Natural gas in Ukraine
Ukraine was estimated to possess natural gas reserves of 1.1 trillion cubic meters in 2004 and was ranked 26th among countries with proved reserves of natural gas before Crimea was annexed by the Russian Federation. Its total gas reserves have been estimated at 5.4 trillion cubic meters.
Since 2011 Ukraine has been trying to raise its natural gas production levels in the Black Sea from 1 bcm in 2011 to 3 bcm in 2015. In 2012 Black Sea production reached 1.2 bcm and it is predicted to rise to 1.65 bcm in 2013.[nb 3]
The oil and gas industry has activities in six regions of Ukraine:
Ukraine remains a major gas consumer, ranked thirteenth in the world and fifth in Europe. Heavy industry is the largest consumer of natural gas in Ukraine (accounting for 40% of domestic consumption) followed by households (over 30%) followed by communal heating systems supplying both government buildings and residential properties (20%). It is estimated that 9% of gas is wasted.[nb 4]
Consumption levels have fallen from 118 bcm in 1991 to less than 55 bcm in 2012.
Traditionally Ukraine imports natural gas mainly from Turkmenistan and Russia (about two-thirds of its gas in 2012). Since November 2012 Ukraine is diversifying its suppliers of imported natural gas.[nb 5] On 9 January 2014 Ukrainian Energy and Coal Industry Minister Eduard Stavytsky stated that Ukraine (at that time) will buy only Russian natural gas "because it's currently the most profitable".
Since 16 June 2014 Russia has halted its natural gas supplies to Ukraine because Ukraine refused to pay a debt to Gazprom of $4.5 billion that had arisen after Russia denounced the 2010 Kharkiv Pact on 31 March 2014. Since June 2014 Ukraine imports more natural gas from Poland and Hungary.
Prices of import
After 2004 Russia began to steadily raise the price of its natural gas supplied to Ukraine, it wanted to eventually bring it in line with the rates paid by other European states. Until 2005 Ukraine was charged $50 per 1,000 cm; since then the price has risen to $426 per 1,000 cm in 2012. In January 2013 Ukraine paid $430 per 1,000 cm.[nb 6] There have been disputes over prices that lead to several economic conflicts with Russia since 1990.
After 2008 a rapid increase in price has raised Ukraine's annual cost of gas imports; from less than $4 billion in 2005 to $14 billion in 2011 and 2012. Natural gas is Ukraine’s biggest import at present and is the main cause of the country’s structural trade deficit.
In the 17 December 2013 Ukrainian–Russian action plan it was agreed that the cost of Russian natural gas supplied to Ukraine would be lowered to $268 per 1,000 cubic metres (this price was more than $400 in December 2013).
During the Russian - Ukrainian crisis, starting in February 2014 with the Russian military intervention in Crimea, severe tensions extended to the gas sector. Eventually, the EU commissioner for energy Günther Oettinger was called in to broker a deal securing supplies to Ukraine and transit to the EU. The package signed on 30. October included Russian supplies of gas to Ukraine in the period November 2014 through March 2015, conditioned on the payment of undisputed Ukrainian gas debt ($3 billion). The price for November and December 2014 was set at $378 per thousand cubic meters, to be adjusted in January. Deliveries were to be prepaid. During that winter Ukrainian monopoly Naftogaz was able to import limited quantities of gas from the EU (reverse flow from Slovakia, Poland and Hungary) at Central European hub prices, around $250 per thousand cubic meters.
Due to severe drop of oil market price (the price halved from mid-2014 to end of the year) Gazprom had to reduce the oil-linked gas price. On 9 January 2014 Naftogaz and Russia's Gazprom signed a supplement to the Russian-Ukrainian gas contract, setting the price of natural gas for Ukraine in the first quarter of 2014 at $268.5 per 1,000 cubic meters.
Ukraine as transit route of natural gas
Ukraine remains the main transit route for Russian natural gas sold to Europe, which earns Ukraine about $3 billion a year in transit fees, making it the country’s most lucrative export service. Following Russia's launch of the Nord Stream pipeline, which bypasses Ukraine, gas transit volumes have been steadily decreasing. In 2004 more than 120 bcm of Russian gas was transported through Ukraine; this figure dropped to just 84 bcm in 2012.
Ukraine has Europe's third-largest shale gas reserves at 1.2 trillion cubic meters (tcm). There are two potentially large shale gas fields. The Yuzivska gas field located in Donetsk Oblast (province) and Kharkiv Oblast; and the Olesska field in Lviv Oblast and Ivano-Frankivsk Oblast. Ukraine signed a shale gas 50-year production sharing agreement with Royal Dutch Shell on 25 January 2013 involving the Yuzivska gas field. The $10 billion deal was the largest foreign direct investment ever for Ukraine. Full shale gas production depends on successful results from 15 test wells. Ukraine expects commercial shale gas extraction in 2017.[nb 7] On 13 September 2013 Ukrainian Prime Minister Mykola Azarov stated that the (containing all expenditures) price of shale gas will be $120–130 per 1,000 cubic meters.
- Ukraine was part of the Soviet Union since 1920 till Ukraine declared its independence from the Soviet Union on 24 August 1991.
- In 2008 Ukraine's gas production was 21.014 bcm with natural gas output rising 1.7% to 19.985 bcm. Ukraine boosted gas production with 1.1% during January–November 2009 year-on-year to 19.413 billion cubic meters (bcm), with natural gas output rising 1.6% to 18.541 bcm.
- Ukraine has lost access to the Black Sea around Crimea to Russia. The status of the Crimea and of the city of Sevastopol is currently under dispute between Russia and Ukraine; Ukraine and the majority of the international community consider the Crimea to be an autonomous republic of Ukraine and Sevastopol to be one of Ukraine's cities with special status, while Russia, on the other hand, considers the Crimea to be a federal subject of Russia and Sevastopol to be one of Russia's three federal cities.
- For example through heat loss during transmission.
- On 18 June 2013 Prime Minister Mykola Azarov stated “We currently buy gas from RWE and pump it through Poland, Slovakia and Hungary. This gas costs us less than the Russian gas that we buy on the border with Russia, and RWE sells us the same gas that it buys from Russia”. He also stated that Ukraine annually overpayd Russia $7 billion for natural gas.
- In June 2013 Ukraine paid $430 per 1,000 cm $421.7 for natural gas from Russia, $388.6 for natural gas from Germany and $406.6 for natural gas from Hungary.
- On 13 September 2013 Prime Minister Mykola Azarov expected that from 2015 extraction of shale gas will begin (in Ukraine).
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