Borysfen Intel

Ukraine and the Persian Gulf States: Cooperation in the Energy Sphere. Part 2

November 16, 2013
<p>Ukraine and the Persian Gulf States: Cooperation in the Energy Sphere. Part 2</p>

The Independent Analytical Center for Geopolitical Studies “Borysfen Intel” affords ground to the analysts generation for expressing their point of view regarding the political, economic, security, information situation in Ukraine and in the world in general, according to their personal geopolitical studies and analyses.

 

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Oleksiy O. Volovych

Ukraine and the Persian Gulf States: Cooperation in the Energy Sphere. Part 1.

Ukraine and the Persian Gulf States: Cooperation in the Energy Sphere Part 2.

Ukraine — Qatar

In 2012, by the proven reserves of oil (25.57 billion bbl.), Qatar took 14th place in the world. Oil production in 2011 amounted to 1,631 million bbl. /day (19th   in the world), and exports in 2009 made 704,300 million bbl. /day (18th in the world). Domestic consumption of petroleum products in 2011 amounted to 169,900 bbl. /day (64th in the world). In 2012, by the proven reserves of natural gas (25.2 trillion cubic meters), Qatar ranked third in the world after Russia and Iran, and in 2010 — the fifth largest in the world in terms of gas production (116.7 billion cubic meters). In 2010, Qatar's gas exports totaled 94.9 billion cubic meters — second only to Russia. Domestic consumption of gas in 2010 in Qatar in terms of its volumes was quite significant (21.8 billion cubic meters) for a country whose territory is more than 50 times less than the territory of Ukraine.

Qatar produces natural gas at an extremely fast pace. In 2009, Qatar extracted 89 billion cubic meters of gas — three times more than in 2000. In 2010, Qatar delivered 55.7 million tons of LNG to 23 countries, in 2011 — 77 million tons, and in 2012 — 120 million tons. The total capacity of Qatari LNG plants is 94 billion cubic meters of gas per year. Qatar has 14 export terminals, six of which are “mega-terminal” with capacity of 7.8 million tons of liquefied natural gas per year each. In the fleet of carriers of methane there are 54 ships — about 20 % of the total gas transporting fleet in the world.

Due to the increase in domestic demand for natural gas in 2011, Qatar is going to import it from Iran, because until 2014 the moratorium on the expansion of gas production in the Qatar field “North Pars” is valid, and, accordingly, the Qataris cannot increase their natural gas production for the full meeting the increased demands of the domestic market, while aware that having signed long-term contracts for the supply of liquefied natural gas to many European and Asian countries, Doha has no right to violate contractual obligations and reduce the volume of LNG exports.

Compared with Iraq and Iran, with whom Ukraine economically cooperated in the Soviet era, the Ukrainian-Qatari cooperation in the energy sphere is just beginning. But it is already quite promising. Now trade and economic cooperation between Ukraine and Qatar is at a low level — 23 226.6 thousand US dollars in 2012, which is almost half as compared to 40 360.8 thousand US dollars in 2011.

Cooperation between Ukraine and Qatar was activated by visits to Doha in 2012 of Ukrainian Prime Minister Mykola Azarov and President Viktor Yanukovych. These visits took place after a visit to Ukraine in October 2011, of Emir of Qatar, Sheikh Hamad bin Khalifa Al Thani. During his visit to Qatar, Prime Minister of Ukraine Mykola Azarov held talks with Qatari firms RasGas and QatarGas about supplies of liquefied natural gas to Ukraine.

After the meeting on May 9, the Prime Minister of Ukraine and Emir of Qatar agreed to sign an Agreement on strategic cooperation for 20 years. Significantly, it was Qatari side who proposed to make Ukrainian-Qatari relations strategic, building them under a “gas in exchange for grain” formula.

On the 8th of August, 2012 the Ministry of Fuel and Energy of Ukraineand the Ministry of Energy and Industry of Qatar, signed in Doha a “Memorandum of Mutual Understanding in the Sphere of Energy between the Ministry of Energy and Coal Industry of Ukraine and the Ministry of Energy and Industry of Qatar,” providing for the establishment of the Joint Committee at the expert level, as well as determining the main directions of cooperation in the sphere of hydrocarbons, in particular, obtaining Qatari LNG. A separate item is the task of exploration and technological development of gas hydrates, which could develop into a very important and promising project. Qatar is the first country with which Ukraine has a documented agreement on cooperation in the development of gas hydrates.

27-28 November, 2012, with a two-day visit President of Ukraine Viktor Yanukovych was in Doha. He held talks with Emir of Qatar, Sheikh Hamad bin Khalifa Al Thani on supplies to Ukraine of Qatari liquefied natural gas. Leaders of Qatar once again confirmed their willingness to cooperate. Speaking in Doha at the launch of Ukrainian “National projects”, Viktor Yanukovych invited Qatari businessmen to invest into the Ukrainian LNG-terminal near the port “Yuzhnyi” near Odesa, and into the development of alternative energy sources.

According to the reached agreements, at the beginning of 2013 was opened the Ukrainian Embassy in Qatar. The Ukrainian diplomatic mission is headed by a leading Arabist diplomat E. Mykytenko, who had led Ukrainian Embassies in several Arab countries, particularly in the UAE and KSA. At the same time in 2013, an Embassy of Qatar in Ukraine will open.

February 7, 2013 the Minister of Fuel and Energy of Ukraine E. Stavitskyi met with the Head of an Investment Fund “Qatar Intermediate Industries Holding Co. Ltd” Ahmed al-Sayed and had a conversation about the possibility of the Fund's participation in the project for construction of LNG-terminal in “Yuzhnyi”.

It should be noted that the announced price for Ukraine for Qatari liquefied gas at 140 US dollars per 1 thousand cubic meters is perceived by many Ukrainian experts skeptically, because up to now such precedents in Qatar's cooperation with other states have not happened. For example, the cost of Qatari gas to the Polish LNG-terminal in Swinoujscie, construction of which should be completed in 2014, back in 2009 had been agreed on at the level of 340-380 dollars for 1 thousand cubic meters.

 

Ukraine – the United Arab Emirates.

As of 2012, the proven oil reserves in the UAE amounted to 97.8 billion bbl. (8th in the world). In 2011, daily oil production was 3.087 million bbl. (9th place), exports — 2.036 million bbl. per day (7th place). The consumption of petroleum products in 2011 amounted to 572,100 bbl. /day. The proven reserves of natural gas in the UAE in 2012 were estimated at 6.089 trillion cubic meters (8th in the world). As of 2010, gas production reached 51.28 billion cubic meters (19th in the world), exports — 7.65 billion cubic meters (27th in the world). At this, imports of natural gas (mainly from Qatar) amounted to 16.91 billion cubic meters. Domestic consumption of natural gas in the UAE in 2010 was extremely high for such a small country — 60.54 billion cubic meters and exceeded consumption in Ukraine (53.16 billion cubic meters), despite the fact that the industrial potential of Ukraine is ten times greater than the potential of the UAE.

Ukrainian trade turnover with the UAE in 2012 amounted to 482 528.9 thousand US dollars, compared with 118 423.6 thousand US dollars in 2001, and 467 204.0 thousand US dollars in 2011, reflecting the constant trend of growth and creation of favorable conditions for cooperation, in particular, in the energy industry.

In an effort to participate in the development of oil fields in the Emirate of Fujairah, in February 2004, the Board of “Naftogaz of Ukraine” decided to create a joint venture Naftogaz Middle East with the company Al Jazirah Enterprise for Projects Development & Trading, owned by the Minister of Internal Affairs of the United Arab Emirates Sheikh Saif bin Zayed Al Nahyan (brother of the UAE President). The Agreement on the development of these deposits provided for prospecting and exploration works and extraction of oil in onshore and offshore fields in the Emirate of Fujairah, in particular, on two blocks of hydrocarbon deposits on land and on 2 blocks — in the sea. The cost of exploration and development of these units is approximately190 million US dollars.

According to the Agreement, the Ukrainian side also pledged to supply equipment and materials for the needs of the oil and natural gas industry, sales of natural gas, crude oil and petroleum products in the Middle East region. Besides, the plans of “Naftogaz of Ukraine” in the UAE provided for reconstruction of the refinery in Fujairah and construction of 340-km Habshan-Fujairah oil pipeline with two pumping stations and an oil terminal. The presence of “Naftogaz of Ukraine” in the UAE was meant to be expanded through possible involvement of the company in the development of the field, “Al Ain” in the Emirate of Abu Dhabi.

However, all of these projects and agreements have not been implemented. The results of NJSC “Naftogaz of Ukraine”’s activity in the United Arab Emirates have been very modest. The main reason is the company's inability to meet its financial obligations to the Government of the Emirate of Al-Fujairah. Due to this, in March 2005, the Minister of Economy and Planning of the Emirate of Abu Dhabi, Sheikh bin Zayed Al Nahyan addressed the Government of Ukraine with a request for assistance in the implementation of the Agreement on production sharing. However, any change for the better has not happened.

Commenting on so far unsuccessful attempts to “Naftogaz of Ukraine” to join the process of oil production in the UAE, Ukrainian President Viktor Yanukovych said, “As for oil and gas in the United Arab Emirates, this attempt was made in 2005 by our predecessors. During this time, some studies have been conducted that now require new investments and attraction of new partners. This question is currently being studied and in the nearest future, of course, the answer to it will be given.”

During his visit to the United Arab Emirates on 25-26 November, 2012, President Viktor Yanukovych held talks with the leadership of the UAE. Particular attention was paid to bilateral cooperation in the energy sphere. Not bad prospects for cooperation between Ukraine and the UAE in the field of alternative energy sources are opening, in particular, in the use of wind and solar energy. This was announced by the former Minister of Foreign Affairs of Ukraine K. Gryshchenko when on the 7-8th October, 2012 he was the head of the Ukrainian delegation at the second meeting of the Intergovernmental Ukrainian-UAE Commission on Trade-Economic and Scientific-Technological Cooperation. According to K Gryshchenko, the UAE could take part in implementation of Ukrainian national projects in the sphere of renewable power generation, in particular, in the project “Energy of Nature”.

In the UAE there are the Headquarters of the International Renewable Energy Agency (IRENA), as well as the world's only eco-city Masdar with zero emission of carbon dioxide. In Dubai there is the Ukrainian Chamber of Commerce and Industry agency and Ukrainian shopping center in the Persian Gulf countries, providing information and consulting assistance to Ukrainian companies.

Note. The UAE has some territorial disagreements with Iran. The question of the ownership of the island of Abu Musa, Giants and Lesser Tomb in the Persian Gulf, in which  the Iranian troops landed on the 30th of  November, 1971, two days before the proclamation of the independence of the United Arab Emirates. The Iranian leadership believes that these islands are an integral part of the territory of Iran. However, despite the territorial conflict, Iran and the UAE are actively developing business relationships. The UAE is one of the leading importers of Iranian food products and take a pride of place in the export of its products to Iran. Iran accounts for 25 % of foreign trade turnover of the UAE. Especially large-scale business relations Iran has with the Emirate of Dubai, the trade turnover with  which amounts to 12 billion US dollars (8.5 billion US dollars — re-export to Iran of goods from other countries, and, above all, from the USA, and  3.5 billion US dollars — imports from Iran to the markets of Asian and European countries). As of 2007 in the UAE the population was about 450 thousand Iranians and there were registered at least 8,500 thousand Iranian businesses. The UAE is the second power in the world after the USA in terms of assets belonging to the Iranian immigrants (about 300 billion U.S. dollars).

 

Ukraine — Kingdom of Saudi Arabia

According to the CIA-World-Factbook, as of 2012 Saudi Arabia ranked first in the world in terms of proven oil reserves — 264.6 billion bbl. Daily oil productions in 2012 in Saudi Arabia amounted to 10 million bbl. According to this index, as well as by the volume of oil exports (6.88 million bbl. /day), KSA also took first place in the world. Domestic consumption of petroleum products in 2011 amounted to 2,817 million bbl. /day (eighth in the world). Now Saudi Arabia burns 850 million barrels of oil a year, which accounts for almost one third of its production. In terms of proven natural gas reserves (8,028 trillion cubic meters), in 2012 the KSA was the sixth largest in the world, and in terms of production (99.23 billion cubic meters) — the seventh largest in the world after the USA, Russia, Canada, Iraq, Qatar and China. KSA does not export its produced natural gas, and the entire volume is intended for domestic consumption, which is quite significant, based on the level of development of Saudi industry.

The main consumers of Saudi oil are countries of the Asia-Pacific Region (47 %) and the USA (18%). The Chinese oil imports of Saudi Arabia is up to 14 %, due to which fact the KSA is the main trading partner of China in West Asia. In 2012, the volume of bilateral trade between China and Saudi Arabia amounted to 73 billion US dollars and exceeded the trade turnover between the KSA and the USA.

Among the Gulf countries, in terms of trade with Ukraine (1175 022.3 thousand US dollars), in 2012 Saudi Arabia ranked second after Iran, but the energy component of the bilateral Ukrainian-Saudi cooperation in the economic field is still small. Questions of cooperation of Ukraine with the KSA in the sphere of energy have constantly been in the focus of meetings at various levels, in particular at the meeting of the Intergovernmental Ukrainian-Saudi Commission for Trade-Economic and Scientific-Technological Cooperation.

In July 2003, a delegation of Saudi businessmen visited Ukraine. They met with management of “UkrAziyastroy”, “Ukrinterenergo”, “Interpipe”, “Centravis”, etc. As a result of this visit, were signed 11 agreements and protocols on cooperation, including in the sphere of energy.

In May 2005, Ukraine was visited by an official delegation headed by the  Chairman of the Chamber of Commerce and Industry of KSA Abdel Rahman Al Dzheraysi. During the visit, a Memorandum of Understanding between the Ukrainian Chamber of Commerce and the KSA’s Council of the CCI on the establishment of the Ukrainian-Saudi Arabian Business Council was signed. Soon the largest state-owned oil and gas company “Saudi Aramco” authorized the Ukrainian part of the Business Council to act as a representative of their interests in the pre-qualification procedures for Ukrainian companies which expressed a desire to work in the oil and gas industry of the KSA.

December 26, 2011 during a visit to KSA of the Minister of Foreign Affairs of Ukraine K. Grishchenko, at the Ukrainian-Saudi Business Forum were shown abilities of Ukraine's energy sector. In September 2011, Prime Ministers Mykola Azarov invited the King of Saudi Arabia Abdullah bin Abdul Aziz Al Saud, who is also the Prime Minister, to visit Ukraine at a convenient time. The invitation was sent by the Ukrainian Prime Minister via the Minister of Finances of Saudi Arabia Ibrahim Al-Assaf.

In 2001, the Ukrainian Industrial Fuel & Energy Company (IFEC) quite firmly entrenched in the market of Saudi Arabia's oil industry, where it opened its branch. The company specializes in the construction and renovation of existing oil and gas pipelines and low productivity wells, in diagnosing and repair of compressor and pump stations of pipelines. Representing Ukrainian enterprises united in the Group of companies Overseas Fuel & Energy Cooperation Group (OFEC Group), IFEC also performs works ranging from exploration to “turn-key” phase of facilities for production, storage, transportation and processing of oil and gas in KSA.

Ukrainian company “Interpipe” has become one of the official suppliers of pipes for the world's biggest oil company “Saudi Aramco”. Its production “Interpipe” also delivers to the “National Oil Company” of Abu Dhabi (ADNOC) and “Kuwait Oil Company” (KOC).

In 2009, the world's leading manufacturer of seamless stainless steel pipes company “Centravis” received a certificate and became one of officially approved providers of “Saudi Aramco”. This status allows it to supply seamless stainless steel pipes up to 38 and 114 mm diameter. The company “Centravis” also plans to supply Saudi Arabia with pipes with the diameter of 219 mm.

To be continued

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