Weekly energy security summary to 27 March

  • Antonín Beránek
  • 1.4.2017 16:53

Crude oil

Last week, the number of renewed drill holes in shale deposits in the US rose by a further 21 spots, and reached a total of 632. This is a 13-month maximum. This trend is continuing and, together with high oil stocks in the US, resulted in a decrease in the WTI oil price to 48 USD/barrel and Brent oil to around 51 USD/barrel. However, on 26 March, the OPEC monitoring committee meeting gave an optimistic impression stating that the participating countries, including Russia, fulfilled their commitment to reduce production quotas already by 94%. Conversely, this should push up the price of oil. Therefore, the probable price balance is around the current price levels. Another price reduction would stop the growth of the renewed shale wells, but it is simultaneously disadvantageous for OPEC countries and Russia as well, as their revenues from exports of this commodity are reduced.

Natural gas

The US weather forecast predicts above-average temperatures in the following two weeks. As a result, it will likely stop the growth of natural gas prices, which reached a level of about 3.2 USD per million British thermal units (BTU). In the week ending March 17, reserves of natural gas in the US amounted to 150 billion cubic feet and therefore by 53 billion cubic feet lower than the week before. On 26 March, production of liquefied natural gas (LNG) was stopped at the Sakhalin II plant (Russia) due to an accident on the mining platform. From there, LNG is exported to Japan, China and other countries. The matter is under investigation and consequences for Pacific trade with this commodity cannot be predicted. On March 27, the first US license was granted to a floating liquefaction plant in the Gulf of Mexico. Together with activities around LNG in Europe (like the proposed Polish deliveries of LNG to Estonia or Ukraine) this results in the  growth of the role of LNG as an alternative to pipeline business models, which could weaken Russia as a gas superpower in the region.

Nuclear energy

Westinghouse, American manufacturer of nuclear reactors, is on the verge of bankruptcy. Due to losses in supplies of nuclear fuel and the lack of contracts on building new generation nuclear plants, Westinghouse was offered for sale by its mother company, Toshiba. This eliminates one of the two main candidates for expansion of Czech nuclear power plant Dukovany. About 300 bln CZK is needed for this project. Czech Prime Minister B. Sobotka charged the incoming Minister of Industry and Trade, J. Havlíček with speeding up preparations for the project. This plays into hands of Russian state consortium Rosatom whose technologies are tested in the Czech Republic, and whose offers are able to complete the project with favourable financing conditions. The similarly designed project of the Russian expansion of the Hungarian Paks nuclear power plant has already been approved by the European Commission. Therefore, Russia can further strengthen its position in the global market of nuclear energy sources.

Renewable sources of electricity

On 27 March, the Constitutional Court of the Slovak Republic rejected the proposal from opposition deputies, in favour of operators of photovoltaic plants, to recover subsidies after the enactment of a law in 2015, which set stricter conditions for granting. The position of this source of electricity in Slovakia thus gets further complicated and the new market participants' entry into the sector will not be easy. The share of renewable sources in  Slovakia’s electricity sources is approximately 12% (13% in the Czech Republic), the EU average is 16.4% and by 2020, should reach 20%. In following years, this number should continue to grow and thus increase independence of the EU on external suppliers and improve the environment.

 

About author: Antonín Beránek

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