Weekly analytical report July 15 – 21, 2013
1. Gazprom’s inability to accept new market rules is expelling it from the European market. According to media reports, by 2015 the EU can introduce a long-term reservation of gas pipelines’ capacity. Exactly at that time, regular supply of American gas to the EU is expected, whereas demand in the U.S. will also increase. Another loss of Gazprom in the court against RWE and the need to pay a fine provoke public statements about Russia losing its influence on the EU's energy security. Trying to keep its positions, Gazprom expects higher demand for pipeline-delivered gas in the UK, as well as construction of the South Stream in Bulgaria already this year. As for the South Stream, there is a growing dissatisfaction in Russia – namely the plans for issuing infrastructure bonds at the expense of pensions, in addition to the already placed external bonds for 900 mln EUR. Information about reaching agreement on all matters of gas transit is still not confirmed. The Vice Prime Minister Y.Boyko announced the agreements with Russia on securing a stable transit, without specifying any details. Meanwhile, the Energy Minister E.Stavytskyi continues to insist that Ukraine does not plan to increase the volumes to be injected into storage facilities over 14 bcm. The underground storages have already accumulated 9 bcm, and gas imports from Russia sharply increased in June. The Ukrtransgas costs for the preparation to the heating season increased significantly (by 66%). The issue of energy cooperation will be on agenda of the visit of the Russian president V.Putin.
2. The Naftogaz of Ukraine NJSC is looking for opportunities to improve its financial condition. The Naftogaz financial plan, approved by the government, has a 18 bln UAH deficit. According to the media, in order to fulfill the plan, the company should become profitable by the end of the year, which means 11 bln UAH expenditures from the state budget. In turn, Naftogaz is trying to sue for 1.593 bln UAH from its subsidiary Gas of Ukraine. At the same time, Ukrgazvydobuvannia defended its right not to direct 30% of the net profit to the state budget, and requires from Naftogaz to return 266.59 mln UAH, also addressing the Prime Minister about 1.2 bln UAH debt of Naftogaz. Naftogaz is going to spend a lot of money on international lawsuits – in particular, to appeal against IUGAS it will hire White & Case LLP for 250 000 USD, and to support foreign trade – Lawrence Graham for 2.2 mln USD. Also, the holding wants to extend the 2 bln USD Russian loan, asking for state guarantees of 500 mln UAH. Another issue is the government's decision to privatize stakes in 39 gas distribution companies which means transfer of the shares fron Naftogaz to the State Property Fund. This may affect the Naftogaz capitalization and require informing the investors.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
3. Reverse gas supply from Europe becomes a significant factor of the market. After modernization of the pipeline from Hungary, numerous players including DTEK (R.Akhmetov) and SYEPEK (S.Kurchenko) will compete for this direction. At the same time, the Ukrainian government hopes to start the reverse supply from Slovakia as quickly as possible. Meanwhile, in June Ukraine imported gas at the price of 407.8 USD/tcm, its gas consumption decreased by 15%, while own production increased by 5%. 4. In Europe – both the state level and among the general public – options for developing unconventional hydrocarbons are considered. The UK plans to reduce income tax in the sector of shale gas production, while Lithuania is to decide on the tender to develop the first such field. In Germany, the economists argue about the potential of shale oil and gas. Opponents actively protest against the production – both at home and abroad, including Ukraine. In Ukraine, there are continued discussions on the conditions of unconventional gas production. The Ivano-Frankivsk Regional Council, which plans to consider the draft PSA with Chevron on August 23, established a working group to analyze the document. Also, civil society organizations in the region hold meetings with scientists, where environmental risks of planned activities are discussed. In Russia, one of the State Duma MPs accused companies, which plan to develop unconventional hydrocarbons in Ukraine, in preventing transfer of the gas transportation system to Gazprom.
5. Global oil market will face restructuring and growth of new players. According to media reports, the world oil market is moving towards higher prices which will be contained. Future of such oil-producing states as Iran, which has reduced exports by a third, and Russia with oil reserves believed to be overstated, is doubtful. However, producing countries should prepare for competition with the U.S. which – according to experts – will restrain the demand for the OPEC production. In the U.S. itself, an investigation started against Statoil, BP and Shell on suspicion of oil prices manipulation, and the law firms are misusing compensations for the 2010 Gulf of Mexico accident. The government does not hurry to strengthen the control over sales of oil products, which encourages private companies to take action. The expert-analytical group at the Ministry of Energy and Coal Industry proposed to extend the old quality standards by mid2014. At the same time, the Ministry of Economy wants to improve the system of selling oil products at the filling stations, trough equipping them with reference counters. Against this background, large retail chains Okko and WOG are ready to help with inspections of petroleum quality. It is noteworthy that the business is still interested in the development of Ukrainian market: Shell plans to invest hundreds of millions of dollars in its network, PetroChina declared interest to enter, and Trans Ukraine LLC will invest 50 mln USD in the construction of a refinery in the Mykolaiv region. Another burning issue is oil refining which fell by 48% in the first half of the year. According to experts, the industry went into the crisis already some years ago because the owners were reluctant to modernize production.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
6. Renewable energy of Ukraine demonstrates active growth which could help attracting new investments in the sector. In January-June, RES electricity production reached 581.4 mln kWh, and 317 mln kWh of them were produced by wind power stations. At the same time, the regulator issued 20-years licenses to produce electricity for 6 solar power plants. The launch of the largest solar station in Ukraine (180 MW) to be completed in the Odessa region, another solar stations were added in the Ivano-Frankivsk region (4 MW) and in the Zakarpattya region (10 MW). In the Kyiv region, it is planned to build the first facility of a kind. Private investors also consult with the public on the construction of small hydropower plants in the Carpathians. Experts explain these trends by creation of competitive production, which will become a driver of the Ukrainian economy.
7. Developments in the Ukrainian nuclear sector are accompanied by scandals. According to media reports, the regulator applies double standards to the use of nuclear fuel, giving preference to Russian production. The Prosecutor General’s Office accused the former head of Energoatom in the large-scale appropriation of funds. The ex-CEO of the Nuclear Fuel company appeals in the court against the government’s decision on her dismissal. It develops against the background of insufficient financing of the industry, compared to the thermal generation. At the same time, there is a steady increase of cross-subsidies which can reach 42 bln UAH in 2014. However, there are also some positive trends: the National Energy Regulatory Commission increased electricity tariff for Energoatom by 0.006 UAH/kWh.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org