Weekly analytical report November 18 – 24, 2013
1. On the eve of the Eastern Partnership summit in Vilnius, Ukraine has received from the EU an open "window of opportunity" for solving a number of energy security issues, but did not use it. The government continues to blame the negative impact of high gas prices, and the total cost of imports reached more than 9.5 bln USD. Meanwhile, the EU confirmed the media reports on readiness to sign the agreement on reverse gas supplies via Slovakia. In particular, the experts discussed the use of certain gas pipelines, and the Energy Community has expressed its readiness to facilitate this process. At the same time, the possibility of EU assistance to Ukraine in talks with the IMF was mentioned by Germany (Chancellor A.Merkel mentioned even financial incentives) and Lithuania. The Ukrainian Prime Minister M.Azarov first announced the discussion on possible 40% increase of gas and heating tariffs, but later called the IMF demands unacceptable. Instead, after relaunching the negotiation process with Russia, the government expects a significant discount in gas prices. The Energy Minister E.Stavytskyi declared that the parties reached compromise on payments for gas, including the repayment of debt by the end of the year, and that gas imports were fully restored. However, Gazprom refuted the media reports on deferral of the debt payments. The new round of negotiations, according to Ukrainian politicians, will deal with possible loans and lower gas prices. Against this background, businessman D.Firtash confirmed that his company purchased 5 bcm of Russian gas using the Gazprombank loan. Multi-vector approach in the attempts to get access to alternative sources of gas yields no results so far. During the working visit of the Prime Minister M.Azarov to Russia, it was planned to consider the issue of free access to pipelines in the CIS. Despite the fact that the CIS Heads of Government Council postponed the decision on the issue, Azarov announced the possibility to sign the agreement on access to pipelines in May 2014. In parallel, during the visit of Azerbaijan president I.Aliyev to Ukraine, the parties discussed cooperation in the energy sector, including deepening mutual activity in the field of transportation of hydrocarbons. The Minister E.Stavytskyi said Ukraine is ready to join the TANAP project, in particular to invest up to 800 mln USD to create an alternative gas corridor.
2. Europe continues to provide political and financial support for infrastructure projects which will help reducing dependence on Gazprom and diversifying energy supplies. MEPs approved the financial package for the Connecting Europe Facility, aimed at speeding up the implementation of such projects. ENTSOG drafted a methodology to evaluate and update the EU projects of "common interest". In addition, after a two-year audit of the EU, Lithuania was granted "green light" for the LNG-terminal construction, and Moldova and DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org
Romania got the promise of assistance in the development of the Chişinău-Iaşi gas interconnector. At the same time, the week was marked by renewed attention to the Trans-Caspian pipeline project, which was previously also a subject of Ukraine’s interest. Reacting to the EU statement (including the British one), the head of the Russian Foreign Ministry has accused Brussels of imposing the project to Azerbaijan and Turkmenistan. The latter announced its intention to expand the geography of hydrocarbons’ exports, and one of such strategic projects – the TAPI pipeline – received endorsement from the U.S.
3. Global impact of the U.S. "shale revolution" will increase. Players of the unconventional gas market in the United States demonstrate active development and a mature approach to regulation. The fact that Americans will soon start exports of liquefied natural gas is recognized both in Europe and in Russia. According to forecasts, the development of unconventional gas will evolve dynamically also outside the United States. In particular, Poland has made personnel changes in the government, including those aimed at speeding up the exploration activity. According to European energy companies, Ukraine has also a great potential. In Ukraine, the government also counts on investments in the development of hydrocarbons; however, interest to traditional fields demonstrated mostly "homeland" investors. The President V.Yanukovych invited Austrian companies to produce oil and gas in Ukraine, and the Verkhovna Rada approved in the first reading the draft law to toughen criminal liability for illegal mining. On this background, M&A activities have intensified: DTEK Investments BV (Netherlands) has received approval to acquire the controlling interest in Naftogazvydobuvannia, and Lovitia Investment Ltd (Cyprus) plans to buy 90% of Ukrgazvydobutok.
4. Despite the stable price situation on the oil products market, the government procrastinates the decisions concerning own production. In Ukraine, both wholesale and retail prices of petroleum products have slightly decreased; however, prior to that, diesel fuel prices have increased a bit against the background of government initiatives to increase the excise duty. Meanwhile, the government declares it will not change the excise, but the experts do not predict the fuel to be less expensive. Despite oil processing increased by 42.1% in October, production of petroleum fell by 41% in the first 10 months of 2013. Also, changes occurred in the bioethanol issue: the Ministry of Energy and Coal Industry called the parliamentary committee on fuel and energy to support the draft law on a two-year postponement of the mandatory bioethanol share in petroleum.
5. In the world, particularly in Europe, there is an activity to improve the goals and means of achieving low-carbon energy future. During the UN climate talks, activists advocated the formation of a strategy to get 100% energy from renewables, and investors expressed willingness to invest in offshore wind energy if a number of issues would be addressed. At the same time, the EU Commissioner G.Oettinger called Germany to fundamentally revise the renewable energy law, and the Commission appealed to the European Court of Justice against Austria for the lack of the RES directive implementation. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
In Ukraine, the sector develops not by making a targeted policy, but rather due to international obligations or business activity. The Ministry of Economic Development proposes to reduce the FiT "local content" requirements by half, and the Verkhovna Rada ratified the loan agreement between Ukraine and the EIB on reconstruction of hydropower plants, which was later also signed. Investment interest also accounts for wind energy projects: in the Donetsk region, a wind farm has received financing from the EBRD, and in Crimea, Turkish company will buy half of similar facility. Generally, the peninsula produced 286 mln kWh of "green" electricity in the first 9 months of 2013.
6. In the circumstances of "frozen" tariffs, heat suppliers are forced to search for own investment funds for modernization. The First Vice Prime Minister S.Arbuzov said that the government did not take any decisions to increase prices for housing and utility services. Instead, they search for resources to cover existing subsidy schemes: the President V.Yanukovych has approved the law on payments with promisory notes and the Verkhovna Rada allocated 1.54 bln UAH of the taxes paid by Energoatom to compensate the difference in tariffs, which media called a risky move. At the same time, the local utility companies have not felt the preferential approach and have to save fuel costs on their own. Modernization of power units will hold both private and public companies operating TPPs. Against this backdrop, illustrative examples are the conversion of certain towns to solid biofuels and the launch of biofuel CHPs.
7. Despite concerns about nuclear safety issues, several countries rely on the same energy source. It is forecasted that by 2050 the share of nuclear generation in total supply can more than double, but only if supported by governments. Against this background, in early 2014 Poland and Lithuania are planning to make decisions on the construction of NPPs. Armenia and Turkey have entrusted the construction works to Russia, which already has announced to the latter its conditions. At the same time, efforts are made to organize the NPPs safe operation: the European Parliament plans to provide funding for decommissioning of facilities in Lithuania, Bulgaria and Slovakia, while in Japan the security inspection started at the largest NPP and it was decided to dismantle all units of the Fukushima-Daiichi NPP, where nuclear fuel is being unloaded. Meanwhile, Ukraine has approved the procedure for the control of nuclear safety. Also, it is proposed to license nuclear power facilities every 10 years. On the basis of the Chernobyl NPP, the creation of a сenter for nuclear safety is being promoted. At the same time, environmentalists warn that the operation of the South Ukrainian NPP Unit 1 can be prolonged without all necessary measures to improve safety.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org