Weekly analytical report July 29 – August 4, 2013
1. Participants of the Southern Gas Corridor winning project moved to the stage of legally registering their partnership. The members of the Shah Deniz consortium received shares in the TAP project: SOCAR and BP got 20%, Total – 10%. In addition, SOCAR received official approval from the Greek privatization authority to purchase DESFA. The benefits of the TAP for regional economy were discussed by prime ministers of Italy and Greece. Meanwhile, the Polish party delays the meeting to sign the agreement on the EuroAsian Oil Transportation Corridor which could compromise the EU allocating 125 mln EUR for the project. 2. Energy dependent countries continue to accelerate the exploration of hydrocarbons from unconventional sources. The U.S. and Japan discuss the future of methane hydrates production, while Australia is predicted to successfully develop coal-bed methane. The U.S. progress in producing shale oil and gas, which affected its internal energy market, is motivating other countries to follow this experience. Despite protests against hydraulic fracturing, the UK considers shale gas as the resource which will yield enormous potential benefits. Poland begins to develop the large oil and gas deposit, and Lithuania – despite scepticism of the scientists – plans to sign an agreement with Chevron. Although the development of shale oil and gas has already impacted the interests of Saudi Arabia and other gas exporting nations, the start of unconventional resources’ development in China and Europe, according to the U.S. government, will profoundly change the global energy trade. Passive position of the Ukrainian government can have crucial implications for the development of unconventional gas. As a precondition for approval of the PSA on the Oleska field, the head of the Ivano-Frankivsk Regional Council V.Skrypnychuk called consideration of the region’s interests. The government does not comment on this position, although the Council’s vote is scheduled for August 20. Critical statements of the environmental organizations on unconventional gas are called by the Minister O.Proskuryakov as politically biased. The dialogue with the public is held only at the corporate level – Chevron has offered the MPs of the Lviv Regional Council to organize a study visit to well sites in Poland, and Shell planned a trip for the Ukrainian environmentalists to the U.S., which has been postponed. Shell also completed environmental monitoring of the Bilyaivska-400 well and announced it will not use Ukrainian drill pipes, although one of the producers is planning to certify production of such goods. Meanwhile, signing of the PSA with the ExxonMobil-led consortium on the Skifska field was postponed to autumn. 3. Gazprom continues to lose strategic positions on the international markets. In the east, China has reduced the chances of a contract benefitial for Russia, having received gas from Myanmar via a newly built pipeline. In the west, companies in the EU continue to seek price concessions: Edison has initiated arbitration proceedings against Gazprom, and GDF DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Suez has achieved the revision of prices after negotiations. Lietuvos dujos completed the first stage of unbundling under the Third Energy Package and also expects discounts from Gazprom. The lack of a clear government position towards Gazprom does not allow Ukraine to apply specific actions to protect its interests. The Energy Minister E.Stavytskyi promised to use the successes of European companies in the negotiations with the Russians, but experts doubt it. According to media reports, the government is still offering the option of trilateral consortium. Instead, the government expects assistance funds from the European party: the Cabinet of Ministers approved the strategy of public finance management, expecting to get 210 mln EUR of the EU funds, and the Deputy Prime Minister S.Arbuzov discussed with German banks the modernization of the GTS.
4. The government tries to optimize the gas balance in the conditions of high prices for Russian gas. In August, Ukraine plans to increase gas imports from Russia and inject the entire amount in the underground storages. At the same time, no imports from Hungary will be possible in the first half of the month – because of the works to increase transmission capacity. In the last 7 months, Ukraine received 0.92 bcm of gas from Hungary and Poland. Meanwhile, the media focused on the discrepancy of the data on gas imports in June, published by the Ministry of Energy and the NJSC Naftogaz. While the authorities are deciding on the location for the LNG terminal, analysts are already expecting its possible transfer to private companies. Ukrtransgas reported on saving gas due to technical improvements, and the media claim that the 30% decrease in gas consumption is caused by the stagnation of the economy. 5. In addition to global market conditions, the price of oil products in Ukraine can significantly affected by the government’s actions to limit imports. World oil prices slightly decreased, but later increased because of improved economic performance of China and the United States. Despite the sharp decline of oil production in Libya, the OPEC countries received record revenues, while consumption in Europe began to increase. The fuel prices hike has reached Russia where the stock prices of oil products increased by 20-30%. In this regard, export duties were increased by both Russia and Belarus. In Ukraine, on the background of declining sales of low-octane fuels, there is a growth of wholesale prices for petroleum and the retail ones – for LPG. According to experts, the price of petroleum in Ukraine could grow up to 15 UAH. Among the factors pushing the prices upwards could be the increase of excise duties, the State Agency of Automobile Roads (Ukravtodor) insists on. The experts believe that the agency seeks to solve its own problems at the expense of ordinary citizens and argue that the revenue from excise duties decreased due to reduced consumption and dominance of counterfeiting. Meanwhile, the pressure on importers of oil products increases: the Presidential Administration did not cancel the assignment to run an antisubsidiary investigation, and the government obliged the importers and manufacturers either to recycle industrial oils or to pay for such services. Another factor which destabilizes the market is the issue of fuel quality and the related state control. The Cabinet of Ministers approved the technical regulation for fuel, which extended the Euro-3 standard by the end of 2015. At the same time, according to the Energy Minister E.Stavytskyi, the document shall be agreed by the Ministry of Economic Development and Trade which – according to media reports – was authorized to run fuel quality inspections. DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
Simultaneously, the government has high expectations for the metrological inspection, which will not change the general number of inspections. Against this background, the recent check of the State Service of Mining Supervision and Industrial Safety discovered 46 violations on just three oil storage facilities. Among the problems, experts also name the possible deficit of fuel, corruption risks and shadow activity of mini-refineries, although some retail chains were also found guilty. 6. Advanced nations of the world are actively dealing with carbon capture and renewable energy. Dutch scientists have created an energy source on carbon dioxide. Americans started an experiment on the disposal of carbon dioxide in basalt. The Germans plan to produce plastic from the greenhouse gases and the UK shares its GHG experience. In Europe, minimum prices for the imported Chinese solar panels were set, and Spain decided to cut subsidies for solar energy. At the same time, producers of fossil fuels are only beginning to move in this direction: Saudi Arabia plans to invest 1.5 bln USD in the development of solar power plants, and the UN Secretariat adopted the strategy for sustainable energy of Kazakhstan. At the same time, Ukraine is developing its potential in renewables. In the Mykolaiv region, first solar power plant started operation, and a similar object is planned to be built near Berdychiv. In the Luhansk region, land plots were allocated for a new wind park. In the government, a program for energy production from biomass is being considered, while the Verkhovna Rada can allow the budget-financed institutions to conclude energy service contracts. 7. In the sector of housing and utility services, the authorities are not still ready to operate with market methods and apply administrative decisions. Government officials say they will not increase tariffs, and accuse local authorities in higher prices for heating. In Kyiv, the deadline for preparations to the next heating period was set, and the Kyivenergo company complains about unprofitability. Despite the utility debts of households decreased in June, the General Prosecutor's Office reported on the debts of Lutskteplo for gas, and a CHP in Kirovograd was recognized bankrupt. At the same time, experts point at 90% depreciation of the Ukrainian TPPs. Against this background, according to media reports, the government can encourage competition for Donbasenergo using a credit line, which already interested one of the companies. The head of the State Property Fund advocates for benefits from the privatization of generating companies, particularly in sales of Ukrainian coal and timely payments. 8. Any information in the field of nuclear safety receives fast and wide public response. On the background of statements about Iran developing by 2014 the stocks of enriched uranium enough to create nuclear weapons, the U.S. Congress approved additional sanctions against Tehran. Meanwhile, in Japan – which will close all its NPPs in September – excessive content of tritium and strontium in the technical water of the Fukushima-Daiichi NPP was recorded. In Taiwan, the dispute over construction of nuclear facilities escalated into a fight in the parliament. Instead, in Poland rumours were distributed about the alleged explosion at a Ukrainian nuclear power plant, which were immediately refuted by the Energoatom NNEGC.
DiXi Group, 2013 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org