Weekly analytical report November 26 – December 2, 2012
1. The conflict around Iran reveals new risks to be considered. The U.S. set another deadline for Iran: if the country will not reach progress in negotiations with the IAEA until March, the matter will be taken to the UN Security Council. The IAEA reports on Tehran’s activity in uranium enrichment and ineffectiveness of existing sanctions. Simultaneously, the media reported on the facts which reduce the effect of sanctions: China increased imports of Iranian oil, trade between Turkey and Iran intensified. At the same time, the IAEA servers were hit by a hacker attack. Commitment to safety in the nuclear field remains a priority topic. Representative of the U.S. Nuclear Regulatory Commission urged all countries to follow the guidelines on NPP safety. The EU proposed to allocate additional 260 mln EUR for decommissioning nuclear facilities in Bulgaria, Lithuania and Slovakia. In Ukraine, where construction of the New Safe Confinement at the Chernobyl NPP continues, the first stage of lifting the Shelter arch structures (eastern part) was completed. Also, the Cabinet of Ministers approved the draft agreement with Brazil on cooperation in the sphere of peaceful use of nuclear energy.
2. New EU member states are actively introducing liquefied natural gas supply. Poland plans to launch its LNG-terminal in 2014 and continues talks with Qatar to reduce gas prices. Despite the European Commission recommended to build a regional LNG-terminal in Estonia or Finland, the Lithuanian government insists on placing the facility on its territory. Meanwhile, the Balmoral Capital Holding considers investing in Estonian LNG-terminal. In Ukraine, the scandal around LNG-terminal makes this project more risky for investment. Earlier this week, a symbolical welding of the first seam set start for connecting the terminal site with the Ukrainian gas transportation system, and two documents were signed – the agreement on the placement of floating LNG platform, signed with Exelerate Energy, and the agreement establishing a consortium to construct the LNG-terminal, signed with Gas Natural Fenosa. The same day, Gas Natural denied any involvement in the deal, as the signatory from its side is not officially employed at the company. Later, the person himself acknowledged he was not authorized to do so. The State Agency for Investment and National Projects – which published information on signatories, different from governmental one – first explained the situation by "technical disagreements" and pressure of third parties. After the inspection, the agency recognized Gas Natural Fenosa non-participation in the signed agreement, declaring misunderstanding fully settled and insisting it will not affect the project implementation. The opposition came out with demands to punish officials involved and pointed to violation of DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
the procedure. Representatives of the pro-government forces rejected the accusations, although the head of the State Agency for Investment and National Projects V.Kaskiv told he is ready to resign. The media report on the risks to lose funding or to repeat the fate of the Odessa-Brody oil pipeline. Experts, pointing on the fault of the Ukrainian party, say about threat to lose investors’ trust and discreditation of the LNG-terminal. Different forecasts of the final gas cost also indicate the low maturity of the project: the Prime Minister M.Azarov expects it will be half of the price for Russian gas, and V.Kaskiv – just 20% cheaper. The government itself places great hopes for this project. According to the Energy Minister Y.Boyko, shipping of the floating LNG plant is expected by September 2013. The President V.Yanukovych expects start of liquefied gas supply from early 2015. According to media reports, negotiations continue with such gas suppliers as Azerbaijan and Qatar. In particular, on Qatari gas spoke V.Yanukovych during his official visit to Doha. In turn, Prime Minister M.Azarov visited Norway where he expressed interest in puchasing gas for the LNG-terminal.
3. The EU softens its position on unconventional gas production. The European Commission begins to develop a document on the specific features of unconventional gas development. Poland – having not fixed any negative impact on the environment by hydraulic fracturing – plans to speed up exploration of shale gas. Even in France, where fracking is banned, market participants do not rule out restoration of production activity in the future. In Ukraine, the barriers to unconventional gas development are growing. First, the gap between government support and public dissatisfaction increases – despite the weak dialogue with the public, Chevron postponed familiarization workshops in Lviv region following the statements of the Svoboda political party. In Dnipropetrovsk region, environmentalists called to defer exploration of unconventional gas, and in Kharkiv region local communities want a referendum on the issue. Second, despite high expectations, the process is delayed – the government extended the deadline for signing the production sharing agreements with Chevron and Shell for further 30 days, and, as forecasted by Ukrainian representatives, may extend it for an additional period.
4. Measures to increase production offshore are accompanied by new corruption scandals. As expected, another 3 drilling platforms wil be installed on the Ukrainian Black Sea shelf by the end of 2013. The first of them – the jack-up rig "Independence" – is ready for arrival in Ukraine. The Naftogaz NJSC has signed a memorandum of cooperation with Smart Maritime Group to modernize service ships. Against this background, journalistic investigation found that Chornomornaftogaz PJSC purchased goods at overcharged prices. Abuses are spreading among ordinary employees: 4 of them were convicted of stealing gas condensate. A positive role in the extractive sector can play experience of advanced countries and strengthened transparency. In particular, Norway announced its readiness to promote the development of oil&gas sector in Ukraine. During his visit to the country, Prime Minister M.Azarov also declared intention to apply for joining the EITI by the end of the year.
DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
5. On the background of progress in the Southern Gas Corridor, Russia is trying to "jump" in the project on the run. Azerbaijani SOCAR announced terms of construction and launch of the TANAP gas pipeline, and confirmed the resources available for it. Also, the technical dialogue continues with the TAP project. Despite the European Commissioner for Energy G.Oettinger statement to show "more backbone" with Russia, negotiations with BP on its participation in the TANAP still continue. Ukraine's efforts to secure its position in the regional infrastructure projects have not yet demonstrated results. The government confirmed interest in TANAP project, but the Azerbaijani party considers Ukraine more as a consumer rather than a participant. Demanding to keep guaranteed volumes of gas transit via Ukraine, the Ministry of Energy and Coal Industry addressed the Energy Community Secretariat with the requirement to hold consultations on the South Stream project. According to experts, even if this pipeline will be constructed, Kyiv still has chances to win, but with proper preparation.
6. Although the Russian-Ukrainian gas talks remain frozen, the parties continue to raise the issue of import and transit volumes. The meeting of the Energy Minister Y.Boyko and the head of Gazprom A.Miller did not produce results. Gazprom recorded a 21% decline in exports, and some media predict Russia could demand 2.7-5.7 bln USD of penalties for not taking the contractual volumes of gas. Experts point to the possibility of real action in 2013 only – despite promises to reduce gas imports to 20 bcm, Kyiv has not sent the application for 2013 purchases. Despite the fact that the reduction in gas consumption is significantly behind the reduction in gas imports, Ukraine has a chance to stop being No.1 in the ranking of Russian gas importers. However, against the background of declining transit, the thesis of guaranteed transit volumes is used, which can cause symmetric requirements of Russians to comply with contracted import volumes. 7. Despite the favorable market situation, oil products’ importers in Ukraine encounter significant limitations. This week, global oil prices mostly increased but returned to previous positions. In Ukraine, the price of fuel remains relatively stable. Major filling stations’ networks started sales of winter diesel fuel, and some players began realization of fuel with ethanol. Interesting, but reduced own production and growing imports of oil products resulted in higher fuel quality. According to the Institute of Consumer Expertise, the quality of "premium" brands of petroleum complies with the Euro-5 standard. Against this background, the Ministry of Economic Development and Trade finishes consultations on the introduction of import duties on oil products. Also, difficulties continue with customs clearance of oil products: the problem affected not only oil traders but also the Russian Black Sea Fleet. The State Customs Service explained the delay by evasion of duties from the side of Russians. Criminal schemes are frequent subject of reports on corruption in the field of imports, robbery of the filling stations, fuel smuggling, and even theft of refining equipment. One of the factors to strengthen security of the oil market is to implement the system of minimum oil stocks, which Ukraine committed to as a member of the Energy Community. DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
8. Ukraine’s policy in the area of "green" energy contradicts international principles. At the climate conference in Qatar, Kyiv defends the position to double its carbon emissions by 2020, as well as to transfer unused CO2 emissions, whereas globally policies are directed to reduce emissions. Even such countries as South Korea and France think about transition to low-carbon energy. In Ukraine, despite protests of civic and business associations, the President V.Yanukovych has signed a law on change in working conditions on the market of renewable energy. According to experts, the document creates threats for investors, significantly alters the balance of market powers, and – because of tightening the "local content" requirements – Ukraine could either get a complaint within the WTO or even be excluded from the organization. Despite the difficulties in obtaining the feed-in tariffs, market players continue to develop their projects: Avangard agricultural holding plans to build 30 biogas plants by 2015, and the installed capacity of wind power is increasing.
9. Ukraine has undertaken specific obligations to improve energy efficiency. The head of the State Agency for Energy Efficiency and Energy Saving M.Pashkevych presented the National Energy Efficiency Action Plan by 2020 which includes the target to reduce energy consumption per GDP unit by 9%. Experts believe that the greatest potential has the thermomodernization of buildings as it can save 20-60% in heating costs. According to the head of the State Agency for Investment and National Projects V.Kaskiv, energy saving program in the municipal sector will enable reduction of gas consumption by 7 bcm. The cost of heating and lighting the offices of the Cabinet of Ministers, which amount 10.72 mln UAH this year, is confirmation to this. Meanwhile, the Ministry of Regional Development, Construction and Housing wants to allocate 14.9 bln UAH for reforms and development of housing and utility services in 2013.
DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org