Weekly analytical report October 29 – November 4, 2012
1. The crisis around Iran is being delayed, causing further instability on the global oil market. The EU and the U.S. seek to resume talks on Tehran's nuclear program. Meanwhile, Iran is planning to invest 40 bln USD in oil industry by March 2013, aiming to stop exports of crude oil and increasing production of oil products. In the U.S., despite the historical maximum of oil production, some refineries were shut down by the Hurricane Sandy. As a result, fuel prices – which were decreasing prior to the disaster – started to grow. Russia continues to demand from Belarus 1.5 bln USD as a compensation for "business with solvents". In response, Minsk reduced export duties and negotiates with Moscow on restoring previous level of oil supply. In Ukraine, the price situation is stable despite the risks of internal nature. Along with increasing popularity of diesel and small-engine cars, the price of diesel fuel is also increasing. However, according to experts, only 20% of oil products meet official quality standards. The situation around the Lysychansk refinery remains uncertain: the TNK-BP company has not sold the plant yet and the Galnaftogaz concern – which studied such an opportunity – was refused a loan for the purchase. Meanwhile, oil transit to the EU countries decreased by 19.6%. The Ministry of Energy and Coal Industry is skeptical about the chances to restore previous levels of transit this year. 2. The EU – both in Brussels and at the level of national governments – continues to develop "green" energy. The EU Commissioner for Energy G.Oettinger supported setting of the new target for renewables by 2030, and the European Commission launched an investigation against Bulgaria which established a fee for RES-to-grid connection. Poland wants to adopt laws enabling hundredfold increase in capacity of solar energy. In Germany, the generation of "green" electricity is growing faster than expected, which creates demand even for meteorology. The Czech company CEZ wants to install 3,000 MW of renewable energy facilities in Poland, Romania and Germany. UK plans to increase the share of renewables to 30% in 2020. On the contrary, Estonia reduced subsidies to the industry by 18%, and Bulgaria discusses slowing the growth of renewables’ share. Ukraine is also developing renewable energy. In the Zaporizhzhia region, the first part of a 1.5 MW solar park was commissioned, having received the FiT. The payback period of the Botiyevo wind park was estimated by the developing company of 6-7 years. In the next year, the KSG Agro company plans to build a plant for production of fuel pellets in the Dnipropetrovsk region.
DiXi Group, 2012 Energy information ● Analysis ● Consulting www.ua-energy.org/en author@dixigroup.org
3. Both producing and consuming countries focus on gas as a key fuel of the future. Azerbaijan plans to increase gas production by 11.6% over the next 4 years. China, which adopted the development strategy of gas industry, increased estimation of its oil and gas resources by more than a half. In the UK, where the supply of LNG from Qatar could decline, the dependence on gas imports will increase in future. Cyprus is negotiating with prospective companies on offshore exploratory drilling. Meanwhile, Russia is losing its traditional customers. Even though gas prices on the stock exchanges in Europe are increasing, the net profit of Gazprom in the first half of 2012 fell by 33.1%, particularly twice less in Q2. Trying to keep the European market, Moscow promotes the South Stream pipeline project, signing agreements with Serbia and Hungary, and entered negotiations with Latvia which liberalizes gas market. At the same time, talks are underway with Eastern consumers, including China and South Korea.
4. Ukraine prepares ground on the eve of gas talks with Russia, activating projects to diversify gas supply. The Naftogaz NJSC has signed a contract with RWE on supplying gas from Poland in the amount of 1 mcm per day during November and December. According to media reports, the price difference of 20-23 USD is not significant for such volumes, but the mere fact of such "test" supplies is positive, because the gas from Eastern Europe could form one third of the Ukrainian market. Two tenders were also announced for the loans under the National Project "LNG-terminal". Generally, in the last 9 months, gas imports from Russia decreased by 30.9%. According to the Energy Minister Y.Boyko, 21 bcm pumped into gas storage facilities and Gazprom decreasing prices for European consumers are promising signs. Against this background, one of the problems in the future "packet" agreement can be the creation of gas transportation consortium. As the Russian ambassador in Kyiv M.Zurabov said, Ukraine's membership in the Energy Community can make it impossible. According to media reports, Russia could pay for the GTS or its share no more than 20 bln USD. With this in mind, the publication of the GTS value assessment is being delayed: according to the Minister Y.Boyko, the data will be published in November. Kyiv continues to attract investments in own production, including offshore and unconventional sources. Over the last 9 months, gas production in Ukraine grew by 0.6%, including the Chornomornaftogas SC increasing it by 14.8%. The Naftogaz NJSC disclosed proposals for the purchase of two offshore drilling rigs, and the Nadra Ukrayny NJSC announced a competition to develop the Mizhrichynske oil and gas field. The Prime Minister M.Azarov has met with representatives of Eni, who consider unconventional gas production in Ukraine as promising. However, experts emphasize the need for effective regulation of the industry.
5. Prices for housing and utility services will increase in the nearest time. The Ministry of Regional Development, Construction and Housing agreed on inclusion of the investment component in tariffs, and the National Commission for Regulation of Utility Services approved methodologies for incentive-based tariff setting. The Minister A.Blyznyuk said that utility tariffs have to increase, however, according to media reports, it will only deepen problems in the sector. DiXi Group, 2012 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org
The capital of Ukraine is an example of such problems: Kyiv City Council has put forward claims against Kyivenergo and increased the municipal budget deficit by 1.915 bln UAH to pay the difference in tariffs for heat. The company, despite full and timely payments for utility services, acknowledged the existence of difficulties in its work. Kyiv authorities also approved the municipal energy plan by 2016, which includes thermomodernization of several neighborhoods and reduction of heat consumption by 60%.
6. Despite the government actively supports coal industry, safety violations are frequent. Under the new law, the government allocated 1.5 bln UAH for mining companies and the Cabinet of Ministers approved the order of use for these funds. Utilization of the "black gold" is growing: in the last 9 months, consumption increased by 6.8%; the President V.Yanukovych acknowledged increased production of the Coal Mine Union "Pokrovske"; the Ministry of Economy selected 8 exchanges for electronic trading of coal. Meanwhile, works at the Zarichna mine in the Lviv region were suspended for violating safety regulations.
DiXi Group, 2012 Energy information â—? Analysis â—? Consulting www.ua-energy.org/en author@dixigroup.org