September 17, 2021

Ukraine Breaking News

Ukraine Breaking News | The Latest News In Ukraine

Ukraine teams up with Qatar in the gas sector Euromaidan Press

Ukraine's Acting Minister of Energy Yuriy Vitrenko and Qatar's Minister of State for Energy Saad bin Sherid Al- Kaabi sign a memorandum of understanding in April 2021 (Source: Ministry of Energy of Ukraine)


Ukraine has been struggling to revive its upstream sector for some years now. In 2015, the largest state-owned Naftogaz (via its subsidiary, Ukrgasvydobuvannya) —The largest natural gas producer in the country, accounting for about 75 percent of Ukrainian production – announced the “20/20 strategy”. The goal of this strategy was to increase natural gas production by one third up to 2020, to 20 billion cubic meters (bcm) per year (Naftogaz.com, December 2015). The ambitious program, however, was not implemented. Already in 2019, Naftogaz admitted that the “20/20 strategy” had failed, as the company’s gas production had not increased significantly. In addition, three-quarters of the company’s gas fields were up to 87% depleted (Ugv.com.ua, July 22, 2019). Then, NaftogazThe management has declared a new strategy for the next few years, focused, among other objectives, on how to attract foreign investors to sign production improvement contracts (PEC) and production sharing agreements (PSA) with the company. Since then, the Ukrainian government has followed the same approach when it comes to developing the national gas sector.

Ukraine announced several PSA tenders as early as 2019; but it wasn’t until late 2020 and early 2021 that the eight-block development agreements were finally concluded (Agpu.org.ua, December 31, 2020; Kmu.gov.ua, January 14, 2021). The goal of attracting foreign investors has so far shown poor results. The authorities awarded seven of the eight contracts to Ukrainian companies and only one went to a foreign company (Ukrainian energy, founded in the United States Energy aspect). Half of the public service announcements were signed with Naftogaz‘S Ukrgasvydobuvannya; however, none of them included partners from abroad. This is in stark contrast to the company’s strategy and initial plans –Naftogaz intended to develop two of the four blocks was awarded with the Canadian firm Vermilion Energy, but the latter left the agreement in 2020 due to the prolonged PSA award process (Ugv.com.ua, 27 November 2020). To date, NaftogazThe most significant upstream partnerships with foreign companies remain the $ 30 million PEC agreement with Romania Petroleum expert (Naftogaz.com, April 21, 2020) and its recent non-binding memorandum of understanding signed with the Romanian OMV Petrom (Ugv.com.ua, February 15) and Polish PGNiG (Naftogaz.com, March 30).

Regardless of the search for investment in gas production, Ukraine is also actively discussing possible options for LNG imports through regasification terminals in the region. Recently, the gas transmission system operator of Ukraine (GTSOU) held consultations with energy decision makers in Poland (Tsoua.com, March 29) and Croatia (Tsoua.com, March 30), and both meetings covered, among other topics, possible future LNG shipments to Ukraine. Allegedly, the Ukrainian side seeks LNG imports not only to increase its security of supply, but also to promote the development of gas trade by using Ukraine’s enormous storage potential (about 31 billion cubic meters without the gas storage in occupied Crimea – Esperis.pl, April 2020).

Another hypothetical option could be the development of Ukraine’s LNG import terminal in the future. Such a project has already been discussed several times in the past, but so far it has always failed due to Moreover Turkey’s reluctance to allow LNG-carrying vessels to transit through the strait and heavily trafficked Bosphorus Strait (Aa.com.tr, March 31, 2015). Now, however, the situation may be different, as Turkey has just given the green light to begin construction of the Istanbul Canal, a mega-project that will provide a new traffic route to divert dangerous cargoes from the Bosphorus (Maritime-Executive .com, March 31, 2021). If the canal is actually built in the next few years, it could also pave the way for possible direct supplies of LNG to Ukraine (see Jamestown.org, April 14).

It is still too early to speculate what the Ukraine-Qatar MoU could bring. But Kiev will probably want to convince Qatar Petroleum enter Ukraine’s upstream sector, while Qatar is certainly exploring a new market for its LNG exports, especially as it wants to drastically increase domestic liquefaction capacity over the next decade (Lngindustry.com, February 2021). This all sounds promising, but it is worth remembering that both countries also mulled over such energy cooperation three years ago (UNIAN, March 20, 2018), which ultimately came to nothing.

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