Weekly analytical report March 11 – 17, 2013
1. There is an increased activity and new powerful players emerging on the global market of gas production. Exxon Mobil promises to make unprecedented investments in new projects, Chevron announced the launch of projects to increase hydrocarbons’ production by 25%. The Canadian company Talisman Energy declared the change of its strategy. In the EU, both companies and governments focus on increasing activity in upstream sector: German Wintershall expressed in favor of unconventional gas development in the EU, Austrian OMV urged the European Commission to support shale gas. Cyprus, where large deposits of conventional gas were discovered, plans to export gas to the EU already in 2018, and in Japan, gas produced from metane hydrates (for the first time in the world) can result in "energy revolution" in this country as well as hit the interests of Gazprom which already felt the impact of increased competition on the international market. In Ukraine, unresolved problems of the extracting industry worsen the conditions for work in the sector. The contract of Naftogaz NJSC and Keppel Fels Limited (Singapore) on the supply of two offshore drilling rigs was terminated. According to media reports, the reason for termination were the problems with funding, although the Energy Minister E.Stavytskyi called guilty the leasing companies. At the same time, Naftogaz hired Lawrence Graham LLP (UK) to defend in the court its stake in JKX Oil&Gas. In the area of unconventional gas, unresolved issues remain on the regional level, hindering the activity of investors. In Kramatorsk (Donetsk region), a rally against Shell producing unconventional gas was held, although the governor A.Shyshatskyi has promised to control the proces together with the public council. Instead, the head of the Lviv Regional State Administration met with Chevron to discuss the prospects for ratification the production sharing agreement.
2. The EU increases the targets for renewable energy and energy efficiency. The Commissioner for Transport S.Kallas supports increasing the number of refuelling points for electric and natural gas vehicles. According to media reports, the European Commission has developed new targets to reduce greenhouse gas emissions and to increase the use of "green" energy by 2030. The European Parliament urged to continue these initiatives and voted for a proposal to reduce energy consumption in the residential sector by 80% by 2050. Ukraine maintains a high pace of implementing energy efficiency and renewables policy. The Cabinet of Ministers has developed draft regulations on the use of the EU funds for promotion of energy efficiency and renewable energy. In the Poltava region, a local energy efficiency program worth 306 mln UAH will be implemented, and the Odessa region plans to attract 4.6 bln UAH investments from renewable energy projects. According to media reports, installed capacity of solar energy sharply increased in the last year, and some generating companies are considering conversion to alternative fuels. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
3. Public opposition and the risk of natural disasters do not constrain the development of nuclear energy. In Japan, protests against the use of nuclear energy were held, and in Armenia an earthquake happened near the NPP. Meanwhile, the UK has signed with 12 EU countries an agreement on expansion of nuclear energy, Turkey has set the deadline for signing the agreement on NPP, and Poland plans to build the NPP despite decreasing prices for electricity and decline in consumption. Germany, which has decided to shut down its nuclear industry, is considering to create the Energy Ministry. In Ukraine, the allocation of credit funds partially solved the issue of strengthening NPPs safety. The EBRD has decided to grant the 300 mln EUR loan which will be received by the Ukrainian party not earlier than Q4. However, funding of the programs to improve NPPs safety by Energoatom is under question, while the company recorded 2.73 bln UAH losses in the last year. It asks to increase electricity tariffs for nuclear generation because they do not provide funds for the implementation of safety measures and construction of the Centralized Repository of Spent Nuclear Fuel. Environmental organizations criticized both the EBRD loan and the position of authorities on the completion of the Khmelnytskyi NPP Units 3, 4.
4. In the absence of official reports on the content of the Ukrainian-Russian gas talks, information space is full of rumors. According to media reports, the parties agreed on the bilateral consortium taking the gas transportation system on lease - in exchange for decreasing gas prices to 260 USD/tcm. The Energy Minister E.Stavytskyi expressed hope to get the discount in the current year. However, according to unofficial information, Gazprom demands legal guarantees of its rights on the GTS. Experts consider renting the GTS as losing transit revenues and a threat to national interests. Lawyers recommend not to delay disputing the gas contracts, and some of them do it themselves. However, instead of informing about the negotiations, the government directs public attention to the European vector of cooperation. The President V.Yanukovych said that gas talks are held separately from the negotiations on the Customs Union, and that modernization of the GTS and consortium are impossible without the EU involvement. At the same time, the government was instructed to develop an action plan to intensify the UkraineEU cooperation in the energy sector as well as to conclude project agreements with the EBRD and the EIB to modernize the GTS.
5. Despite the opportunities for diversification of gas supplies, their successful implementation depends on the availability of infrastructure. Year-to-date, Ukraine cut Russian gas imports by 44%, and the President V.Yanukovych has promised to continue reducing it along with the search for alternative sources. The Energy Minister E.Stavytskyi discussed the perspective of gas supplies with the delegation of government officials from Turkmenistan, and during the visit to Azerbaijan proposed to organize the import of Caspian gas to Ukraine, which, according to experts, can reach 2-3 bcm. However, the Energy Minister of Azerbaijan Natig Aliyev said the supply cannot be started dut to the lack of infrastructure. No agreement on free access to pipelines within the CIS is an additional factor. More promising are the supplies of Azeri oil which can start in 2016 in the framework of the Euro-Asian Oil DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org
Transportation Corridor. In particular, Poland considers the economic benefits of investing in the Odessa-Brody pipeline and the European Commission decided to fund its completion. Implementation of one of the most promising infrastructure projects – the LNG-terminal – remains questioned. The State Agency for Investment and National Projects canceled the tender for the pre-project works and failed to attract loans amounting 222 mln EUR. According to the agency, the cancellation of the tender was related to faster implementation of the project and the construction of the FSRU platform by the American company Excelerate Energy. The head of the Chairman State Agency for Investment and National Projects V.Kaskiv argued about political implications of postponed construction of the LNG-terminal, which – according to instruction of the President – should begin by the end of the year.
6. There is some stabilization on the global oil market. The U.S. extended sanctions against Iran, but Japan and 10 EU countries were allowed to purchase Iranian oil. Tehran plans to refuse from oil exports in favor of refining. The OPEC did not change the growth forecast for global oil consumption in the current year, while the IEA decreased similar forecast for the second time. Against this background, the OPEC Reference Basket fell to a threemonth minimum. In Ukraine, the market of oil products waits for the government decisions on imports and refining. Russia and Belarus have agreed on oil supplies in the first half of the year, and plan to agree on the annual balance soon. According to the media, this will increase the share of Belarusian fuel on the Ukrainian market, although imports of oil and oil products decreased by 15.8% in the last month. The Ministry of Economic Development and Trade has registered the complaint of Ukrainian refineries againt imports of oil products from Belarus, and the 2013 action plan for implementation of the economic reforms’ program provides for anti-subsidy investigation in March. According to politicians, 80-100 mln UAH investment is needed to relaunch the Lysychansk refinery which reported nearly 1 bln UAH losses in the last year. At the same time, opposition criticizes the government inactivity towards the owners of Kremenchug and Drohobych refineries, who did not fulfill their obligations. Meanwhile, the prosecutor’s office if the Kharkiv region did not find violations in the activity of the LLC "Gas Ukraine-2009" – subsidiary of the holding which recently bought the Odessa refinery. According to media reports, the group of businessman S.Kurchenko is undergoing fast legalization. Against this background, environmental problems of the industry are ignored. In the territorial waters of Ukraine near the Odessa region, leaked oil products were detected with the spill reaching the area of 5 km2. The State Ecological Inspectorate reported that the spill drifts towards Romania and said that the pollution should self-destruct.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org