Further reform of the natural gas market remains at the level of draft documents, while there is an increased number of non-transparent practices. The government has prepared a draft law on reform of Naftogaz NJSC; also, a draft law on state regulation of the energy sector was registered. Meanwhile, Naftogaz extended the "commercial secret" classification to a wide range of information, including procurement and debts. Media reported on the Naftogaz debts to the state budget, but the company does not acknowledge it. New details were published on the procurement of the so-called "Boyko rigs". At the same time, using Azerbaijan experience in the management of extractive revenues and joining the international standard EITI could contribute to greater transparency.
5. Before the heating season starts, the government provides financial incentives for European companies storing gas in Ukraine. In late August, there were 6.4 bcm of gas in the Ukrainian underground storage facilities, Ukrtransgas reports about 12.3 bcm at the current moment, and the minister E.Stavytskyi promised over 14 bcm before the heating season. Moreover, the official announced agreements with German RWE on the price and volumes of gas to be injected. The government continues campaigning to attract other players: the National Energy Regulatory Commission reduced the tariffs for gas injection and withdrawal 4.4 times, and the minister E.Stavytskyi told about 5 interested companies. According to media reports, the proposal was received, among others, by the company Cadogan Petroleum.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
6. The struggle against debtors in the housing and utilities’ sector continues. The minister G.Temnyk threatened the directors of municipal heating companies with dismissal for gas debts, and the "Gaz of Ukraine" company – with limiting gas supply to Zaporizhzhia region. At the same time, the Verkhovna Rada did not support a moratorium on the forced sale of property of the indebted persons. Experts are sceptical about the experiment with a single heat supplier, emphasizing the need to improve energy efficiency and to postpone implementation of the Large Combustion Plants Directive. The Ministry of Regional Development, Housing and Utility Services promised to reach full readiness to the heating season by October. Meanwhile, heat supply systems are still being tested and repaired in Kyiv and Lviv.
7. While oil products are becoming more expensive, their quality remains questionable. World oil prices decreased, particularly due to less tensions around the potential U.S. attacks on Syria. However, in case of military action against the country, analysts expect higher prices. In neighbouring Belarus, prices of oil products increased by 3.6% in the last week, while in Ukraine – by 1-2%. This situation developed on the background of Russia reducing crude oil supplies to Belarus, while Minsk responded with restrictions on refining products’ exports. Ukrainian retail chains continue to attract investment and expand, but the governmental inspection found violations at half of the filling stations. Meanwhile, the debate on fuel quality continues: experts criticize the new technical regulation, and a draft law was registered in the Verkhovna Rada, proposing to cancel the mandatory share of bioethanol in motor fuels.
8. The issue of nuclear safety is again high on agenda not only in Japan but also in the rest of world. Japanese authorities failed to prevent dangerous situations at the FukushimaDaiichi NPP. In particular, there is a reported increase in radiation levels with indicators 18 times higher than expected. The government of Japan is trying to calm down both own citizens and the international community, promising to allocate 470 mln USD for cleanup, to deactivate the polluted water, and to set up a protective layer of artificial permafrost. In Ukraine, the government will also additionally finance the security measures at NPPs, increasing costs for the appropriate program by 4 bln UAH – to almost 17 bln UAH. In particular, air defence units will be located at the plants by 2016. Also, the agreement on cooperation in nuclear safety was signed with Belarus. Against this background, environmental organizations held an information tour "For non-nuclear Ukraine", and the Westinghouse company did not include Ukraine to promising markets. Among the latter, in particular, is the United Kingdom where Russia wants to build its reactors.
9. While Ukraine is delaying the reform of electricity market,another stage of its repartition takes place. The Energy Community Secretariat sent a letter to the Verkhovna Rada supporting immediate adoption of the draft law on electricity market. Meanwhile, the State Property Fund has completed the transfer of Donbasenergo shares to the new owner, and the regulator increased the installed capacity of the company. Officials call privatization a success which did not prevent the other company to challenge the transfer of ownership rights. The media express doubts about the Donbasenergo investor and discuss bidders for Kharkivoblenergo. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org