Weekly analytical report December 10 – 16, 2012
1. Gazprom seeks to maintain its role on the EU energy market, where the opportunities for diversification increase. Despite growing gas exports to Europe in December, including record daily volumes, Russia decreased the forecast of exports for 2012-2013. In an effort to retain its positions, Gazprom will buy liquefied natural gas in Qatar and is considering restoring production in Libya. On the contrast, the U.S. propose to open access to American gas exports for Europeans, and Germany and UK, allowing hydraulic fracturing, created the conditions for growth of domestic gas production in the future. Slovakia has reduced dependence on Russian supplies, organizing reverse gas flows and approving the sale of 49% of its gas network operator. Ukraine also continues efforts to increase domestic production. The Minister of Environment and Natural Resources E.Stavytskyi predicts that production sharing agreements with Shell and Chevron will be signed by the end of this year. The State Service for Geology and Mineral Resources repeatedly put on sale six oil and gas fields, and Ukrnafta PJSC received permission to drill in the Lviv region. Development of the Subbotin field in the Black Sea is planned to start in 2013. Against this background, representatives of environmental organizations have created a platform against exploration and production of shale gas.
2. The liberalization of electricity market in the EU gives positive results, despite difficulties in the functioning of networks. In Poland, the regulator will not increase prices for electricity, in Hungary the tariffs will decrease by 10%, and in Estonia consumers already choose their suppliers. In Romania, the EU antitrust authorities investigate possible abuses by the network operator. At the same time, the German company 50Hertz suffered Internetattacks, and the director if the operator TenneT said the stability of European networks is "hanging on the balance". The European Parliament urged to protect rural and remote areas from energy poverty. Deterioration of weather conditions proved that the condition of Ukrainian electricity networks is poor. Despite the plans for large-scale market reform and the increased consumption of electricity, first snowfalls broke down power supply in a range of settlements: in the beginning of the week, there were 191 in 4 regions, later - 577 in 5 regions, in the end of the week - 345 in 3 regions.
3. Russia demands from the EU exclusive conditions for its pipelines, but in response the EU sets the agenda with issues, which are beneficial for Ukraine. At the meeting of the bilateral cooperation council, Russia has proposed for the Nord Stream and the South Stream pipelines – which are expected to decrease transit cost – to be excluded from the DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
subjects of the EU Third Energy Package. In response, Brussels raised questions about the projects’ compliance with the EU regulations and proposed a trilateral dialogue on the gas transportation system of Ukraine. Russian and European parties differently see their role for the Ukrainian GTS. Gazprom insists on its ownership of the Ukrainian "pipe" – company’s CEO A.Miller expressed his dissatisfaction of Ukraine not publishing the assessment of the GTS, and the President of Belarus A.Lukashenko urged to sell it to Russia. The EU, instead, confirmed its readiness to assist in the GTS modernization, and European companies are interested in Ukraine joining the EU single energy market. Ukraine welcomes the continuation of such cooperation. Moreover, Ukrtransgaz and Deutsche Bank signed the agreement to start a 53 mln EUR credit line to modernize the compressor station "Bar". While the "Ukrainian question" remains open, Europeans develop projects of the Southern Gas Corridor. Bulgaria, which will start building the South Stream in 2013, expressed its support for the Southern Corridor. Despite support for Nabucco from the side of Turkey, RWE officially confirmed its exit from the project.
4. The global oil market tends to saturation, as indicated by a number of factors. This week, oil prices mostly grew as the IEA increased its forecast of oil demand. Nevertheless, increasing production in the U.S. and Iraq, as well as the potential of Saudi Arabia, which has reduced production to the annual minimum, allow the analysts to predict cheaper oil. Against this background, the OPEC did not change the oil output level after its meeting in Vienna. Oversupply is also evidenced by the fact that OPEC production reached annual minimum after exceeding quotas in November. Unsettled situation around Iran remains the key factor for stability of the oil market. The U.S., which suspended the sanctions for nine states which buy Iranian oil, is preparing new sanctions against Tehran. The IAEA experts, aiming to gain access to nuclear facilities of Iran, held talks with the leadership of the country on its controversial nuclear program, and their final outcome could be the signing of an agreement on investigation mission. In the contrast, the countries of the Customs Union continue to conflict over the issues of oil supply. President of Belarus A.Lukashenko promised to conclude the agreement on Russian oil supply in the coming weeks. According to Russian diplomats, the balances for 2013 will be signed in working order, although the issue should have been discussed on the level of presidents. Meanwhile, according to the IEA, Russia needs to invest 750 bln USD in oil sector by 2035 to offset the production decline. In Ukraine, decreased oil refining strengthens the role of imports which also encounter difficulties. In November, crude supplies to Ukrainian refineries decreased by 59.4%, and the sale of the Lysychansk refinery, according to the media, was blocked by the decision of the Antimonopoly Committee. Statistical data of crude oil imports having decreased by 70% also indicate the increased imports of ready oil products. Meanwhile, Rompetrol announced the possible withdrawal from the market because of problems with customs clearance of fuel; however, the State Customs Service officials denied this information. According to media reports, the problem was solved after direct intervention of the Cabinet of Ministers. DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
5. Passive position of the responsible authorities hampers the development of renewable energy in Ukraine. Market players and experts are dissatisfied with new requirements for "local content", and the head of the State Agency for Energy Efficiency and Energy Saving admitted he did not read the mentioned law. Instead, figures are used as arguments in support of renewable energy: in the last 2 years, 21 bln UAH were invested in the RES sector, and 2 bln kWh of "green" electricity is expected to be generated next year. Against this background, the European lobbyists are calling Ukrainian authorities to see economic benefits of this market. Biomass energy has the potential to become a major market segment: Germany promises to develop biofuel production projects, Rivne region is actively developing biomass, and the Ukrspyrt concern plans a 5-time increase in production of bioethanol. An interesting project is the construction of solar power plant on the roof of the V.N.Karazin Kharkiv National University.
6. In the conditions of legal uncertainty, forced privatization of heat energy sector will result in higher tariffs. According to the Ministry of Regional Development, Construction and Housing, the basic law in the field of housing and utility services will be submitted for consideration not earlier than 2014. Meanwhile, the Antimonopoly Committee allowed "Ukristgaz" to purchase the Kharkiv CHPP-5 and also allowed the natural person to acquire a controlling stake in Rivneteploenergo. The National Commission for Regulation of Utility Services approved the procedure of formation of the investment programs for heating enterprises, providing for investment-based tariff setting. Consumers will feel the consequences of this policy already next year: the chairman of Kyiv Municipal State Administration O.Popov did not rule out higher tariffs for heat and electricity, and experts forecast energy bills to increase by 20-50%, which will cause energy poverty of households. The real alternative to tariff increase is energy saving activity, where achievements of Ukraine are not systematic. MEP Jerzy Buzek called to focus on energy efficiency. In Kyiv, with support of USAID and DTEK, first energy efficient kindergarten was opened. At the negotiations on climate change in Qatar, participating countries agreed to extend the Kyoto Protocol to 2020. Although experts believe the new rules are beneficial for Ukraine, the media point at limited demand on the emission quotas from the first Kyoto period. Moreover, Kyiv was judicially forced to purchase some emission units in favor of Naftrac Ltd. The project of gas-tocoal conversion of CHP enterprises, for which Naftogaz NJSC attracted a 3.656 bln USD loan from the China Development Bank, cannot be called environmentally friendly and energy efficient.
7. Privatization of coal mines, which the government relies on, has not caused interest of investors. According to the Ministry of Finance, the privatization of state-owned mines will reduce budget spending by 4.7 bln UAH. First, the State Property Fund started to prepare 10 coal entersprises for sale already this year, but later it was postponed to 2013 – according to the media, investors were interested in only one mine. At the same time, the EBRD will issue a 70 mln USD loan for coal mines of private company Coal Energy.
DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
8. In nuclear energy, Ukraine continues to focus on improving NPPs safety. Despite the forced evacuation of 500 people from the exclusion zone, caused by power outages, conditional spent fuel was removed from the Chernobyl NPP second unit. Energoatom NNEGC, which expressed the need to get loanable funds for programs to improve NPPs safety, has received approval from the government for a 600 mln EUR loan from the EBRD and the Euratom. During the visit of President V.Yanukovych to India, the latter expressed interested in gaining experience of Ukraine in nuclear accident management.
DiXi Group, 2012 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org