Ukraine Agency Calls for Upstream Gas Investment

Ukraine's national investment council has published an English-language report on upstream gas, which it said September 12 has "huge potential for foreign direct investment."

But it also admits to major obstacles, including the unfavourable tax regime and a lack of data on upstream assets, both of which deter investors.

It needs $5bn-$6bn over the next four years to achieve its target of 30bn m³/yr, but first Ukraine has to implement a list of initiatives that will allow global industry players to enter the market, it said. Of today's total, private producers account for 4.1bn m³ and state-controlled entities for 15.9bn m³ annually. The investment will bring these totals to 7bn m³/yr and 20bn m³/yr respectively, it said.

And while private investors so far are in the minority, the trend is towards a bigger percentage of output: from 8% in 2007 to 21% in 2016, while in the last year gas output as also gone up. "That means the industry is becoming more open for local and international private investors, which can boost production volumes," it said.

"The upstream business is confident that a 35-40% raise in natural gas production by 2020 is achievable only if the investment attractiveness of the industry is increased. To increase production, upstream companies will need to scale up private investments – mainly in drilling new wells and bringing high-end technologies to drastically boost the efficiency of brownfields’ redevelopment via massive wells’ interventions as well as discovering greenfield deposits," it said.

On top of competitive gas market reform that started in 2014, investors will also want access to geological information, an attractive tax regime and reducing the entry barriers for new investors, it said.

The agency's head Yulia Kovaliv resigned from the supervisory board of Naftogaz Ukrainy earlier this year as she could not see government fulfilling its finance obligations.

Ukraine’s natural gas consumption in the mid-term is unlikely to be significantly below 30bn m³/yr, it says, taking into account the recovering economy. While import diversification, which started in 2014, has helped strengthen energy security and rationalize pricing, the Ukrainian government’s goal of energy independence in the midterm future will require an increase in domestic natural gas production by at least 7-10bn m³/yr.

 

William Powell

 


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