Gas market of Ukraine: general overview

Pursuant to the results of monitoring of the gas market of Ukraine by the NEURC and the market participants, the results of the works are following:

The natural gas consumption in Ukraine is different during the year due to seasonal fluctuations. The demand of Q1 of 2020 was covered by:

• imported natural gas
• natural gas of own production and
• natural gas from the gas storage facilities

In Q1 of 2020, the imported natural gas and the natural gas of own production covered 75 % of gross consumption, when in Q1 of 2019 it was 55 %.

At the same time, the analysis of the last years depict the decrease of the general consumption of gas in Ukraine.

According to the regular Reports of the Ministry of energy of Ukraine as to the state of development of the fuel and energy complex of Ukraine:

• in January-March 2020, the gas consumption decreased by 8.3 % in comparison with the same period of 2019
• in 2019, the gas consumption decrease by 7.3 % in comparison with 2018.

The main reasons for decrease of the gas consumption are:

• decline of industry production
• warm weather

Furthermore, COVID-19 pandemic has had the significant impact on gas consumption. According to the analysis of the International Energy Agency (IEA) regarding influence of COVID-19 on the gas market 2020, the expected fall of gas consumption in 2020 is 4 %.

Gas production

In 2019, the gas production in Ukraine decreased by 1.4 % in comparison with 2018.

The following are the main gas producers in Ukraine

Joint stock company “Ukrgasvydobuvannya” (Ukrgasvydobuvannya)

Ukrgasvydobuvannya belongs to Naftogaz group. In 2019, this company produced 70.9 % of all natural gas produced in Ukraine, including the gas for production and technological costs in the volume 1,3 bcm.

In 2019, the gas production of Ukrgasvydobuvannya decreased by 3,9 % in comparison with 2018 due to the natural fall in the main fields. However, in 2019, Ukrgasvydobuvannya discovered three new fields with a resource base of 2.15 bcm.

Joint stock company “National joint stock company “Chornomornaftogaz” (Chornomornaftogaz)

In 2019, Chornomornaftogaz produced 8.9 million m³ of gas, which is less than in 2018 (10.3 million m³). The company is developing one field – Strelkove. The natural gas produced by Chornomornaftogaz is used for the needs of the city of Genichesk in the Kherson region.

Ukrnafta public joint stock company (Ukrnafta)

In 2019, Ukrnafta increased production by 7 % compared to 2018 – up to 1.16 bcm. The volume of commercial gas (without gas for production and technological costs) is 830.8 thousand m³.

Private companies

In 2019, private producers increased production of gas by 4.5 %. However, most private producers are working on the new fields with the lower rates of natural decline.

Public service obligations for gas producers

According to the Provisions on Imposing Special Obligations on Natural Gas Market Entities to Ensure General Public Interests in the Process of Functioning of the Natural Gas Market, Ukrgasvydobuvannya and Chornomornaftogaz shall sell all produced natural gas to Naftogaz Ukraine:

• by 1 August 2020 – for formation of the natural gas resources for household consumers, religious organisations (except for the volumes used for their production and commercial activities), the state enterprise of Ukraine International Children’s Center “Artek”, and
• by 1 May 2021 – for the formation of the natural gas resource for thermal energy producers for all categories of natural gas use.

According to the BP Statistical Review of World Energy 2020 (69th edition), Ukraine’s total proved reserves at the end of 2019 are 1.1 trillion m³, which is the second largest in Europe after Norway.

Ukraine regularly holds tenders to involve investors in the field of gas production under the terms of the Production Sharing Agreements, as well as the auctions for the sale of special permits for subsoil use (including gas extraction).

Gas import and export

The gas import in Ukraine is carried out by Naftogas Ukraine and other wholesale buyers and sellers.

Results of Q1 2020 under the NEURC results of monitoring:

• natural gas was not exported in Q1 2020
• the volume of natural gas imports of Naftogaz Ukraine in Q1 2020 amounted to 445.85 bcm, which is 12 times less than in Q4 2019 and 35 % less than in Q1 2019
• the total volume of purchased natural gas abroad in Q1 2020 was about 2.7 bcm, of which:
• 80 % – 2.2 bcm is imported natural gas, and
• 20 % – 0.55 bcm is the natural gas that was pumped into underground gas storage facilities in the customs regime of the customs warehouse.
• 1 bcm of natural gas stored in gas storage facilities under the customs regime of the customs warehouse was transferred to the customs regime of import.

Thus, the total volume of the natural gas imports in the first quarter of 2020 amounted to 3.3 bcm, which is twice less than in the previous Q4 2019, but twice more than in Q1 2019.

The number of importers in Q1 2020 increased compared to the previous quarter and amounted to 51 entities, which is the highest value since the beginning of 2017.

Results of the first half of 2020

According to the operational data by LLC “GTS Operator of Ukraine” as to the first half of 2020:

• 7 bcm of the natural gas was imported from EU, that is 40 % more than an average import in 2016-2019
• main countries of gas import: Slovakia (3.9 bcm), Hungary (2.2 bcm), Poland (0.9 bcm)
• import volumes include the virtual reverse from Hungary (1.2 bcm) and Poland (0.5 bcm)

Gas storage

Ukraine has the most powerful network of underground gas storage facilities in Europe with the total capacity of 30 bcm. The capacity of Ukrainian gas storages is equal to a quarter of the EU’s storage capacity.

The level of filling of the underground gas storage facilities as of the end of Q1 2020 was 44 % of the design capacity under the results of monitoring by the NEURC. However, it was the largest level for this period in comparison with Q1 of 2018 and 2019.

53 % of the total volume of injected natural gas in Q1 2020 was pumped into the customs warehouse of gas storage facilities.

Pursuant to Ukrtransgaz information, at the end of June 2020, more than 19,8 bcm of gas have been filled in the underground storage facilities, which is 47 % more than in 2019.

The average level of the underground storage facilities filling at the end of Q2 in Ukraine was 12,4 bcm. However, this year the gas volume at the end of Q2 was almost 60 % above average of the last ten years .

From 21 May 2020, Ukraine has introduced the tools to use storage of natural gas in the “Customs Warehouse” mode*, which is transported under the short haul mode**.

* The “Customs Warehouse” mode enables customers to store gas in the underground storage facilities in Ukraine for 1,095 days free from tax and customs duties.

** Short-haul mode from 1 January 2020 allows transportation of gas at the reduced rates as follows:

• between certain interstate entry and exit points of the GTS
• between these points and the underground gas storage facility