Weekly energy security summary to 26 April

  • Antonín Beránek
  • 27.4.2017 12:21

Oil

Oil prices have fallen by 5% over the past week to around 52 USD per barrel for Brent and 49 USD for WTI, an unexpected change.

The drop occurred as a result of an increase in US crude inventories. The American Petroleum Institute (API) said its oil storage grew from 897,000 barrels to 532.5 million. This renewed the debate among mainly OPEC countries that have agreed to reduce extraction numbers. Although we are only halfway through their initial six-month cycle, the results of the cut look unconvincing and their various interpretations are being discussed. High numbers of the inventories are only possible due to the extraordinarily high level of oil production before the agreement came into effect (i.e. in the 4th quarter of 2016 - January 2017).

The situation concerning the increased oil extraction in the US, which is at the two-year high, is also becoming significant - another factor pushing forward the extension of the production cut for another half-year. Although the OPEC Monitoring Committee proposes it, the stance of the other OPEC countries will be essential. Meanwhile, Russia stopped commenting on the matter.

Analysts predict prices to stabilise around 59 USD per barrel at the end of the second quarter, which is good news for countries that depend on oil exports, including Russia. However, everything is conditioned by solving the issues that OPEC currently faces.

Natural gas

The situation on the gas market is influenced by favourable weather that pushes prices down to 3.05 USD per million BTU. Concerns regarding lower demand are not surprising and rather seasonally. It is not cold enough to use natural gas for heating but not too warm to use it for air conditioning. The situation will probably continue until hot summer weather. Gas reserves in the US increased by 54 billion cubic feet and reached 2.115 billion, which is above the five-year average by 282 billion cubic feet.

Natural gas supplies dropped by 14% to Sabine Pass, a US-based liquefaction terminal where four LNG tankers were dispatched from last week.

The Nord Stream II pipeline, which will run parallel to Nord Stream I at the bottom of the Baltic Sea, with a capacity of 27.5 billion m3 per year, will be half funded by European partners of the project. The 9.5 billion investments is expected to come from Engie, OMV, Royal Dutch Shell, Uniper and Wintershall. This is a sign of support for Gazprom and shows that the project is not only politically significant but also economically lucrative. Russia also announced that it estimates the possibilities of the gas transit the Ukrainian territory to be approximately 15 billion cubic metres per year.

Nuclear energy

On April 23, a contract between China and Iran on the reconstruction of a heavy-water reactor in the Iranian city of Arak was signed in Vienna. It should be a research reactor built in full accordance with international standards and in accordance with agreements that reduce the production of plutonium for nuclear weapons use. Under these agreements, Iran is obliged to sell abroad all excesses of heavy water and enriched uranium.

Last week, Iran also signed an agreement on nuclear safety cooperation with the EU worth 2.5 million EUR. Another similar agreement is being drafted. Iran's position in the nuclear energy field is strengthening. All cooperating parties will benefit from it. In particular, Russia and China.

The European Nuclear Forum FORATOM has issued a statement concerning the EU's plan for the transition from electrical energy to low-carbon sources. According to the EU, they are expected to present at minimum 80% in 2050. According to FORATOM, this goal is unfeasible without an essential share of nuclear power. Currently, there are 128 reactors in the EU in 14 member countries with a combined capacity of 119 GWe. There is the ever-present pressure from the nuclear sector to maintain its position in the EU's energy balance. This is especially in the interests of France and other countries that are content with the use of nuclear energy, including the Czech Republic.

Alternative energy

A group of manufacturers, led by German Siemens, is developing wind turbines with the capacity of up to 15 MW. The power plants will have up to four times larger blade dimensions, and the performance will be approximately double the current maximums. This technology, expected to be delivered by 2025, will increase power plants' efficiency to a point where constructions of new plants will be feasible without state funding. However, according to field experts, 15 MW is by no means the final level, and there are already plans to increase the capacity to 50 MW. This is an important news for the implementation of the EU's alternative resources policy.

S&P's investment rating for Russia's RusGidro was raised to BB+. This was the result of the increases in state aid and company's profit, that reached nearly 666 million euros in 2016. This company is one of the most important hydroelectric power producers in the world. The improved market access to loans will increase its opportunities.

Great Britain went one day without coal-fired power plants. It happened on 21 April for the first time since the start of the Industrial Revolution (the first public plant was launched in the UK in 1882). On that day, about half of the energy consumption was provided by gas resources, a quarter by nuclear power plants, and the rest was supplied by alternative sources and from imports.

About author: Antonín Beránek

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