Weekly analytical report September 9 – 15, 2013
1. The circumstances for Gazprom do not promise to improve the company’s status in the nearest time. According to PwC, the market value of Gazprom has fallen by 200 bln USD in the last 5 years – the most among major world companies. The Russian president V.Putin approved a moratorium on raising gas tariffs on the domestic market, while gas prices for Belarus will slightly increase. Gazprom’s entering the Chinese market, according to experts, will cost 50-60 bln USD. The very same Gazprom expects a significant price growth on the European market in the next 5-10 years and is planning to swap assets with Wintershall by the end of the year. The market situation of the Russian company is complicated by strained political relations in the EU: Lithuania did not agree to withdraw its claim at the Stockholm arbitration court, and the non-transparent negotiations of Gazprom with the Lithuanian government raised concerns of both the parliament and the president D.Grybauskaitė. Meanwhile, the EU countries continue to complete a single energy market, implementing the adopted legislative packages. The European companies also demand from Gazprom to reduce gas cost by 20%, while the European Commission is preparing a formal statement informing Gazprom of allegations in anti-competitive pricing. The EU attention also covers the neighbouring countries: the European Parliament called for increased financial support to the Energy Community, and the establishment of a defence fund for the EaP countries was announced in Vilnius.
2. Despite some difficulties, Ukraine could open new prospects of receiving gas from Europe. According to politicians, annual imports of Russian gas will be reduced to 10 bcm, and experts indicate the possibility that own gas production will exceed imports by the end of the year. On September 24, talks will be held in Brussels on the reverse gas supplies from Slovakia, whereas the difficulties are considered by the Minister E.Stavytskyi as purely political. Meanwhile, the Hungarian gas network operator started maintenance works on the border with Ukraine which, however, will not affect the transmission capacity. Totally, Ukraine has imported 1.1 bcm of gas from the EU in the last 8 months. To continue cooperation with RWE, Naftogaz has signed a contract on using Ukrainian underground storage facilities, so the German company can increase annual gas supply to 10 bcm. In addition, the storages will be used by companies of D.Firtash which allows the government to be optimistic concerning the heating season.
3. In Europe, the issue of gas production is being revalued. Romania wants to create a regional energy market which will use common gas resources. Cyprus has estimated its potential gas reserves. Chevron intends to start early exploration of shale gas in Lithuania. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Instead, the European Parliament has postponed consideration of the issue to include hydraulic fracturing technology to the requirements of environmental impact assessment. At the same time, Ukraine has signed an operating agreement with Shell, allowing to start activity on the Yuzivska field. It is expected that unconventional gas will be produced in the area as early as 2015. Also, Shell is ready to contribute to the development of depleted gas fields in Ukraine. The issue of approving the draft PSA on the Oleska field should be also resolved soon. In addition, the government has intensified discussion on the draft PSA on the Skifska field and promised to quickly go through the necessary procedures. According to the recent data, Ukraine increased gas production by 2.7% year-to-date.
4. Global oil market is preparing for the possible supply constraints. World prices for oil increased mainly because of uncertainty about the U.S. military operation against Syria. According to media reports, another reason could become the destabilization in Iraq. The IEA has not changed its global consumption forecast for the current year, while the OPEC forecast predicts growth. Producing countries, including the United States and Azerbaijan, already respond to there expectations. First oil was produced on the Kashagan field, while China increased its share in the project. However, Kazakhstan has no plans to sharply increase production. Against this background, Russia will not change the volumes of oil supply to Belarus, whereas – according to the media – some companies lobby for a privileged status. In Ukraine, both the sales and the price of liquefied petroleum gas are increasing. Experts believe in further price growth, while market participants reject the expected fuel deficit in September and October. The Cabinet of Ministers has no plans to repeal the excise tax on oil products, but the state has already failed to collect 4.7 bln UAH of taxes. The situation in refining remains disappointing: in the first 8 months of the year, the supply of crude oil to refineries decreased by 34.4%, and the production of petroleum – by 45%. However, the Odessa refinery received the first batch of oil for processing, and the investor of the recently re-launched Karpatnaftokhim plant plans to invest 81 mln USD in new projects.
5. Europe has limited the production of first generation biofuels, while Ukraine hopes to fill this gap on the EU market. The European Parliament decided to limit production of conventional biofuels, as the studies confirmed their negative impact on the cost of food. Meanwhile, Ukrainian grain producers will supply their raw materials to the EU, in order to produce biofuels. Bioenergy industry is gaining momentum in Ukraine too. The company Danosha launched a biogas plant in Ivano-Frankivsk region. In Lviv region, a biogas facility started operations, and in Chernihiv region, two thermal power plants on solid biofuel will be constructed. Biomass projects are also planned by Kyivenergo, and Kharkivvodokanal will produce biofuels from sewage sludge.
6. Poor financial condition of state-owned coal mines is pushing the government to faster privatization. Despite the Energy Minister E.Stavytskyi statement on the increase in coal production over the past three years, it actually fell by 5% in the first eight months of this DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
year, and in August the losses of state-owned mines increased by 314 mln UAH, forcing the Cabinet of Ministers to provide budget support to the mines announced bankrupt. Meanwhile, a fire erupted on one of the state mines, followed by criminal proceedings. Against this background, the State Property Fund announced the plans of privatization, with conditions to be developed by a special working group, – first of 45, later of 42 mines (the list was approved).
7. In Ukraine, there is still a tense situation with the payments for gas and heat. In Donetsk region, gas debts increased to 2.2 bln UAH, in Lozova (Kharkiv region) – to 20 mln UAH, in Kalush (Ivano-Frankivsk region) – to 1.25 mln UAH. The governor of Donetsk region A.Shyshatskyi has ordered the heating enterprises to deal with debts, and the head of Crimean government A.Mogyliov urged people to pay for utility services in full. In Lviv, the authorities deal with the return to single-rate tariff for heat: the city council argues it was better to pay under the dual-rate tariff. Meanwhile, the media indicate that consumers do not use up to 45% of the heat paid, and one of the districts in Kyiv plans to organize a march demanding to start gas supplies for boilers. Despite traders claim that Ukraine has enough gas for the heating season, experts think it could start later. Against this background, there is a discussion on two legislative initiatives – the introduction of penalties for the absense of heat meters and for the unauthorized disconnection from the district networks.
8. Despite the high interest in developing nuclear energy in Europe, security risks remain key challenges to these intentions. In Bulgaria, the parliament will decide on the construction of the Belene NPP, and representatives of the industry already started to campaign for expansion of the existing facilities. In France, a special parliamentary commission recommended the government to slow down the decommissioning of nuclear energy. Meanwhile, one of the Olkiluoto NPP units in Finland was stopped due to malfunction, and radioactive water continues to leak from the Japanese Fukushima-Daiichi NPP, with increasing concentration of hazardous substances. Alarming reports are also coming from North Korea, where steam over alleged nuclear facility was detected, and Iran which continues to insist on the development of its nuclear program, but expressed readiness for the next round of negotiations. In Ukraine, the government increased funding for safety programs to 16.8 bln UAH and will hold an unscheduled inspection of the Rivne NPP. Meanwhile, the incident at the Khmelnytskyi NPP was not a threat to its safety, but will be checked by Energoatom. In Kirovograd region, works physically started on the site of the Nuclear Fuel Production Plant, and its shareholders plan an additional issue of shares.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org