Weekly analytical report June 24 – July 7, 2013
1. Loosing its dominant role in Europe under pressure of diversification, Russia tries to secure its status by consolidating gas exporters’ policy. The EU secures creation of the common energy market among its priorities and supervises energy reforms in member states. The European Commission diversification policy stimulates them to develop infrastructure for gas supply. Cyprus negotiates construction of an LNG terminal with companies, and the development of gas pipeline between Cyprus and Crete is also discussed. The TAP project – which was announced a winner among the Southern Gas Corridor competitors and also became the subject for concerns of ineffectiveness, signed the deal with DESFA on managing the Greek part of the pipeline to supply Azeri gas to Mediterranean countries. These projects promote appearance of new players on internal European market and undermine the role of Russia in gas supply to Europe. Norway surpassed Russia in gas supplies to the EU in 2012, and Azeri SOCAR which recently bought DESFA and plans to supply gas further to Hungary and Austria, also through Georgia - is entering the market. European direction of cooperation remains particularly important for Gazprom, considering suspension of talks with China. Russia tries to keep its positions by further lobbying the South Stream project via Macedonia and Bulgaria and also the Yamal-Europe-II project, despite Polish refusal to develop it. Gazprom negotiates increased gas exports to the UK, and reported growth of exports in the first half of the year (with decrease of net income forecast in 2013) and plans to increase production for future growth. During the Gas Exporting Countries Forum session, the Russian president V.Putin called for coordinated policy in gas pricing issues and preserving long-term contracts, but later refuted accusations of creating the "gas OPEC". 2. Countries, interested in shale gas development, pay greater attention to compliance with the requirements on production safety. The American DiXi Group, 2013 Energy information ● Analytics ● Consulting www.ua-energy.org author@dixigroup.org
Petroleum Institute plans to review hydraulic fracturing standards and the Energy Secretary Ernest Moniz claimed that environmental concerns are manageable. The British Geological Survey predicts considerably bigger shale gas reserves with the French company Total possibly joining its development. Against the background of opinion polls (low support of shale gas production in the EU), the European Commission plans to develop rules for risk management by the end of the year. Meanwhile, the Lithuanian government requires from Chevron to agree with the local community before it starts shale gas exploration, and in Poland shale gas exploration licenses were recognized illegal by the Court of Justice because of lack of fully open tenders. In Russia, the production technology is considered "Barbarian", but simultaneously they also plan to extract shale oil. In Ukraine, in the area of unconventional gas, there is a continued search for balance of interests in cooperation of business, government and local community. The media published the details of the draft PSA with Chevron which was sent for consideration to the Ivano-Frankivsk Regional Council, which created a working group for document analysis and draft decision preparation. Tensions between the government and the regional council remain as the latter addressed the Prime Minister M.Azarov, urging him to apologize for threats and asking also to annually allocate 50% of royalty payments to the regional budget. Meanwhile, Ukrainian MPs visited the U.S. to learn experience of shale gas production and Shell plans to organize a similar study visit for the representatives of environmental organizations, involving them to environmental assessment of the Yuzivska field.
3. Gazprom blocks Ukraine’s attempts to get benefits from the European market. Ukraine tries to increase gas imports from the EU which has to reach 1.3 bcm in 2013. Out of this volume, the SEPEK company plans to import 1 bcm, but in early July it significantly decreased imports. In June, 124.6 mcm were imported from Poland. Reverse flow via Slovakia is still blocked by Gazprom, although its representatives are surprised of such issue. The European Commission demands to sign the contract between the Ukrainian DiXi Group, 2013 Energy information ● Analytics ● Consulting www.ua-energy.org author@dixigroup.org
party and the Slovak company Eustream by July 20, while the Energy Community Secretariat expects gas supplies via Slovakia already before 2014. Ukrainian government prepared the draft law on canceling the duties on gas exports, explaining the step with bringing the legislation in compliance with the European one. The other initiative is an attempt to reach agreement with European companies over using the Ukrainian gas storage facilities. The government offers capacity of up to 15 bcm for single-time storage and expects signing contracts already this month, in particular with the German RWE which recently won the arbitration against Gazprom over gas pricing. Developing these plans, the government plans to create a gas hub in Ukraine, expanding capacity of gas storages to 55 bcm. The issue will be a subject for discussion between the government and energy companies in September. Against this background, the Russian party decided to allocate 1 bln USD as advance payment for gas transit by 2015 and reported on the negative experience of using Ukrainian gas storages. Gazprom also demands to pump into the storages 19 bcm to secure transit of Russian gas to the EU, while the Energy Minister E.Stavytskyi called the volume of 14 bcm as sufficient. The negotiations between Ukraine and Russia over lower gas price - which has to decrease to 400 USD/tcm in Q3, remain paused. According to Russian experts, the gas price will be reviewed only in case of Russia gaining control over the Ukrainian gas transportation system and the statements about stopping the advance payment for gas transit is a sign of pressure to start negotiations over the GTS. Currently, such negotiations are not being held, and the Ukrainian government plans to attract German companies to the modernization of pipelines. According to the Ministry of Energy and Coal Industry, in January-May gas imports decreased by 26.8% (9.379 bcm), which has led to another threat of Gazprom on the possible court action for violating "take-or-pay" rule in 2013.
4. There is an increased number of attempts to regulate gas market manually. Earlier, the government obliged private companies to provide 50% DiXi Group, 2013 Energy information â—? Analytics â—? Consulting www.ua-energy.org author@dixigroup.org
of extracted gas to the state, which received critical responses of some companies, and the media published a document with gas volumes to be taken from every company. The Naftogaz NJSC obliged its subsidiary Ukrtransgaz to transfer 30% of its net income in 2012 to the state budget. The National Energy Regulatory Commission decreased gas prices for budgetdependent consumers and the industry, and increased tariffs for transportation and gas storage injection/withdrawal. At the same time, the NERC head S.Titenko claimed that the changes will not impact the price for final consumers. Simultaneously, there is a growing indebtness for gas used by all types of consumers – according to the State Financial Inspection it amounts 24.174 bln UAH.
5. Debates over transparency and fuel quality control continue on the Ukrainian market of oil products. Globally, crude oil showed mixed dynamics – after the growth based on statistical data from the U.S. and Egypt, the priced decreased. At the same time, the U.S. Federal Trade Commission opened investigation on oil pricing. The average fuel cost at the Ukrainian filling stations didn’t change. On this background, new facts of tax and fuel quality violations appear. The MP I.Vasiunyk reported tax evasion by the Drogobych refinery and the Ministry of Income and Charges said the amount of oil products, which entered the market without paying any taxes, is about 1 mln tonnes and wants to discuss with the traders creation of a new excise policy format. The Ministry of Justice claimed that it has not agreed the function of fuel quality control for the Ministry of Income and Charges, instead, according to experts, the order to develop such program was prepared by the Cabinet of Ministers. Meanwhile, oil traders point to the need to control only the internal market and claim they are confident in the quality of imported fuel. At the same time, the effect of state quality standards (Euro-3 equivalent) has expired, although the Ministry of Energy and Coal Industry promises to decide on their prolongation within a month. Meanwhile, the SEPEK holding finished the deal on purchasing the Odessa refinery. DiXi Group, 2013 Energy information ● Analytics ● Consulting www.ua-energy.org author@dixigroup.org
The Ministry of Energy and Coal Industry recorded decrease of petroleum and diesel fuel consumption in January-May, although - according to the State Statistics Service - the sales of diesel fuel have increased in May. The Ministry of Income and Charges estimated the imports of oil products totalling 2.04 bln UAH. Meanwhile, Russia and Belarus increased oil export duties, and Chornomornaftogaz will delay the development of the Subbotin oil field because of prioritized gas production. The media note the decreased purchases of Russian oil in Europe because of growing cost. They also report on setting up restrictions in Ukraine on Belarussian oil imports, and the experts forecast growth of counterfeiting. One of such "production facilities" was liquidated in the Sumy region. 5. Companies and financial institutions with foreign capital are interested in Ukraine, being ready to invest billions of dollars in renewable energy and energy efficiency. The Danish Danosha plans to launch by September a biogas plant in the Ivano-Frankivsk region. The French Compagnie Nationale du Rhône declared the possibility to construct a wind power plant in the Zaporizhzhia region. The World Bank plans to support two new projects in the housing sector of Ukraine with 600 mln USD. At the same time, private entrepreneurs are trying to develop the sector themselves. Tokmak Solar Energy plans to commission a 3rd phase of the solar power plant in the Zaporizhzhia region by 2014. In July, the Portugese holding Martifer Solar will build a solar power plant for Rengy Development in the Vinnytsya region. The NERC corrected the installed capacity of the Probiyne small HPP in the Ivano-Frankivsk region due to its expansion. By 2015, Encom Group plans to implement construction project of a hybrid power plant in the Zaporizhzhia region. Currently there are more than 230 energy efficiency projects being implemented in Ukraine, including with the support of international financial institutions. Quite a good potential could be also utilized by means of the LED market which growth 35-40% annually. However, intensive development of the sector requires proper legislative support. The Cabinet of Ministers amended the state program on introducing LED-based energy saving lighting. The Ministry of Income and Charges DiXi Group, 2013 Energy information ● Analytics ● Consulting www.ua-energy.org author@dixigroup.org
prepares a project to increase energy efficiency in old buildings. The decision on the draft laws on promotion of the electricity produced from renewable energy sources No. 2946 and No. 2171а should be made by September. The European community follows the developments in the sector. During his visiting to Kyiv, the director of the Energy Community Secretariat J.Kopach stressed that the state should support RES even at the expense of nuclear generation. Renewable energy in Ukraine is also supported by the European Commission which has promoted the local version of the European Sustainable Energy Week for the second year in a row. 6. Nuclear energy is increasing its potential in the world, also through Ukraine. In Iran, the Bushehr NPP started operation and the country plans to build another 20GW of nuclear capacity. Bulgaria plans to construct its own nuclear waste storage facility by 2015. The Finnish consortium Fennovoima has chosen Russia as a partner in the NPP construction. The only 2 functioning units in Japan can continue operation until September. Ukraine is to build the Khmelnytskyi NPP units 3 and 4 on the old constructions. Besides, together with Russia it will prepare detailed offers on services for the NPPs in Hungary, Bulgaria, Iran and other countries. By 2015 Ukraine will be able to independently produce fuel assemblies, provided that the production plant in the Kirovograd region will be constructed in time. The issue of Westinghouse fuel assemblies qualification is also going on – according to the regulator, it will last up to 4 years.
DiXi Group, 2013 Energy information ● Analytics ● Consulting www.ua-energy.org author@dixigroup.org