weekly analytical report: march 18 - 24, 2013
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Weekly analytical report: March 18 - 24, 2013TRANSCRIPT
DiXi Group, 2013
Energy information ● Analysis ● Consulting
www.ua-energy.org/en
Weekly analytical report March 18 – 24, 2013
1. Russia wants to consolidate its presence on the European gas market with the simultaneous expansion on Asian markets. Gazprom and the Czech MND intend to construct a new underground gas storage facility by 2016. Moscow also considers purchasing combined-cycle power plants in Europe to sell additional volumes of gas. Also, Gazprom did take advantage of the situation in Cyprus – in exchange for assistance to local banks, Russians demanded exclusive rights on offshore gas fields of the island. In turn, the United Kingdom announced its readiness to explore the issue of increasing supply of Russian gas. Meanwhile, the Ministry of Energy of the Russian Federation noted that Gazprom’s monopoly should not persist on markets of the Asia-Pacific region where Russian gas can be quite competitive. In the framework of the TAPI project, the possibility of Russian gas transit to India was expressed as an idea. However, Russia has fewer opportunities to use its monopolistic position in the EU, therefore neighboring countries are exposed to its "energy blackmail". Europe is considering the South Stream project’s conformity with its legislation. Despite the continued visits of Ukrainian officials to Moscow, the Russian party said that the negotiations on the consortium to manage the gas transportation system reached a deadlock again. Trying to keep Kyiv in the zone of its influence, Russia issued an ultimatum: Ukraine shall refuse its membership in the Energy Community. The EU urged Ukraine to care about its own interests and considers the Russian demand a threat to its sovereignty. The Ukrainian government has not yet taken a definitive position in response to the statements of Russia and the EU. Despite the arguments of lawyers and market participants, the Prime Minister M.Azarov does not see any leads for terminating the contract with Gazprom. He said the decrease in gas consumption is happening due to sufficient stocks in underground storage facilities, which was confirmed by Ukrtransgaz. As the Minister of Energy E.Stavytskyi argued, lower gas prices are possible either by agreement with Russia or by diversification of supply. But, as a member of the Energy Community, Ukraine is only talking about fulfilling its commitments, accusing the EU in having no interest in the modernization of the GTS. However, after the EU urged to provide concrete proposals, the Ukrainian party started vaguely talking about support of Germany. 2. At the same time, despite the government's efforts, the financial situation of the NJSC "Naftogaz of Ukraine" continues to be weak. The President V.Yanukovych instructed to sell 50% of non-core assets of the state holding, and the Energy Minister E.Stavytskyi – while promising to disclose financial data – plans to receive first proposals to reform the NJSC already in April. The Ministry of Energy and Coal Industry will also accompany the draft law to extend the moratorium on bankruptcy of the fuel-and-energy enterprises. However, Naftogaz –
DiXi Group, 2013
Energy information ● Analysis ● Consulting
www.ua-energy.org/en
which owes 20.33 bln UAH to Oschadbank only – reduced its loan portfolio by 2.4 bln UAH and sued Ukrtransgaz which hopes for peaceful settlement of the dispute. According to unofficial information, the reason of court action against own subsidiary is its failure to pay for technical gas. Against this background, the businessman D.Firtash expressed willingness to supply industrial consumers, and his structures plan to consolidate 70% of gas distribution sector in Ukraine. According to the media, in such a way the Ostchem holding can avoid penalties. 3. Ukraine can become a part of the Europe-wide process of strengthening security of supply, which is deployed both at the level of national governments and in Brussels. In Lithuania, government hopes that stopping of the tenders will not affect the construction of the LNG-terminal and it will be finished on time. At the same time, Turkmenistan intends to increase exports of liquefied natural gas. Polish gas monopoly PGNiG plans to increase annual production at the expence of Norwegian field. The European Union is going to identify projects of common interest to modernize and expand energy infrastructure which will strengthen the security of supply. Ukraine may be interested in some of these projects: in particular, Kyiv wants to participate in the discussions on the Trans-Adriatic Pipeline as well as looks for support of Slovakia in the Euro-Asian Oil Transportation Corridor. 4. The government plans to increase production do not reflect with the real state of affairs. According to the Minister of Energy and Coal Industry E.Stavytskyi, in the current year gas production is expected to grow by 3-5%, and gas will cost 160-200 USD in 10 years. However, official statistics record the opposite trend: in February gas production decreased by 5.6%, oil production – by 13.7%. Against this background, problems accompany both public and private projects: the government will re-tender the purchase of offshore drilling rigs, and the British company JKX Oil&Gas, which owns extracting assets in Ukraine, entered a conflict with one of its shareholders. According to media reports, the fight for control are leading the structures of the businessman I.Kolomoyskyi. With regard to unconventional gas exploration, excessive politicization can hinder the dialogue between investors, government and local communities. In the framework of joint activity with Ukrgazvydobuvannya, Shell has obtained permission of local residents to drill the new exploratory well, plans to adopt the list of socioeconomic projects in the Kharkiv region, and to drill the first production well by the end of the year. Officials react positively and support the expansion of investments in the region. Service companies, namely the Canadian Calfrac, are increasingly interested in Ukraine. Responding to a series of protests against unconventional gas production, officials convince people that such activities will not threaten water resources. At the same time, they engage professional geologists, which expect creation of new jobs, as well as representatives of the public to their argumentation. Meanwhile, the Prime Minister M.Azarov directly accused the Communist Party and the opposition parties "Fatherland" and "Svoboda" in fighting against the development of shale gas, and the parliamentary majority did not support holding the hearings on environmental risks of production. In order to study these issues, "Fatherland" established a working group which consists of 13 MPs.
DiXi Group, 2013
Energy information ● Analysis ● Consulting
www.ua-energy.org/en
5. Uncertainty around the import duties and the fate of certain refineries limits the flexibility of Ukrainian oil products’ market. While in Europe fuel prices are decreasing, in Ukraine fell only the price of liquefied gas, and the cost of petroleum remained unchanged. The Ministry of Energy and Coal Industry plans to present its vision on import duties for oil products from Belarus which began investigating the complaint of Ukrainian refineries. According to the media, in Minsk the arguments of Ukrainian party were called unsubstantiated, and experts believe that the introduction of duties will result in greater dependence on Russian supplies. Even the Prime Minister M.Azarov acknowledged that such a move will cause higher prices. Meanwhile, the government hopes to restart the Lysychansk refinery, in purchase of which (as well as of the Kherson refinery) is still interested the businessman D.Firtash. Meanwhile, the Odessa refinery, which plans to renew operations on March 29, is studying the possibility to use the CPC blend. Against this background, politicians think that the plants will be used to legalize smuggled or counterfeit fuel, and market players lobby tax incentives to finance the modernization and demand from the government to decide on the terms of transition to the Euro-4 standard. 6. While developed nations are increasing investment in "green" energy, in Ukraine the government plans are incommensurable with the pace of funds’ allocation. The U.S. President B.Obama proposed to create a 2 bln USD fund to finance renewable energy, and France announced the 90 mln EUR investment in two projects on energy efficiency. The energy committee of the European Parliament supported the need for new binding RES targets and more investment. In Ukraine, the Ministry of Energy and Coal Industry announced that the share of renewables will increase to 18% in the draft Energy Strategy by 2030, as well as that the funds for the construction of networks are sufficient. However, due to delayed allocation of funding (provided by the EU) to support energy efficiency and renewable energy sources, the Prosecutor General’s Office said the law was violated by the State Agency on Energy Efficiency and Energy Saving which reprimanded six employees. At the same time, measures to support certain subsectors are not consistent. The State Agency on Energy Efficiency and Energy Saving signed a memorandum of cooperation with 8 agricultural associations, which aims to facilitate the use of energy efficient technologies. Agricultural unions expressed in favor of government support for biodiesel production, but the Verkhovna Rada rejected the draft law on development of production and consumption of biofuels. According to experts, bioenergy can cover 18% of Ukraine's energy needs, and the media describe the benefits of biogas as an alternative to natural gas. 7. Against the background of protectionist measures, continues both official and shadow privatization of the coal industry assets. Pursuing the interest of "domestic producer", the government has introduced quotas on imports of coking coal, and the Verkhovna Rada extended the moratorium on bankruptcy of coal enterprises. According to media reports, these steps are beneficial for coal producers, but disadvantageous for metallurgy which needs raw materials of higher quality from abroad. Meanwhile, the authorities continue market reforms: the Ministry of Economic Development has identified the list of stock exchanges for coal trading, the State Property Fund plans to put up for sale 16% of the Zasyadko mine, and the President V.Yanukovych instructed to approve a liquidation plan for the SE "Coal of Ukraine". However, according to media reports, there is also a shadow
DiXi Group, 2013
Energy information ● Analysis ● Consulting
www.ua-energy.org/en
privatization of state-owned assets: in particular, discussed were the bankruptcy of the SE "Antratsyt" and the use of fields of the SE "Pivnichna mine". 8. The world seeks answers on the security challenge of nuclear energy. At the Fukushima Daiichi NPP, power supply was restored after an emergency shutdown earlier in the week. Due to bad weather conditions, a nuclear waste processing facility in the United Kingdom suspended its operation. In Lithuania, the political forces seek consensus before the decision to build an NPP. But, in Bulgaria protesters against high electricity prices demand to launch the previously closed reactors. According to forecasts, global production of nuclear energy will increase by 30% by 2020. In turn, the European Commission updated its nuclear safety regulations and is going to present them in May. Ukraine also actively discusses nuclear safety issues – both at the legislative level and the level of attracting loans to finance relevant measures. The government approved the plan for decommissioning of the Chernobyl NPP.