BMI View: A v olatile security situation and continuing geopolitical tensions hamper exploration and production activities in Ukraine. Regulatory challenges, ill ustrated by recent tax hikes on oil, gas and mineral extractio n , are expected to act as a further deterrent to investment in Ukraine's oil and gas sector. In the meantime, the country is putting all efforts to shore up its gas storage reserves in preparation for the upcoming winter, potentially with limited gas supplies from Russia.
|f = BMI forecast. Source: EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||68.5||60.0||58.8||56.4||54.2||52.1||50.0|
|Refined products production, 000b/d||117.8||116.6||115.5||114.3||113.2||112.0||110.9|
|Refined products consumption & ethanol, 000b/d||317.7||299.2||282.5||278.9||283.7||288.8||298.4|
|Dry natural gas production, bcm||19.9||18.9||18.6||18.4||18.2||18.1||17.9|
|Dry natural gas consumption, bcm||50.4||42.6||37.5||35.8||35.2||34.7||34.4|
Recent trends and developments:
Ukrainian oil and gas company Naftogaz has requested Russia-based Gazprom to make advance payments for gas transit to Europe. The issue was discussed at a bilateral meeting of company heads that took place on August 21 2015 in Minsk. Naftogaz is ready to direct the money to purchase Russian gas for pumping to underground storage facilities.
In July 2015, US-based Frontera Resources announced that it has entered a Memorandum of Understanding (MoU) with Ukrainian Naftogaz on July 13 2015, for upstream and liquefied natural gas (LNG) cooperation. The MoU recognises a joint effort on behalf of both parties to work together in upstream exploration and production projects in Ukraine. The collaboration aims to explore the probability of delivering LNG to Ukraine through Frontera's ongoing work in Georgia.
In July 2015, Naftogaz invited private shippers to import gas via Slovakia as it does not want to be the only gas importer in Ukraine. The company is encouraging private shippers to utilise existing transmission capacity to get additional gas from the EU for their customers, stated CEO of Naftogaz Andriy Kobolyev. The company is also willing to discuss conditions under which shippers can use the company's booked capacities.
Naftogaz suspended gas purchases from Gazprom on July 1 2015, following the expiry of the three-month extension for the winter package signed in April. The Ukrainian company is ready to renew gas purchases from Gazprom after a comprehensive temporary agreement is reached between the companies. However, the negotiation has been stalled due to disagreements over discount rates. Russia has offered gas to Kiev at USD247.18 per 1,000 cubic metres (including a discount of USD40) for Q315, the same prices as in Q215. However, the Ukrainian authorities expected a larger discount of about 30%.
Royal Dutch Shell is considering withdrawing from its exploration activities at its last well in Ukraine. Shell has been unable to perform its commitments in relation to the Yuzivska production sharing agreement (PSA) with project partner Nadra Yuzivska due to a force majeure that has been in place since July 2014.
In May 2015, Ukrainian authorities awarded UK-based JKX Oil & Gas an extension to its Elizavetovskoye production licence to include the West Mashivske prospect in Ukraine. The award enhances the licence area by 33.9sq km, bringing the total area to 104.7sq km.
In January 2015, one of the largest independent oil and gas investors in Ukraine, JKX Oil & Gas, announced it is to suspend its 2015 capital investment programme in Ukraine until the economic parameters for investment improve.