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This Week in Energy: Landmark EU-Ukraine Agreement Officially Dead

By James Stafford | Fri, 22 November 2013 19:03 | 0

Ukraine was set to sign a landmark trade association agreements with the European Union on 29 November, much to the dismay of Moscow, but the deal is now officially dead according to reports coming out of Kiev.

Ukrainian Deputy Prime Minister Yuriy Boyko announced today that Kiev has suspended its preparations for the signing of the EU-Ukraine Association Agreement until a “solution” can be found. Internal politics aside, at issue are industrial production decline and relations with the countries of the Commonwealth of Independent States (CIS)—both of which would need to be compensated by the European market.

One of the EU’s key conditions for the signing of the agreement was the release of Yulia Tymoshenko—at least to travel to Germany for medical treatment. Yesterday, Ukraine’s parliament rejected draft laws that would have allowed this to happen. Opposition leader and former prime minister Tymoshenko is a staunch opponent of Ukrainian President Viktor Yanukovych. She is serving a seven-year sentence in prison on abuse of office charges.

In the meantime, there has been a flurry of activity between Moscow and Kiev, including a Ukrainian pledge to readjust the payment schedule for Russian natural gas imports and address overdue payments to Moscow. Officials in Kiev are now saying they will pay $1 billion in overdue gas payments by the end of this year. Only last week, Ukraine had said it was suspending gas purchases from Russia and would instead rely on its own storage facilities, but it quickly backtracked on that.

Quite simply, there is just too much domestic political and geopolitical baggage attached to the EU-Ukraine deal, and according to Robert Bensh, senior energy advisor to Boyko and senior consultant for Cub Energy, the timing isn’t quite right.

Perhaps five years from now the climate will be more favorable for a deal and until then Ukraine will have to continue to balance relations with the EU and Russia.

Back in North America, it’s a busy week in energy as we head into the winter holidays, which promise to leave a lot of loose ends to tie off in the New Year, among them the five-year-pending approval of the controversial Keystone XL project and over 20 applications for exporting US natural gas to countries that don’t have Free Trade Agreements (FTAs) with the US.

This week has been a rather disappointing one for Keystone XL and LNG exporter-hopefuls.

First, the Freeport LNG export project in Texas saw its capacity hopes dashed by a Department of Energy (DOE) conditional approval of only 400,000 Mcf/d in LNG exports—a far cry from the 1 Bcf/d the company had asked for based on capacity and future expansion plans.  

At the same time, it looks like one other project—at most—will be approved by the DOE before the end of the year, based on the approximately one month it has taken for each of the four LNG exports projects approved so far.

While some analysts were suggesting there would be a moratorium on further approvals this year, the DOE has stated that it is not suspending the approval process, but the process has been slowed because of October’s federal government shutdown.

The 16-day government shutdown "impacted our ability to move forward" on approving pending LNG export applications, Christopher Smith, DOE's acting assistant secretary for fossil energy, said during his Senate Committee on Energy and Natural Resources nomination hearing.

Smith’s statement is more or a less a response to growing criticism from some senators that the DOW has been dragging its feet on LNG exports to non-FTA countries.

Then we have Keystone XL, the planned start-up of which has now been delayed for the second time this year, to 2016. It has become clear to TransCanada Corp. that its pipeline will not be getting approval this year, but the company remains hopeful that early 2014 will see the presidential green light. Once approval is granted, it will take at least two years for the pipeline to become operational.  

In the meantime, though, the estimated costs of the project continue to climb along with the start-up delays. On Tuesday, TransCanada announced the new estimated costs of the project would be at least $5.4 billion--$100 million more than earlier estimates.  

Colin Soares, CEO of Canada’s High North Resources, recently told us in an interview that Keystone XL isn’t as fundamentally important as it used to be because of huge increase in crude being transported by rail. “But from a market point of view, it’s still a big deal, and market valuations will increase with Keystone approval.”

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That’s it from us this week.

Best regards,
James Stafford

About the author

Contributor
James Stafford
Company: Oilprice.com
Position: Editor

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