Weekly energy security summary to 21 May

  • Antonín Beránek
  • 21.5.2017 13:01

Oil
Recently we have witnessed relatively significant jumps in oil prices. From a level of about 56 USD per barrel for Brent oil on 12 April, the price has gradually fallen to 47 USD. From this level, the price has rebounded and now stands at around 52 USD.

The decline in prices is associated with the ever-increasing volumes of oil extraction in slate deposits in the US. Predictions indicate that the growth rate of slate mining will begin to slow down in June. However, US miners take advantage of financial hedging and therefore have the price of 50 USD guaranteed at least until the end of the first quarter of 2018. The upcoming OPEC meeting on 25 May in Vienna, where the deal concerning OPEC+ countries lowering their level of production is going to be extended, will thus not threaten the American miners. However, it could push the price further up.

It is interesting that the rise in prices occurred after the negotiations between Russia and Saudi Arabia, where Russia, contrary to its earlier sceptical position, expressed its support for reducing a level of production by March 2018. It is expected that Iran and Iraq, who had reservations about the agreement, will withdraw. The only country that will likely not join is Kazakhstan, which is not a member of OPEC.

Natural gas
Investors abandoned the topic of weather, and their decisions are now mostly based on deposits and export prospects.

Natural gas prices in the last week ranged between 3.14 and 3.43 USD per million BTU. The US deposits decreased by 45 billion cubic feet and reached 2.302 billion cubic feet on 5 May, which is 14% less than a year earlier, but 14% more than the previous five years average. Prices of liquefied natural gas, butane and isobutane products dropped by 1-3%, while prices of propane and ethane increased by 2-3%. The number of natural gas extraction sites in the US has increased by two to 173. The supply level has slightly increased, but the demand has slightly fallen. Subsequently, a price decrease is likely to be expected. Regarding the export of liquefied natural gas (LNG), four ships with a total capacity 14.2 billion cubic feet were sent from the Sabine Pass plant, in comparison with last week the export has increased.

From a geopolitical point of view, there is a significant agreement between the US and Chinese presidents to take measures to increase American gas supplies to the PRC. Both countries are interested in cooperation. This may complicate Russia's ambitions to diversify its gas exports. China should be a key alternative to selling in the EU.

Nuclear energy
In the United Arab Emirates, the construction of the first part of the Barakah APR-1400 water reactor was completed. The South Korean consortium handed the construction over to the Nawah Energy Company, who will now request the approval of the national regulator as a next step.
Strategic investors seek to gain a share in the New Areva NP project, a part of the French nuclear energy industry. EDF would like to have a share of between 51% and 75%. Most recently, the Assystem company strives for a 5% share, worth 125 million euros. New Areva NP is to be part of a common British-French approach to establishing, operating and maintaining nuclear resources in both countries.

Bulgarian Prime Minister Boyko Borisov stated on 11 May, during his phone call with Russian President Vladimir Putin, that Bulgaria is looking for private investors to build the Belene nuclear power plant - a project which was suspended in 2012 due to pressure from the EU and the US. Bulgaria is trying to privatise the project and realise it without state guarantees.

Alternative energy

The situation is still tense in the solar panel market. The cheaper competition coming from China causes considerable difficulties for European producers. Last week, the insolvency of German SolarWorld, which employs 3,000 people, has been announced.

ACER and CEER, the European electricity regulators, have commented on the European Commission's Clean Energy Legislative Package. They call for all energy sources to be made equal and, therefore, the termination of priority production from renewable sources. One of the many arguments is especially the pressure on the price as a basic criterion for assessing projects. This attitude can be assessed as a direct conflict with the existing renewable energy support policy of Europe.

In contrast, the American National Renewable Resources Laboratory (NREL) claims that the US could cover up to 80% of its electric energy consumption from alternative sources by 2050, especially using photovoltaic and wind power plants.

About author: Antonín Beránek

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