Weekly analytical report March 25 – 31, 2013
1. Interest in the Southern Gas Corridor grows before the final decision on the project. In June, the Shah Deniz consortium has to take a final decision on the choice of pipelines. Both competing projects – Nabucco and TAP (which also received support from Albania and completed engineering design) – submitted proposals package to the consortium. At the same time, third parties continue to express their interest in cooperation – both companies (Enel) and countries (Ukraine). In particular, Ukrainian officials stressed the importance of the Southern Corridor projects and called inefficient the bypassing Russian pipelines.
2. Gazprom continues to lose the European market and looks for alternative opportunities to sell gas. In 2012, the company lost 40% of its revenue. Gazprom has withdrawn its lawsuit against Lithuanian KTE, after having sold its share. It seems that a taboo on the sale of energy assets to Russians is imposed in the EU: RWE sold Net4Gas to the European consortium, and the shareholders of Urenco do not consider companies from Russia as potential buyers. However, Gazprom is trying to find new markets, signing a 10-year contract with Serbia (it received mixed reactions) and agreeing with China on key parameters of the gas supply contract. As for Ukraine, its reduction of Russian gas purchases has not yet become an argument for decreasing the price. In 2012, Gazprom lost 16.4% of its revenues in Ukraine. According to the government, in January-February the country has cut Russian gas imports by 23.2%, and in March there was almost no imports due to unresolved price issue. The management of Gazprom announced that it did not notice reducing of purchases and the prices for Ukraine are lower than spot prices in Europe. The government expects to negotiate a lower price for Russian gas, while the Fitch agency does not predict cheaper Russian gas for Ukraine in the nearest time. Against this background, the Ukrainian government declares commitment to further integration in the EU energy market. The government predicts that Ukraine will remain the member of the Energy Community. The gas transportation consortium will be the subject of discussion on the high-level roundtable to be held soon, and the EBRD expects to sign the loan agreement for modernization of the GTS by the end of the year. Experts believe that further progress depends on the loan from the IMF which continues to convince of cancelling the subsidies.
3. Supplies of shale gas from the U.S. to the European market can be the impetus for revitalization of the EU economy. British company Centrica has signed an agreement with Cheniere Energy on supply of the liquefied shale gas, which could break the plans of Gazprom DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
to build the pipeline to the UK. The EU Commissioner G.Oettinger opposed new taxes on energy and supported shale gas production – for higher competitiveness of the European industry. The increasing role of unconventional gas attracts ever more attention to the terms of its production. There is a growing number of countries developing unconventional gas production: Romania lifted the ban on shale gas exploration; in Lithuania, even the minister of environment supported the development of unconventional gas; the UK plans to introduce tax incentives for shale gas; and China becomes the object for billions of dollars of investment. According to the IEA, the development of unconventional gas requires responsible approach – the U.S. created a group to study the impact of hydraulic fracturing on drinking water. Public perception of shale gas production in Europe remains ambiguous. Instead, the Ukrainian government has declared its readiness to conduct outreach on shale gas and the media debate on the development of the Yuzivska field project, its potential advantages and disadvantages.
4. Ukrainian diversification projects demonstrate different efficiency of implementation. Ukraine started reverse gas supply from Hungary; according to media reports, it will save up to 100 mln USD. According to the Prime Minister M.Azarov, Ukraine could 2-2,5 times increase electricity exports to Hungary. At the same time, negotiations are held with Romania, and it is promised that import volumes from Poland will increase starting from April 1. During visit to Georgia, the Energy Minister E.Stavytskyi discussed the chances to implement the White Stream project which, according to experts, can supply more gas than imported from Germany. Against this background, the new misunderstanding emerged around the LNGterminal project – informing on the cost of the LNG platform, the head of the State Agency for Investment and National Projects V.Kaskiv had to explain the statement of the Prime Minister M.Azarov on the unavailability of Azerbaijani gas. The Ministry of Energy and Coal Industry announced a new potential source – LNG-terminal in Croatia.
5. It seems that the government plans to introduce import duties on petroleum products in order to create preferrable conditions for one of the market players. This week, crude oil on world markets mostly rose in price, just as the increased cost of the OPEC Reference Basket. In Ukraine, the price of fuel remained unchanged – due to lower demand caused by bad weather conditions. Sales of oil products increased from the beginning of February, consumption of diesel fuel increased by 13% year-to-date, and the production of liquefied gas – decreased by 11.3%. The start of launching activity on the Odessa refinery provided the government with the reason to expect growth of oil refining to 1 million tonnes per month, as well as to forecast the launch of Karpatnaftokhim. However, experts doubt the refinery is ready to work and suggest its profitability will be guaranteed by protective duties. According to the head of the Antimonopoly Committee V.Tsushko, increased prises because of the introduction of duties is not expected. Business success of the SEPEK holding is indicated by media reports on acquisition of the gas filling stations’ network in Germany.
6. The government demonstrates high expectations not only towards renewable energy, but also energy efficiency and "clean" transport. The State Agency for Energy Efficiency DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
and Energy Saving expects that in 2013 about 1 bln kWh of "green" electricity will be generated. This forecast is supported by the intensification of regional projects: Kharkiv region prepares for counstruction of a wind farm, Kherson region expects 15 bln. UAH of investments, Ivano-Frankivsk region will build a biomass power plant, and Lugansk region launched a power station on biofuel from the sludge of waste treatment facilities. The Cabinet of Ministers plans to start production of electric vehicles in Ukraine by 2014, and 29 distilleries will be converted to produce bioethanol. However, the latter initiative is skeptically perceived by experts, also because of the plans to continue the use of Euro-3 fuel to 2016. The Ministry of Economic Development has received 324 mln UAH on energy efficiency and the Ministry of Regional Development and Construction proposed to invest the savings in modernization of enterprises. Experts predict increased investment in energy saving technologies.
7. While globally the issue of nuclear safety becomes even more crucial, Ukraine continues to implement projects which do not have unambiguous support of the public. Representatives of the six world powers are ready to repeatedly explain Iran the proposal for resolving the nuclear issue, and North Korea warned the UN about the possibility of escalating situation to a nuclear war. Meanwhile, the EU urged Armenia to shut down the Metsamor NPP. Ukraine has signed an agreement with the EBRD on the project "Complex (integrated) program to improve NPPs’ safety", and similar agreement with Euratom is expected to be signed in the beginning of April. The Chernobyl NPP obtained a license for the construction and commissioning of the Centralized Spent Nuclear Fuel Storage. Meanwhile, as reported by environmental organizations, the Implementation Committee of the Espoo Convention started a case against Ukraine because of violations in making the decision to extend lifetime of the Rivne NPP units.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org