Weekly analytical report June 17 – 23, 2013
1. Before the final decision on the route to transport Caspian gas to Europe, all stakeholders are trying to get maximal benefit. Final preparations demonstrate the representatives of competing pipeline projects – a letter to the President of Azerbaijan asking to support Nabucco was sent by the presidents of Hungary, Austria, Romania and Bulgaria, while TAP representatives hinted at another shareholder joining the project if it will be selected. Azerbaijan, according to media reports, wants to use the situation and get from the EU the status of strategic partner. Meanwhile, Baku announced the start date of the TransAnatolian pipeline (TANAP) construction, and refused from Ukraine participating in the project. However, the Minister of Foreign Affairs L.Kozhara informed on discussion of the Southern Gas Corridor to be held in Turkmenistan this autumn. From its side, Gazprom announced the date of construction of the South Stream offshore part and recalled the Yamal-Europe II project, promising a feasibility study by the end of the year.
2. The new leadership of Iran could add dynamics to the dialogue on the country's nuclear program. Although the new Iranian president expressed his support to the nuclear program and set requirements for the United States, he also called for transparency in this issue. The Russian Minister S.Lavrov announced that Iran agreed to stop the program of uranium enrichment to 20%, while Russia itself signed an agreement with the U.S. on cooperation in nuclear environmental program. Japan is trying to sell nuclear technology to European countries, having not ensured effective protection and mechanisms to prevent NPP accidents in own country. Japan tries to increase exports of its reactor technologies, having agreed to cooperate with the Visegrad Group. Meanwhile, groundwater contamination and leaks of radioactive water were reported at the Fukushima-Daiichi NPP. Meanwhile, one of the participating countries of the negotiations – Poland – argued on the possibility to postpone nuclear projects because of decreasing gas price, including the shale gas factor.
3. LNG market could get a new impetus in Europe. According to the International Energy Agency, "shale gas revolution" in North America is unlikely to be repeated elsewhere, but it will affect the global market due to increased supply of liquefied gas. The organization predicts growth in global LNG trade by almost a third by 2018. Meanwhile, the United States are promising to decide on increasing the exports by the end of the year. Lithuania declared the possibility to get LNG supplies from Turkmenistan. Israel has decided to export a significant share of its discovered gas reserves, not mentioning the infrastructure and possible routes. Against this background, Statoil expects recovery and further growth of gas demand in Europe. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
4. European countries are trying to find their own approached to address energy dependence. In Lithuania, there is a discussion about the use of gas and other sources – waste and biofuels, while the latter will be sold only on the exchange since autumn. Poland is considering the construction of gas interconnectors to Denmark and the Baltic states, but the priority is given to the link with Slovakia. At the same time, the country was unable to completely refuse from regulation of gas prices, which was the reason for the European Commission to file a lawsuit to the Court of Justice. According to media reports, the German company RWE was not satisfied with the price of Russian Gazprom and filed a lawsuit to arbitration. Meanwhile, the Italian company Eni has already received from the Russian monopoly a discount of less than 7%. Ukraine is trying to keep up with the European trend, betting on diversification and increased gas production. Given that the price of gas imported from Germany decreased to 388.61 USD per tcm, the government expects to increase the reverse supply through Slovakia, which – according to the Energy Minister E.Stavytskyi – will fully diversify gas imports. The authorities are also considering cooperation with China in the production of synthesis gas from coal, and with Germany – in producing biogas from waste. In the matter of LNG imports, Ukraine received confirmation of the technical possibility to place the terminal at the Pivdennyi port, and considers alternative to Turkish supply routes. Because of disagreements with Russia, there is still no progress in the negotiations on free access to pipelines in the CIS. The Prime Minister M.Azarov announced that Ukraine will be able to completely switch to own gas in 10 years. By the end of May, gas production increased by 3.6%, particularly on the Black Sea shelf – by 35.5%. The intention to continue cooperation with investors under production sharing agreements (PSAs) is indicated by the restoration of the inter-departmental commission and the extension of signing the PSA with Chevron on the Oleska field. The Lviv and Ivano-Frankivsk regional councils are being pushed for an early consideration of the issue: the Prime Minister M.Azarov criticized them for delays, the Adviser to the Minister of Environment and Natural Resources V.Ignaschenko convinced local MPs, and Chevron representatives emphasized the importance of shale gas for energy independence and talked about plans to explore the Oleska field. However, members of the Lviv Regional Council failed to reach agreement and promised to consider the PSA in autumn, after examination by the special commission. Meanwhile, controversial questions to the PSA have been raised by some MPs, including the financial component. Against this background, there is a growing interest to unconventional gas: scientists have created a shale gas research centre and the State Agency for Geology and Mineral Resources will hold a competition for the right to develop coalbed methane in Donbass.
5. Strengthening of the S.Kurchenko financial and industrial group could affect the position of the state-owned Naftogaz. Signs of the growing position of the SYEPEK holding are the acquisition of the Ukrainian Media Holding, hire of financial top-executives and plans to purchase a mid-size bank. It is reported that the company negotiates with Gazprom on Russian gas imports. In response to this information, the Energy Minister E.Stavytskyi said that Naftogaz will not be affected by the emergence of a new importer. Meanwhile, the stateowned company attracted 2.5 bln UAH of loans and resumed the claim against its subsidiary Ukrtransgas to get the 5.145 bln UAH debt. According to media reports, political confrontation DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
among business groups could lead to the dismissal of the Vice Prime Minister Y.Boyko. Against this background, the Ministry of Energy and Coal Industry redistributed responsibilities of its management and the President appointed the Deputy Minister.
6. Ukrainian market of oil products responds ahead of the curve, restructuring before the control over imports will increase. Despite a slight decrease at the end of the week, global oil prices mainly increased: the price of WTI crude oil reached a 9 months maximum, while the cost of Brent crude regained its April maximum. In Ukraine, there is a change in the structure of fuel sales: on the background of reduced production of petroleum and LPG, experts record growth of alternative fuels with ethanol content above 30%. Meanwhile, the Ministry of Income and Charges declared its readiness to examine imported petroleum and sufficient authority for this. The ministry has ruled out any possibility of delays at the border, but some market players already announced of obstructed imports. Experts believe that the delays will lead to price increase by 0.1-1% and destabilization, and oil traders appealed to the government demanding to strengthen quality checks directly at the filling stations, i.e. on the domestic market.
7. Despite certain obstacles, the sector of renewable energy in Ukraine demonstrates growth. According to the Ukrainian Wind Energy Association (UWEA), Ukraine took 2nd place in the world in terms of wind energy growth, although the absence of feed-in tariff for small installations slows the growth rates. Developers are mostly installing wind farms with megawatt-class turbines. The construction of solar power plants is planned in Dnipropetrovsk and Vinnytsia regions, while a new mini-HPP is planned in the Zhytomyr region. The Vice Prime Minister Y.Boyko forecasted that the share of electricity production from renewable sources will reach 11% by 2020.
8. Preparations for the heating season are accompanied by increased number of networks’ accidents. The Ministry of Energy and Coal Industry announced the start of pumping domestically produced gas into underground storages, and the Cabinet of Ministers instructed Naftogaz to get for this purpose at least 50% of the gas produced by private companies. At the same time, the media noted that the reason for increased number of accidents on heating networks is the lack of funding for their reconstruction. In practice, Odessa residents were affected by electricity blackouts, residents of Cherkasy - by limited gas supply, and Kyiv is still solving the problem of Kyivenergo debts.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org