Weekly analytical report December 3 – 9, 2012
1. The EU continues its diversification policy, despite forecasts of reduced gas consumption. Supported by the EU, a study identified the limitation of supply as the main barrier for access to resources in the future. To avoid this risk, the EU creates a list of "common interest" projects, which will include infrastructure projects. At the national level, EU member states also form their policies of diversification: Poland is going to import gas from Germany, Lithuania promotes its own LNG-terminal. Australian Woodside Petroleum purchase of a stake in Israeli gas field also contributes to the diversification of gas suppliers in the future. However, large market players predict a short-term decrease in European gas consumption by 20%. Ukrainian diversification policy faces new challenges. The scandal surrounding the planned LNG-terminal remains resonant in the public – the media investigated that the signatory of the Spanish party is a former ski instructor, the government created a special commission to study circumstances of the scandal, and it started working with documents. In the parliament, despite the claims of the Communist Party to initiate the discussion, but the latter will be transferred to the next convocation. Experts believe that the Russian party is either directly involved or will benefit from the situation. Despite this fact, the head of the State Agency for Investment and National Projects V.Kaskiv hopes to continue cooperation with Gas Natural Fenosa, as the negotiations to establish investment consortium for the LNG-terminal also continue. The talks with Turkmenistan on gas cooperation do not show results - as expected by the experts which did not predict concessions from Russian side. Meanwhile, the gas price of 421.25 USD was included in the state budget-2013, and the lack of progress in negotiations with Russia was one of the reasons for the Ukrainian bonds’ rating being downgraded by the Moody's.
2. The EU and the U.S. united their effort to weaken Russia's role in the European energy sector. The European Commission and the U.S. State Department held an Energy Council meeting, which supported the development of the Southern Gas Corridor. The EU Commissioner G.Oettinger also expressed support, advocating for an early launch of the TANAP project. Against this background, the competition among key infrastructure projects is increasing. The intergovernmental agreement on the TAP project is expected to be signed in early 2013, and the construction will be completed in 2017-2018. Media reported that RWE negotiates leaving the Nabucco project, in particular purchasing its share to OMV. Development of the resource base - Shah Deniz II field – is estimated at 28 bln USD. Azerbaijan, which was called the guarantor of the European energy security, said the Caspian gas will cover the global energy demand for 200 years. DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Russia, which has officially started construction of the maritime part of the South Stream, is trying to engage new allies. Bulgarian President R.Plevneliev called for diversification of pipelines. Russian President V.Putin held talks with the Prime Minister of Turkey R.T.Erdogan, which on a proposal to buy more Russian gas responded with readiness for closer cooperation. However, the country will not participate in the South Stream as a shareholder. Also, an earthquake occurred on the Black Sea route of the pipeline. Against the background of difficulties with the South Stream construction, the Russian party is trying to stop progress of the competing projects, threatening with tensions in relations with other countries of the region. Against Ukraine, which opposes this project, both economic and political methods of influence are applied. According to media reports, Russia could refuse from the South Stream in exchange for Kyiv joining to the Customs Union. The IEA said that the South Stream will lead to a dependence of the Ukrainian gas transportation system on the country’s relations with Russia. In Ukraine, the government criticized the position of the EU towards the Ukrainian GTS, and some experts called to respond to the inactivity of the Energy Community. Meanwhile, the Ukrainian gas transit to the EU decreased by 21.25% this year, while in the next year the government expects to increase transit volumes to 110 bcm.
3. The European Commission develops the low-carbon energy strategy after 2020 as its task, but now faces a number of short-term problems. Following the discussion on approaches to subsidize "green" energy, ministers of the EU member states authorized the Commission to develop the policy for renewable energy after 2020. At the same time, investigation has been launched against German RES law, which is suspected of facilitating abuses. In Slovakia, it was announced that insufficient development of grids makes impossible the connection of new capacities in solar and wind energy. In order to mitigate these risks, the European Commission has allocated 8.9 mln EUR for research on grids’ extension. Meanwhile, new RES markets are developing in the Eastern Europe. In Poland, the government considers to give more priority to offshore wind farms. In Ukraine, increased production of "green" electricity reflected in the Ernst&Young rating of investment attractiveness. Experts forecast the region will receive 10 bln USD of investments in biogas projects in 2013-2014. Meanwhile, talks on a post-Kyoto climate agreement were held in Qatar. Despite the cautious IEA forecasts, it is expected that the Kyoto Protocol will be extended by 2020.
4. With the expansion of nuclear energy market in the Eastern Europe, competition among major technology suppliers also increases. Czech Republic and Hungary have expressed interest in developing nuclear power plants. During visit to Prague, the U.S. Secretary of State H.Clinton has called to choose the Westinghouse company as a supplier. At the same time, the Russian compamy Inter RAO UES wants to supply electricity from the forthcoming Kaliningrad NPP to Poland and the Baltic states. DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
In the nuclear energy, Ukraine is trying to increase security, but many obstacles remain for its full-scale development. Ukraine and Norway signed the agreement on cooperation in the field of nuclear and radiation safety, and the EBRD has allocated additional 190 mln EUR for the Shelter Implementation Plan. Meanwhile, AES Kyivoblenergo PJSC announced its intention to limit electricity supply of the Chernobyl NPP because of indebtness, and environmental activists protested against the EBRD demanding not to finance nuclear energy in Ukraine. Against this background, three workers were poisoned at the Khmelnytskyi NPP due to violation of safety rules, and a special interagency commission was created to investigate the death of one of them. The issue of diversification the nuclear fuel supply to Ukraine has not yet been resolved. In the state budget for 2013, 15 mln UAH are allocated for the state program "Nuclear Fuel". Meanwhile, Russian TVEL increased the prices for its fuel, and the State Nuclear Regulatory Inspectorate delays publication of the report on the incident with the Westinghouse fuel at the South Ukrainian NPP. At the same time, Energoatom NNEGC and Rosenergoatom agreed on further cooperation.
5. Investors continue to search for unconventional gas markets in Europe. While in Poland, according to media reports, some companies plan to sell exploration licenses, in the UK and Ukraine the government is looking for opportunities to build mutually beneficial cooperation with energy companies in this area.
6. While developing offshore extractive projects, the government does not report on sources of funding for such large-scale investments. The government plans to purchase Norwegian equipment and technologies to develop gas and oil industry. Naftogaz NJSC has spent 407 mln UAH to expore the Pallas gas field, and signed a contract with Singaporean Keppel FELS Limited to purchase two floating drilling rigs - in addition to those already fully operating on the Black Sea shelf. However, analysts have raised questions about the funds to make these public investments.
7. Coal production is actually increasing at the expense of human lives. In the last 11 months, Ukraine increased coal production by 5%. However, only last week, one miner died in the mine of Lysychanskvugillya and another one – in the mine of Krasnodonvuhillya. No records of traumatic events are made on the illegal small mines – the number of which, according to the governor of Donetsk region, is decreasing. At the same time, in the state budget-2013, the expenditures for work safety and improving working conditions for miners decreased almost by a half - to 65 mln UAH compared to 125 mln UAH this year.
DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org