Weekly analytical report September 16 – 22, 2013
1. The EU insists on greater flexibility while signing the gas supply contracts. The Commissioner G.Oettinger stressed the need to refuse from oil-indexed gas prices, and the European Parliament adopted a special resolution. The issue of contracts with third parties should be also considered at the informal meeting of European energy ministers in Vilnius. The European Commission announced it will publish the results of investigation against Gazprom by next spring. Azerbaijan is even more actively entering the European gas and oil market. European companies have signed long-term contracts for the supply of Caspian gas from the Shah Deniz II field. The total cost of the agreements amounts 200 bln USD. In such way, Azerbaijan will become one of the guaranteed gas supplies to the European market. Certain dynamics can be also seen in the development of the Brody-Plock project. Polish environmentalists provided permission for its implementation. At the same time, most participating states of the Euro-Asian Oil Transportation Corridor (EAOTC) supported the signing of an international treaty, while Poland insists on signing a contract between the supplier (SOCAR) and the consumers (PKN Orlen, Lotos).
2. Meanwhile, Gazprom continues to offer discounts in exchange for economic and political concessions – despite the lost arbitration cases. Gazprom has amended the contract with RWE, i.e. corrected the price formula and returned 1.5 bln USD of advance payments. At the same time, in the negotiations with Greece, Russia refers to the discount on gas price as well as Gazprom’s participation in the new tender for selling DEPA. In Moscow, they did also prepare proposals for Lithuania which wants to negotiate not a discount, but a new pricing formula. The Lithuanian president D.Grybauskaite called the proposals "unrealistic demands" and the PM A.Butkevičius accused Russia of "economic war". According to Lithuanian officials, the difference between the political and the market prices is 30%. Ukraine continues to look for ways to reduce the cost of natural gas imports from Russia. According to politicians, the price of 427 USD/tcm will be included in the state budget of 2014, but the government has not yet agreed on this level. Ukrainian metallurgy is actively reducing gas consumption, switching to coke and pulverized coal. Ukrtransgaz also reported on saving gas for technical needs. In general, in January-July 2013 Ukraine saved a third of the cost for purchasing gas. At the same time, it is proposed to adopt a law on efficient use of energy resources, which should facilitate energy saving.
3. Unconventional hydrocarbons are becoming an increasingly important element of the future energy mix. Experts announce that the rest of global conventional reserves are DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
estimated at the level of 760 bln USD, which makes the countries to intensify production or switch to alternative energy sources. IHS has identified 23 most favorable spots for shale oil production, betting on Russia, Argentina, and Algeria. The experts predict Australia to produce large volumes of shale gas. In the EU, Belgium launched shale gas exploration, while in Poland PGNIG plans to investigate why there is still no commercial production. In the UK, politicians recommend to calm down the wind energy race in favour of shale gas and nuclear. Canada tightens the requirements for onshore drilling, also for hydraulic fracturing. International companies continue progress to the practical stage of unconventional gas development in Ukraine. While the Lviv Regional Council still considers the revised draft PSA with Chevron, the Ivano-Frankivsk Regional Council approved the document after long discussions. Notably, the "Svoboda" faction did not participate in the vote. One of the controversial issues is the redistribution of the planned profit (state share) to local communities, which is also widely covered in the media. Meanwhile, the Kharkiv District Administrative Court rejected to satisfy the local MP I.Varchenko who challenged the decision of the Kharkiv Regional Council (approval of the draft PSA with Shell). The government, while estimating the expected cost of unconventional gas, plans to increase the fiscal burden on the industry. E.g., the Ministry of Income and Charges wants to introduce an environmental tax for gas producers and importers, and make them also pay the target surcharge on gas.
4. Against the background of adverse external conditions, the market of oil products in Ukraine becomes less balanced. World oil prices initially decreased on the progress in the Syria issue, but later increased. Limited production in Iraq caused by infrastructural factors does also contribute to this trend. Belarus plans to raise fuel prices for the second time in a month, and in Russia, the oil export duty will grow from October 1. Ukrainian market reacted with the increased cost of petroleum, diesel and LPG. The situation is even worse with falling domestic production (-45% in the last 8 months) and growing shadow market which is represented by reduced (-19.5%) customs valuation of imported oil products. At the same time, the issue of adding bioethanol to the fuel (starting from 2014) has not been solved. Experts point to the current deficit of own production, and the draft law registered in the Verkhovna Rada suggests to cancel the mandatory 5% share of bioethanol in motor fuels. Another legislative initiative provides for importers of oil products to be released from this norm, which is negatively perceived by the media. In turn, the Ministry of Agriculture promised to sign a contract with China to build three facilities to produce bioethanol. At the same time, according to media reports, the government made no decisions on this issue.
5. Instead of solving problems with debts in the sector of housing and utilities, the government postpones them indefinitely. The NJSC "Naftogaz of Ukraine" has promised to supply all consumers with gas, and Ukrtransgaz – to get prepared for the heating season which will start on October 1 (for public consumers). However, accumulated debts for gas are a challenge to the successful launch of heat supply: solutions are looked for in Lviv and Chernigiv regions, in Kyiv, Sevastopol, and Ivano-Frankivsk. According to experts, the most risks have major cities in eastern Ukraine. According to the Ministry of Regional Development, debts of municipal heating enterprises are restructured. Some utility companies organize massive inspections of their users, particularly in Lugansk and Donetsk regions. Against this DiXi Group, 2013 Energy information � Analysis � Consulting www.ua-energy.org/en author@dixigroup.org
background, the parliament failed to support a draft law on mandatory commercial metering of water and heat supply for all consumers, and the media have published information on the expected growth of tariffs.
6. Even more intensive cooperation to strengthen nuclear safety develops globally. In particular, the Europeans have signed a memorandum with the IAEA. At the same time, the U.S. could agree to a peaceful nuclear program of Iran, under certain conditions. Meanwhile, a protective wall is constructed at the Fukushima-Daiichi NPP in Japan, and seabed nearby is checked for radiation. The country's authorities decided to dismantle the damaged units. Also, radioactive water at the site should be cleaned up by 2015. The issue of nuclear safety remains to be relevant for Ukraine. By the end of the year, it is planned to store all the nuclear fuel from the Chernobyl NPP to special facilities. Construction of the New Safe Confinement ("Shelter") also continues. As for the working NPPs, the regulator will announce the decision on the future use of Westinghouse fuel, and the improved Russian fuel should be loaded into one of them by 2015.
DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org