Weekly analytical report December 2 – 8, 2013
1. The EU seeks a format for the development of renewable energy by 2030. Business representatives urged not to impose mandatory targets, and the media called to define targets which would lead to real benefits. Against this background, the EU agreed on imports of solar panels from China by introducing additional duties, and the Bulgarian government's decision to introduce a 20% tax on "green" energy profits resulted in protests, although proponents of the changes hope to avoid sanctions of the EU. Meanwhile, despite the predicted competition between solar and thermal power plants by 2025, experts forecast possible problems with electricity supply already this winter due to weather conditions and infrastructural limits.
2. Despite attempts to redirect gas exports, Russia seeks to gain a foothold in the EU market, which effectively resists it. In Russia, the law on LNG exports liberalization came into force, and experts predict an increase in gas exports to Asia under certain conditions, whereas China cancelling tax regime can contribute to it. Russia is promoting the South Stream project, planning to file lawsuits against the constraints of the Third energy package, and reinforces its presence on the European market by means of asset swap and participation in the sale of companies. In turn, the European Commission announced that bilateral agreements on South Stream violate the EU law, and some member states are asking Brussels to help renegotiate them. Gazprom said that such decision will not stop the pipeline construction but simultaneously met the demands of Lithuania, having agreed to resume negotiations. As in the case of signing of the Association Agreement with the EU, in the last moment Ukraine did not provide clear response to the proposal to sign an agreement with Eustream. The media revealed that Ukrainian officials did not appear at the signing ceremony as Kyiv proposed a new version of the document. According to the Energy Minister E.Stavytskyi, Slovakia and Ukraine will sign the agreement next week. According to unofficial information, the Slovak party seeks to get guarantees of gas to be shipped, in particular to see Ukraine concluding contracts for gas supply from the EU, and the agreement is rather a memorandum of technical intent. Despite the high levels of consumption and imports of Russian gas, Ukraine continues to buy gas in the EU due to lower price.
3. At the end of the year, the efforts to revise the contract with Gazprom become even more active, but the Russians are not ready to go for symmetric concessions. Armenia received discount on Russian gas as a reward for consent to join the Customs Union and the same model is offered to Ukraine. Kyiv is ready to meet these proposals: the Prime Minister M.Azarov said that the country cannot overpay for gas anymore, and that key parameters of the state budget for 2014 depend on this issue; the President V.Yanukovych expects to finalize DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org
the negotiations by the end of the year; the Energy Minister E.Stavytskyi shared plans to purchase 10-15% cheaper gas from Russia already in Q2 2014 – despite the seasonal increase of spot prices in Europe. The government is even willing to discuss the gas transportation consortium, with the other party expressing interest in it. At the same time, the visit of Ukrainian delegation to Moscow and negotiation between Deputy Prime Ministers Boyko and Shuvalov did not yield concrete results, as the issue of reviewing the contracts was not discussed. Media do not exclude the scenario that the solution may be subject to wider political arrangements. Instead, the issue of debt was raised again: the CEO of Naftogaz Y.Bakulin said that the 765 mln USD debt for imports in August will be paid in the nearest time. The rest of the debt will be paid in early 2014, although Gazprom announced that negotiations still continue.
4. In the issue of reducing energy dependence, Ukraine strengthened agreements with China on synthesis gas production. During the visit of the President V.Yanukovych to China, the parties discussed cooperation in the field of coal gasification. According to official reports, the signed documents open the way to receiving 8 bln USD of Chinese investments. In particular, the agreement was signed with CNCEC on cooperation in the construction of syngas production plants. The Energy Minister E.Stavytskyi, who signed the document, said that the first facility will be launched in the Lugansk region by 2015. The media believe this program to be a partial solution which will form the demand for Ukrainian coal, as its production is declining.
5. Countries interested in the development of shale gas are trying to streamline the conditions for attracting investors. Poland is forcing shale gas production through changes in regulation; Denmark has its reserves of unconventional gas estimated; while France continues to push for moratorium on hydraulic fracturing. In Ukraine, the government expects a sharp increase of offshore conventional gas production, based on the 2013 results, and plans to simplify the conditions to develop unconventional gas. Meanwhile, Shell has started fracking at the Belyaevska-400 well, expecting the results on gas-in-place in February 2014.
6. The government has much hope for lower oil prices, but leaves the shadowing of oil products market without due attention. The experts estimate that global oil prices will decrease in the next 2 years. OPEC also predicts an increase of supply on the market to meet the expected growth in demand. The Ministry of Energy and Coal Industry of Ukraine also hopes for this trend, which is supported by a slight decrease in the prices for diesel. At the same time, experts point to the risks of importing low-quality diesel and confirm the growth of illegal production of oil products.
7. Even with a slight worsening of weather conditions made the statements of readiness to the heating season followed by local reports on the deficit of allocated gas volumes. The management of Naftogaz has announced a reduction of gas reserves in the underground storages to 17.2 bcm, as well as of a full readiness of the country to the heating season. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Instead, the Minister G.Temnyk stressed the need to increase the gas "limits" for the Odessa region, as they were used already in November. Meanwhile, energy suppliers and experts point to financial problems of public utilities. In the last week Kyivenergo disconnected heating in 21 buildings (emergency cases) and again raised the issue of 1.6 bln UAH debt, having cancelled the tender to attract 308 mln UAH loan. The former Minister of Regional Development indicated the different interests of consumers and energy suppliers, and the industry associations repeatedly stressed the irrational character of tariff policy.
8. On the backdrop of increased investment attractiveness and strengthening of local initiatives, the government agencies demonstrate willingness to manage energy planning at the state level. The Ministry of Regional Development has announced its readiness to become a coordinator for the Covenant of Mayors initiative in Ukraine. The city of Zhytomyr received a grant offer from the Swiss Cooperation Office for the modernization of municipal heating company. Supported by NEFCO, two projects will be implemented in Kyiv – on energy saving and insulation of budgetary institutions, using the elements of ESCO mechanism.
9. Ukraine continues to prepare for the first stage of the electricity market liberalization. The President V.Yanukovych has instructed the government to establish a coordinating center for the implementation of the new market model. At the same time, the new rules of holding the auctions for access to cross-border electricity capacity received mixed views: some media claim these rules are favorable for DTEK, others suggest the possibility of competition with Energoatom. The situation will become clearer on December 10, when the auction to grant the right to export electricity in 2014 will be held.
DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org