Weekly analytical report December 17 – 23, 2012
1. On the background of gas prices further decreasing in the EU, Gazprom is looking for new opportunities in the "near abroad". Gazprom extended its contract with Moldova, insists on increasing prices for Armenia, and is ready to increase gas supplies to Turkey. Because of high debt, Kyrgyzstan offered Gazprom to purchase 75% of Kyrgyzgaz for as much as 1 USD. Instead, Poland – which has already achieved a partial reduction in the price of gas – continues its struggle with Gazprom: while the average gas price for Europe in 2013 is expected at 370 USD, Warsaw will buy it for 460-490 USD. In this regard, Poland launched the first gas exchange, plans to cancel the state regulation of prices and intends to stop the practice of concluding long-term contracts. The country is threatening to sue against Gazprom in the Stockholm arbitration court – in case the monopolist will not reduce gas prices. Continued closed Ukrainian-Russian negotiations culminated unsuccessfully and emotionally. According to unofficial data, Gazprom planned to sell gas to Ukraine at a price of 352 USD in 2013, while the media reported on changes in the price formula and the cost of 165 USD in exchange for joining the Customs Union. Cancellation of the meeting between Putin and Yanukovych has generated a number of interpretations from experts and the media: excessive and too categorical demands of Russia, non-agreement on the conditions to join the Eurasian Economic Community, the EU's position (especially on the background of allocating 45 mln EUR of support), speculations on the issues of 2009 gas conflict etc. Fruitless negotiations caused emotional reaction of Russia. Russian President V.Putin criticized Ukraine's position on the Customs Union and said that Kyiv has made strategic mistake while not leasing the gas transportation system to Russia and the EU. The Russian party has also expressed interest in purely bilateral consortium, and disproved the thesis of Ukrainian "pipe" having no prospects – by predicting full-scale use of the Ukrainian GTS even after bypass pipelines are completed. The Ukrainian experts pointed out the mistake of linking foreign policy to business, and diplomats do not consider cheap gas as the ultimate solution for economic problems in Ukraine.
2. Companies close to D.Firtash can expand their operations in Ukraine. Naftogaz NJSC appealed to the Federation of Employers headed by D.Firtash, asking to help find traders to supply gas to industrial consumers. Ostchem Holding, close to the oligarch, plans to import 8 bcm of gas in 2013. Despite the information in the media about Ostchem Gas Trading having been registered in Switzerland to sell gas to industrial consumers in Ukraine, and the start of negotiations with them, Mr. Firtash does not know whether gas supply to other consumers will be possible. Meanwhile, according to the media, one company close to Firtash requires to cancel the purchase of 15.3% in Umangaz, and the other one will do the reconstruction works on the Urengoy-Pomary-Uzhgorod pipeline. DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
3. Non-transparency of the Ukrainian energy sector became the subject of attention of the law enforcement agencies in Europe. Latvian state police arrested the accounts of Highway Investments Processing LLP – the company involved in the scandal of purchasing drilling rigs to Chornomornaftogaz SC. The Ukrainian opposition demands to interrogate the officials involved in the procurement of the "Boyko rigs". At the same time, Spanish company Gas Natural Fenosa sued Mr. Sarda Bonvehi – the signatory of the agreement on the LNGterminal in Ukraine. The head of the State Agency for Investment and National Projects V.Kaskiv, who continues to cooperate with potential investors, promised to publish details of the incident. Meanwhile, the government appointed the acting Minister of Environment and Natural Resources E.Stavytskyi as the new head of the commission to investigate the incident circumstances, as well as canceled the 2.3 bln UAH state guarantees for the construction of the LNG-terminal.
4. Unconventional gas production becomes a significant factor in strengthening the European energy security. Polish gas monopoly PGNiG plans to increase gas production by 40%, and in Lithuania, which considers energy security as national priority, there is an increased presence of Chevron, which bought a stake in the local extracting company. Romania also considers to start exploration of shale gas. Against this background, the European Commission welcomed the opportunity to receive gas from the U.S., where investment in the industry reached 90 bln USD, but under condition all 27 EU member states will benefit from such supplies. Also, given the American experience of building dialogue with the local communities, the EU launched a public consultation on the development of unconventional hydrocarbons.
5. Interests of individual countries did not become an obstacle for the development of the Southern Gas Corridor projects. Despite the statements of Nabucco being "stuck" and the 6-months-delay in the start of the Nabucco West construction, Bulgaria approved the environmental impact assessment for its section of the pipeline and announced the expected purchase of 50% in the project to the "Shah Deniz II" investors. Moreover, the country has signed the agreement to build a gas interconnection with Serbia and starts the construction of gas pipeline with Greece, which corresponds to the EU plans to develop infrastructure of common interest which received support from the European Parliament. The competing project TAP is going to launch a study to select the best maritime route. On the other hand, Azerbaijan and the EU reaffirmed their mutual commitment to negotiate with Turkmenistan on the Trans-Caspian pipeline. Ukraine continues to express interest in participating in the TANAP project, where the basic preparatory works have started. Against this background, the EU-Russia summit promises to be a place of negotiations on the special status of Russian gas pipelines, including the South Stream project, the land parts of which will be constructed starting from June 2013.
6. In the end of the year, the global oil market became stabilized, although the situation in Ukraine remains less certain. World oil prices, which grew almost the whole week, slightly declined in the end of the week. Iran, which denied the reduction of oil exports, acknowledged the loss of income due to imposed international sanctions. In the Customs Union, Russia and DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Belarus have not yet agreed on the balances of oil and oil products’ supply – despite the fact that Minsk agreed to legally eliminate the duty-free export schemes. Ukraine is finishing the year with disappointing statistics: despite fuel prices are stable, oil production decreased by 1.7% and primary processing fell by 50%. The fate of the Lysychansk refinery – the largest in the country – is not clear yet: TNK-BP continues to discuss the future of the asset, and the Lugansk Regional State Administration denies any reports of massive equipment theft.
7. Energy efficiency projects which demonstrate success in the regional dimension have not reached the nationwide level. In Dnipropetrovsk region, several high-quality projects were implemented in the industry, on coal mines, and in the area of lighting. In Odesa, the market of energy service contracts is developing, and the Volyn region plans to build two thermal power plants on solid biofuel. The Kyiv City Council approved the 3 mln EUR loan from the NEFCO. Meanwhile, state officials are deeply concerned about tariffs for housing and utility services, and the State Agency for Energy Efficiency and Energy Saving is promoting either sectoral or educational projects.
8. The problematic coal industry continues to demand more government subsidies, but oversupply could worsen the situation. Global trends indicate only a short-term increase in coal use, but Ukraine continues to make long-term bets on the industry. President V.Yanukovych has approved the allocation of 14 bln UAH on state support to coal production and compensation of the tariff difference. The program of coal industry development by 2030, which is currently discussed in the Ministry of Energy and Coal Industry, provides for 176.7 bln UAH of investments. In addition to the traditional problems – wage arrears and high mortality – the demand remains low. Over the last year, the coal remainders of both consumers and suppliers increased by more than 30%.
9. Ukraine should pay more attention to nuclear safety given the increasing demands to it. The international EUR group published a new edition of requirements for NPP projects. Meanwhile, Ukraine has resumed operations with spent fuel at the Chernobyl NPP and prepares for planned maintenance the first unit of the South-Ukrainian NPP as its service lifetime ends on December 31. The respective decision of the State Nuclear Regulatory Inspectorate on the unit, which has not implemented most of the recommended safety improvements, is expected on December 24. Against this background, the NPPs operator – Energoatom NNEGC – failed to attract the 400 mln UAH loan.
10. Having limited opportunity to invest in the networks, Ukrainian electricity suppliers still cannot cope with the weather. On Monday, due to adverse weather conditions, there were blackouts in 371 settlements in 11 regions, and by the end of the week 93 towns and villages in three regions (mainly in Crimea) remained without electricity supply. Particular attention was attracted to the Kyiv region: actions of the AES Kyivoblenergo PJSC were criticized by the Prime Minister M.Azarov, but the company said it exerts every effort to eliminate the consequences. Meanwhile, the NERC proposes that regional distributing companies (oblenergo’s) shall receive compensation only for the actual losses in the cost of electricity supply to households or equivalent consumers. DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org