Weekly analytical report May 27 – June 2, 2013
1. So far, Russian pipeline projects are losing the competition for leadership in the information space to the Southern Gas Corridor. Before the final decision on the format of the Southern Gas Corridor, attention of its stakeholders grows: rivals Nabucco West and TAP announce new initiatives in their favor, and representatives of the Shah Deniz consortium promise a reasonable price for customers in the EU, and former U.S. senator R.Lugar has stressed the importance of Azerbaijan for Europe's energy security. Meanwhile, the Southern Gas Corridor begins to push its boundaries in practice: Turkey and Turkmenistan signed a framework cooperation agreement, and U.S. Ambassador to Azerbaijan argued on the right of the Caspian Sea countries to negotiate on the pipeline. Against this background, Russia is trying to maintain attention to the South Stream. However, despite statements to start commercial operation in 2015 and the allocation of funds for the construction of Serbian part, representatives of Gazprom recognize: there is no support for this project from the European Commission.
2. LNG projects are becoming increasingly popular way to diversify gas supplies. According to media reports, Japan and the EU are planning a joint study of the LNG market and increased cooperation among consumers. Simultaneously, the number of LNG-projects within the EU is growing: decision on the construction of a regional terminal in Estonia or Finland is expected, the possibility of a terminal in Cyprus is being discussed, despite Turkey's alternative proposals. Meanwhile, Gazprom which, according to media reports, can lose monopoly on LNG exports, persuades the EU in the growing role of pipeline supplies in the future. In Ukraine, despite positive views on ideas to create a gas hub and reverse gas supplies, the progress in the LNG terminal implementation is still low, according to experts.
3. Increased attention to the technology of hydraulic fracturing is accompanied by the elaboration of own national "recipes" to strengthen safety. The EU, according to companies, lacks adequate regulatory framework for the production of unconventional gas. Despite public protests (Romania), each country is planning to develop its own rules of safe production: Germany wants to complicate and limit the use of hydraulic fracturing, Poland is planning to adopt a law to regulate production, and Lithuania has already made corresponding amendments. Increasing transparency and accountability in the extractive sector is an international trend, which should be joined by Ukraine. The European Parliament prepares to adopt new rules to increase transparency, which continue the initiative started in the U.S. In Ukraine, the issue of extraction transparency also becomes relevant: the District Administrative Court of DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org
Kyiv has opened proceedings about restriction of public access to information from the PSA with Shell, and the Ivano-Frankivsk Regional Council called the publication of benefits to the local community among preconditions for positive decision on shale gas exploration. The results of opinion poll showed overwhelming public support for shale gas (39%), although there is a lack of public awareness – 34% of respondents have little knowledge about specific projects.
4. Non-transparent gas negotiations with Russia produce many rumors and criticism in the media space, opening for the government another "battlefield". The government does not consider the termination of gas contract in the court as realistic, despite refutation by the opposition and lawyers. Simultaneously, reduced imports, which decreased by 19.7% in the last 4 months, and the approved gas balance in 2013, according to experts, may be factors of pressure in talks on new gas prices with Russia. After the President V.Yanukovych visited Russia, some media informed on possible agreements on gas consortium. Despite denials by the Administration of the President of the relationship between the observer status in the Customs Union and the consortium, the issue aroused a strong response among experts and politicians. The Energy Minister E.Stavytskyi said it is too early to talk about transferring the management of the GTS, and the EU Commissioner S.Füle stressed that Ukraine should select partners by itself. Experts criticize possible management of the GTS by consortium, and opinion polls show that 60% of Ukrainians support state ownership of the assets. Meanwhile, the Ministry of Energy refused to disclose the GTS estimated value, but the media called the range of 26-29 bln USD. Against this background begins repartition of the gas distribution market. According to the company SEPEK (VETEK) – managers of which, according to media reports, are from Naftogaz and TNK-BP, – it plans to concentrate 25-30% of the gas market by the end of 2013. At the same time, Naftogaz sued Gas of Ukraine to get more than 2 bln UAH for previously supplied gas.
5. While prices on the global oil market are fluctuating, there is an increased number of investigations of abuses by large companies. Initially global prices declined but then grew before the OPEC meeting. The U.S. started an investigation against BP, Royal Dutch Shell and Statoil on manipulating oil prices, while Total has paid nearly 400 mln USD to settle bribery charges. According to studies, car manufacturers also manipulate by underestimating the level of fuel consumption. In Ukraine, the main driving forces on the market are administrative actions, including fiscal policy and quality control. Fuel prices have not changed yet, although there has been a little decrease in the cost of liquefied petroleum gas. The President V.Yanukovych called the development of petrochemical industry a priority, but the import of crude oil decreased 4 times year-to-date, and the launch of processing at the Odessa refinery is expected only in June. Against this background, the parliament registered a draft law on twofold increase of the excise duties on most petroleum products and LPG. The government distances itself from the initiative: the Ministry of Economic Development does not discuss the 50% growth, the Ministry of Finance said it was not involved, and the Prime Minister M.Azarov has called these ideas DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
"horror stories". According to experts, the increase of excise duties is being lobbied by the State Service of Automobile Roads, and there are more effective means to stabilize the industry – namely, to control the quality of fuel which requires only 100 mln UAH of annual spending. At the same time, members of the Kyiv Drivers Club began collecting signatures for increased control of oil products’ quality.
6. In Europe, countries calculate opportunities to balance supply and demand in the electricity sector and consider ways to stabilize the prices. According to Eurostat, the average prices of gas and electricity for households has significantly increased in the last period – by 10.3% and 6.6%, respectively. In some countries, such as Bulgaria, solutions are proposed by the EU and the World Bank. Sectoral association Eurelectric called to revise the structure of tariffs to introduce dynamic pricing, and the consulting company IHS argued that power supply companies will not be able to finance the needed infrastructure without increasing the price for carbon emissions. The vision of the energy balance is also different: businesses in the UK called for state support of gas generation, while the EU Commissioner for Energy G.Oettinger emphasized the importance of nuclear energy in terms of climate policy objectives. Against this background, nuclear projects in Poland and Lithuania ran into some obstacles.
7. In the sector of "green" energy, Europeans demonstrate no common vision of development after 2020 and are cautious given the high uncertainty. The UK oppose to mandatory renewable energy targets by 2030, Slovakia is planning additional taxes for the industry, and the IEA called Germany to protect its consumers from price growth due to the energy transition. A striking example is the EU-China trade dispute on the equipment for solar panels: despite Beijing criticised the anti-dumping duties, the European Commission will continue its investigation, although the German Chancellor A.Merkel insisted on settlement of the issues, following the behaviour of the U.S. Noteworthy, that on this background Ukraine also does not shows actions related to the EU policies. Media reported on the existence of barriers on wind energy market, and the Verkhovna Rada registered a draft law to repeal the controversial "local content" requirements as well as to increase feed-in tariffs for bioenergy. The State Agency for Energy Efficiency and Energy Saving promises to prepare the National Renewable Energy Action Plan in time, but has not yet sent the National Energy Efficiency Action Plan to the Energy Community Secretariat.
8. A payment crisis develops on the market of heat and electricity which requires immediate response. Despite the slight decrease of households’ indebtness for housing and utility services, the minister G.Temnyk acknowledged that the industry cannot revive without investment. At the same time, according to media reports, the lack of funds for subsidies will result in mass protests of coal miners. The Donetsk branch of the Ukrainian Coal Industry Trade Union has addressed the government with the demand to provide all appropriate payments. Additional burden on public finances will be the restoration of the Vuglegirska TPP, which is promised to be launched in fall, as well as the overproduction of coal explained by the domination of illegal mining. On the regional level, disconnection of some debtors has already DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
started: namely, power supply was turned off or was planned for water utilities of Dnipropetrovsk and Zhytomyr. According to experts, without debt repayment the energy market will face a serious crisis. Similar signals come from the nuclear power industry: the State Financial Inspection stated losses of the Energoatom NNEGC, the Accounting Chamber announced the delay in construction of the New Safe Confinement at the Chernobyl site, and energy workers' trade union fears that maintenance works on Ukrainian NPPs could fail.
DiXi Group, 2013 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org