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    Ukrainian Gas Output Disappoints in 2019


Kyiv is set to fall far short of its 2020 target.

by: Joseph Murphy

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Ukrainian Gas Output Disappoints in 2019

Ukrainian gas production slipped 1.4% in 2019, data published by state-owned Naftogaz last week shows, dealing a blow to the country’s ambition of becoming energy self-sufficient.

The government in Kyiv adopted a gas development strategy in late 2016, setting out to expand national production from 20bn m3 to more than 27.5bn m3 by 2020. It has been clear for some time that Ukraine will fall far short of this goal.

Production came to just 20.7bn m3 last year, down from 21bn m3 in 2018, according to Naftogaz.

Ukrgasvydobuvannya (UGV), Naftogaz’s main upstream arm and the country’s largest gas producer, had targeted an output of 20bn m3 in 2020. It extracted only 14.9bn m3 of gas in 2019, down from 15.5bn m3 the previous year.

In the past, UGV has blamed its failure to meet targets on the government’s delay in reforming legislation and awarding new licences. Kyiv finally held licensing rounds over the course of last year, with UGV acquiring the majority of the new permits.

According to Naftogaz, many of UGV’s largest fields such as Shebelynkske, discovered in 1950, are now nearing depletion. Production at these deposits peaked in the 1960s and 1970s.

Ukraine’s private producers performed better last year, ramping up supply to 4.6bn m3 from 4.4bn m3.

While production in Ukraine has only barely recovered to levels prior to the 2014 revolution, the country’s import needs have nevertheless shrunk in recent years thanks to lower consumption. The government has pointed to increased efficiency, but the economic collapse that followed the political upheaval six years ago, and the loss of territory to Russia and Russia-backed rebels, were greater factors.

Demand fell by a steep 7.7% in 2019 to 32.3bn m3, which Naftogaz attributed to warmer weather. Ukraine’s gas imports nevertheless shot up 34.9% to 14.3bn m3, as the country accumulated record volumes of gas in storage in preparation for a potential cut-off in Russian gas transit. This disruption never came, as Kyiv was able to agree a new five-year transit contract with Moscow on December 30, a day before the expiry of the previous one.

Ukraine took 9.2bn m3 of gas from Slovakia, 3.7bn m3 from Hungary and 1.4bn m3 from Poland last year. It has not bought any gas directly from Russia, once its sole supplier, in over four years.

The country transited 89.6bn m3 of Russian gas to the EU and Moldova, up 3% from the 2018 volume and the highest level in eight years. Transit is expected to fall sharply over the coming years, as Russia diverts volumes to TurkStream and at a later stage, Nord Stream 2. The new agreement requires Gazprom to transit at least 65bn m3 of gas via Ukraine in 2020 and only 40bn m3/yr between 2021 and 2024.