Ukraine Gas Upstream Opportunities down the road
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Ukraine Gas Upstream
Opportunities down the road
Yuliya Kovaliv
Head of the Office
of the National Investment Council
of Ukraine
Ukrainian natural gas production peaked in the mid-1970s and declined as the Soviet Union shifted
its energy extraction focus to Siberia. This neglect of upstream production continued even after
Ukraine regained its independence. The time has come to regain Ukraine’s position as a major
European producer. Plentiful reserves are in place – all that is needed are technologies and
investment.
The National Investment Council was established by the President of Ukraine to set a
public-private dialog with key business leaders on investment promotion, boosting FDI and
tackling key obstacles in the Ukrainian regulatory environment. This report details not only the
country’s potential for hydrocarbon production, but also the legislative foundations which make
Ukraine a predictable place to do business.
Ukraine’s government aims to stimulate domestic natural gas extraction in order to ensure the
country's energy independence. To achieve this ambitious goal, energy sector reform was started in
2014 and has been widely acknowledged as a great success. Complete import diversification,
implementing the European Union’s Third Energy Package and huge energy efficiency gains are
changes that few believed Ukraine could achieve so rapidly. The next frontier is ramping up
domestic production. The government plans to open access to geological information, set an
attractive tax regime and reduce the entry barriers for new investors in the gas sector. Over the next
four years, the industry requires around $6 billion of investment and adoption of cutting-edge
technologies. This is only possible through close cooperation with our international partners and
clearly demonstrating that extraction opportunity and business environment reliability are to be
found in Ukraine.
1 2017 | National Investment Council | Ukraine Gas Upstream
Sector Overview 2017 | National Investment Council | Ukraine Gas Upstream 2
Sector Overview
Ukraine’s position on the European gas market (2016)
by transit volume of Russian
gas to the EU by gas consumption
№7
№1 by capacity of underground
gas storages
by gas imports
in proven natural gas №11
№3 reserves
by gas production volume
№4
Source: PWC, BP 2017 report
In total, around 31% of Ukraine's primary energy is supplied by gas.
Ukraine has significantly reduced its natural gas consumption due to a dramatic decline in industrial
output in 2014-2015, occupation of territories in Donetsk and Luhansk regions, the illegal annexation of
Crimea, boosting energy efficiency and gas tariff reforms.
Gas consumption dropped from 55 billion cubic meters (bcm) per year in 2012 to 33 bcm in 2016, but
Ukraine still imports a third of its gas needs, spending $2-3 billion a year.
Ukraine’s natural gas consumption in the mid-term perspective is unlikely to be
significantly below 30 bcm per year, 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
7-10 bcm per year.
Ukraine’s natural gas consumption CAGR: -4%
Period: 1998-2017
Score: bcm System operating needs -4%
Households, DHC and public sector -3%
Industry -7%
80 76 76 73 71 76 76 76 74
70 70
66
58 59
8 8 8 9 9 8 52 55
8 50
8 8 7 7 43
5 5 34 33
4
6 4
4
33 30 28 34 33 34 34 30
30 30 3 4
32
29 28 28
29 27
24
19 20
35 37 38 33 30 34 34 34 32 33 30 17 23 26 23 19 14 11 10
0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: Naftogaz of Ukraine
3 2017 | National Investment Council | Ukraine Gas Upstream
Sector Overview
Approximately 53% of natural gas is consumed by households directly or indirectly through district heat
producers. The significant decline in consumption of this category (-20% over 2014-2016) was mostly
driven by pricing reform that has brought prices to the market level of import parity. Since 2016, gas prices
have been linked to European gas hubs and are supposed to be updated twice a year.
Industry reduced its natural gas consumption in line with the industrial output decline of 10% in 2015,
while usage of gas for operational needs remained around the same volume.
Ukraine’s natural gas consumption
Period: 2014-2016
Score: bcm
1,5 0,7 0,4
2014 15,1 7,1 14,2 3,7 42,6
2015 11,3 5,9 11,2 3,3 1,2 0,5 0,4 33,8
2016 11,9 5,7 9,9 3,6 1,6 0,5 0 33,2
0
53%10 20
47% 30 40 50
Regulated segment Non-regulated segment
-22%
Households Public sector
DHCs for households Operating needs
Industry Unauthorized withdrawal and allocated volumes
DHCs for industrial and public sectors
Source: Naftogaz of Ukraine, PWC
According to the new Law “On the Gas Market”, gas prices for industry are not regulated. However, prices
on the residential market (households and district heat producers) are regulated by public service
obligations (PSOs) to ensure the public interest in the functioning of the natural gas market.
Upstream Wholesale
Obligation for state gas producer Obligation of Naftogaz to sell gas to
UkrGasVydobuvannya (UGV) to district heating companies (and for
sell gas to Naftogaz (and for it to them to buy) for all needs at a
buy) for residential market needs
at a regulated price
PSO regulated price
Retail
Obligation of Naftogaz to sell gas to suppliers
(and for them to buy) for residential market
needs at a regulated price
2017 | National Investment Council | Ukraine Gas Upstream 4
Sector Overview
Over 70% of gas consumption is covered by local production, mainly by state-owned
UkrGasVydobuvannya (Naftogaz Group).
Still, imported gas plays a significant role in Ukraine’s gas supply (30%).
In 2016, 35 companies are importing gas to Ukraine, including state-owned Naftogaz, Engie, Axpo
Trading, Trailstone, Eni, and RWE. The share of Naftogaz in the import structure is declining, which means
that the market is becoming more attractive for international suppliers.
Key suppliers of imported natural gas to Ukraine Number of importers
35
74% 26%
2016 30
25
6%
94% 20
2015
15
Naftogaz
Others 10
5
19 35
0 2015 2016
Source: Naftogaz of Ukraine, Ministry of Energy and Coal of Ukraine
International suppliers and imports
Period: 2016
Score: bcm
To Naftogaz To other traders
ENGIE 1,8 Nafta-Gaz, Axpo 1,0
ENGIE, Enteneo, PGNIG,
Axpo Trading 1,3 0,7
Trailstone, Worldenergy
Trailstone 0,9 ArcelorMittal Energy 0,2
Uniper Global 0,8 Gunvor, Nitrofer, Antra 0,1
Eni 0,7 Worldenergy, ONICO 0,1
Noble 0,4 Antra, Alstkonix, Met Gas 0,1
RWE 0,3 DufEnergy, MET Hungary, Dourado 0,1
Others 0,8 Multiple players 0,3
0,0 0,5 1,0 1,5 2,0
Source: Naftogaz of Ukraine, Ministry of Energy and Coal of Ukraine
0, 0,2 0,4 0,6 0,8 1,0
Ukraine’s government aims to stimulate domestic natural gas extraction to reduce dependence on
energy imports, attract investment in the energy sector and ensure the country's energy independence.
5 2017 | National Investment Council | Ukraine Gas Upstream
Sector Overview
The Government has ambitious plans to increase domestic natural gas output to 27 bcm in 2020 through
both private production and state-owned UkrGasVydobuvannya (Naftogaz Group).
Over the next four years, the industry requires around $6 billion of investment and adoption of high-end
technologies.
Natural gas production in Ukraine Amount of necessary CapEx
Period: 2016, 2020 Period: 2016, 2020
Score: bcm Score: $ million per year
2016 4,1 15,9 20 2016 250
+35% x7
2020 7 20 27 2020 1726
0 5 10 15 20 25 30 0 500 1000 1500 2000
Independent producers New wells drilling
Producers with state Frack operations
share >50% Others
Source: Associations of Gas Producers of Ukraine
Ukraine’s gas market benefits from having the biggest gas storage capacities in Europe.
Capacity of Ukrainian underground gas storages is the largest in Europe and equal to nearly a third of the
EU-28 capacity
Technical working gas volume of underground gas storage facilities per country
(TWh, as of April 2016)
Including Hlibovske underground gas storage of PJSC Chornomornaftogaz (Crimea)
400
351
350
300 275 5 270 Planned
10 Under construction
250 60 Operational
200 23
151 139 146
150 4 95
100 67 94
1 44 2 45 9
50
351 260 188 151 135 95 67 51 37 5 36
0
Ukraine Germany Italy Netherlands France Austria Hungary UK Czech Slovakia
Republic
Source: Gas Infrastructure Europe
Since the start of gas market reform, European gas traders have been entering the Ukrainian market and
launching their subsidiaries in Ukraine.
(France) (The Netherlands) (Switzerland)
(Switzerland) (Poland)
2017 | National Investment Council | Ukraine Gas Upstream 6
Gas Sector Reform 7 2017 | National Investment Council | Ukraine Gas Upstream
Gas Sector Reform
Gas sector reform is one of the most important reforms Ukraine has implemented since 2014, applying
European Union regulations such as the “Third Energy Package”.
New gas market regulation
During 2015, Ukraine introduced a number of important changes to gas market regulation.
One of the main achievements of this process was the adoption of the Law "On the Natural
Gas Market". The document laid the foundation for the harmonization of the gas market in
Ukraine with the EU Third Energy Package.
Free access to all gas transmission system capacities
The basic requirement of the EU Third Energy Package is the principle of free third-party
access to infrastructure, which requires provision to all gas suppliers of non-discriminatory
access to gas transmission and distribution networks.
Transition to Regulatory Asset Base (RAB) tariff policy for gas transmission
Following the transposition of EU energy regulations, Ukraine switched to regulated
tariffs for gas transmission on an entry/exit basis. Previously, tariffs for gas transit in
Ukraine were established by agreements between commercial companies. As of 1
January 2016, all gas transmission rates are set by the regulator.
Calculating tariffs based on RAB is a generally accepted methodology that is used to
establish justified tariffs for services of natural monopolies in the countries of the Energy
Community. This methodology was adopted in Ukraine in September 2015 and
implemented in January 2016.
Bringing domestic gas prices to import parity levels
On 1 October 2015, Ukraine completely abolished price regulation for industrial
consumers. Since then the market price of gas has been determined by the balance of
supply and demand, and correlates with the price of imported gas.
In addition, in 2014-2016, the Ukrainian government took a number of unprecedented
steps to bring domestic gas prices for households to import parity levels. Because of
price regulation, in 2014 more than half of the gas consumed in Ukraine was sold at
prices that were 5-7 times lower than prices for other consumers. By 2016, the prices for
all consumers had become almost equal as the price of gas for households was set at
estimated import parity.
Reform of Naftogaz corporate governance
An important component of gas sector reform is corporate governance reform of the
state-owned energy company Naftogaz, which is currently a major player in most market
segments. The gas sector reform plan approved by the Cabinet of Ministers in March 2015
requires the corporate governance system of Naftogaz to be reformed and brought into line
with OECD guidelines for state-owned enterprises. This transformation began in 2015 and is
expected to be finalized in 2017.
2017 | National Investment Council | Ukraine Gas Upstream 8
Gas Sector Reform
Unbundling of gas transmission from supply and production
The unbundling of the gas transmission function is one of the instruments for creating a
transparent and efficient gas market in Ukraine. An independent and professional
Transmission System Operator (TSO) is necessary to ensure the confidence of market
participants in the transmission system and to increase competition.
Current TSO and UGS unbunging
Cabinet of Ministers Cabinet of Ministers
Ministry of
Energy
Supervisory
Supervisory board Supervisory board
board
MGU
Naftogaz Naftogaz
(TSO)
Ukrtransgaz (UTG)
(TSO)
9 2017 | National Investment Council | Ukraine Gas UpstreamGas Production 2017 | National Investment Council | Ukraine Gas Upstream 10
Gas Production
Despite the country’s more than 100-year history of oil and gas production, Ukraine remains rich in
conventional gas reserves and possesses vast untapped unconventional potential. The R/P ratio is close
to 46 years, 2P reserves are equivalent to 20 years of current production - 924,1 bcm - and total
contingent resources of 5.6 tcm illustrate that there are very substantial remaining resources. This
suggests that Ukraine has the geological potential not only to achieve energy self-sufficiency, but also
itself to become a major gas supplier to Europe.
Natural gas reserves
Production
46 years 2%
5.6 tcm
the total contingent resources
924,1 bcm
Source: Concept of Ukrainian gas sector development
In Ukraine, only 2% of natural gas reserves are extracted every year, versus at least 6% as in other
countries.
Amount of natural gas production and gas reserves by countries
Reserves R/P ratio
Natural Gas Productrion Natural Gas Reserves extraction
per year
bcm bcm % years
USA 763 10400 7 14
Canada 163 2000 8 12
Mexico 53 350 15 7
Argentina 35 300 12 9
Columbia 11 150 7 14
Russia 573 32300 2 56
Norway 117 1900 6 16
Netherlands 43 700 6 15
Great Britain 39,7 250 16 6
Romania 10,3 155 7 14
Italy 6,2 50 12 9
Poland 4,1 120 3 27
Ukraine 20 924 2 46
0 10 20 30 40 50 0 1000 2000 3000 4000 5000 6000 7000 8000
Source: Concept of Ukrainian gas sector development
11 2017 | National Investment Council | Ukraine Gas UpstreamGas Production
Plentiful resources, extensive gas transportation infrastructure and the low intensity of natural gas
extraction indicate a huge opportunity to increase natural gas production in Ukraine to cover local demand
and support future gas exports to European markets.
Natural Gas Deposits Characteristics
Depth of Share Amount of
deposits reserves
bcm
1 km
2 km
36% 4
deposits 30<
3 km
4 km
27% 16
deposits 30-10
5 km
26% 23
deposits 10-5
11% 348
deposits >5
As of 1st of January 2016, 396 oil and gas deposits were included into the State Registry of Mineral
Reserves in Ukraine.
According to the genetic type, they include:
120 gas condensate deposits
57 oil deposits
102 gas deposits
15 oil/gas and gas/oil deposits
99 oil and gas condensate deposits
3 gas and oil condensate deposits
Source: Concept of Ukrainian gas sector development
2017 | National Investment Council | Ukraine Gas Upstream 12Gas Production
Geographic location of Ukraine’s Oil and Gas Deposits
The deposits are located in three oil and gas regions
Belorus Russia
West
(Volyn and Podillia, Precarpathian, Carpathian
Natural gas and Transcarpathian oil and gas provinces) East
(Dnipro and Donetsk oil and
Oil
gas province)
Oil and natural gas
Chernihiv
Kharkiv
Kyiv
Lutsk
Poland Lviv Luhansk
Donetsk
Slovakia
South Moldova Odesa
(Predobrudja, Black Sea and Crimean,
Hungary Azov and Berezan, Indolo-Kuban, and
Black Sea Prospective provinces)
Simferopol
Romania
Black sea
Source: Extractive Industries Transparency Initiative
In the last two decades, natural gas in Ukraine has been produced in fairly consistent volumes, but in
2013-2016, these amounts started to decrease. According to the statistics of the Ministry of Energy and
Coal, in 2016 natural gas production amounted to 20.1 bcm, which was 5.1% less than in 2013 (21.2 billion
cubic meters). The decrease was mainly caused by a lack of capital, the unreformed gas market (till 2016),
and low domestic gas prices.
Share of private producers in total production Source: Naftogaz of Ukraine, Ministry of Energy and Coal of Ukraine
Period: 1976, 2007-2016
35 Score: bcm
Private producers Ukrnafta
Chornomornaftogaz UGV
30
68,7 20,8 21 21,2 21,2 20,5
20,1 20,2 20,2 19,9 20,1
25
(6%) (21%)
20 1,6
1,3
1,8
1,2
1,8
1,2 1,7
1,1
2 2 2,5 3,3
3,9 4,2
1,1 1,2 1,7 0,3
3,2 3,2 3 2,5 2,2 2 1,9 1,7
15 1,5 1,3
10
5 14,7 14,8 15,2 14,8 14,9 15 15,1 15,1 14,5 14,6
1976 ...... 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
13 0 2017 | National Investment Council | Ukraine Gas UpstreamGas Production
Nevertheless, a positive trend of increasing the share of private natural gas producers (from 8% in 2007 to
21% in 2016) as well as a total increase in gas production in 2016-2017 can be observed. That means the
industry is becoming more open for local and international private investors, which can boost production
volumes.
Natural gas production by private companies
Period: 2016
Score: bcm, %
20%
40%
1,6 bcm
6%
0,239 bcm
4,2bcm DTEK (Naftogazvydobuvannya)
Burisma (Esco-North, Kub-Gas,
8% First Ukrainian Oil Company, Pari
0,310 bcm and Nadragaz)
UNB (Ukrnafroburinnya)
Geo-Alliance (Natural Reaouces,
26% East Geological Alliance)
1 bcm Other
Source: Naftogaz of Ukraine, Ministry of Energy and Coal of Ukraine
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.
Ukraine’s natural gas domestic production
Excluding Ukrnafta’s production – 1,3 bcm in 2016
Period: 2016, 2020F
Score: bcm
27
30
19
25
20
15
10 20
15 UGV
5 Private producers
4 7
0 2016 2020F
Source: Association of Gas Producers of Ukraine, Concept of Ukrainian gas sector development 2020
Over the next four years, the industry requires around $6 billion of investment and high-end technologies.
2017 | National Investment Council | Ukraine Gas Upstream 14Key Regulation of
Upstream Sector
Investments and
Operations
15 2017 | National Investment Council | Ukraine Gas UpstreamKey Regulation of Upstream Sector
Investments and Operations
Today there are several forms of of investment in E&P in Ukraine:
PSA: through signing a production sharing agreement ("PSA") with the Ukrainian Government. PSAs
may be signed with the winners of tenders held by the Ukrainian Government or as a result of the
conversion of existing subsoil licenses.
License-Based: through obtaining oil and gas exploration and/or production rights directly from the
State Service for Geology and Subsoil of Ukraine. Such rights are normally granted via auctions.
JAA: through entering a joint activity agreement with an entity who already holds oil and gas
exploration and/or production rights.
Equity Acquisition: through equity acquisition in a company that already owns oil and gas exploration
and/or production rights.
Two major options for investing in E&P
License-Based:
The investor normally applies for the granting of a new license directly from the Ukrainian Government
(State Geological Service). The process of getting a new license is regulated through the auction procedure,
set by the State Geological Service of Ukraine. The initiation of the auction could be set both by the private
company, that applies to the SGS, or the SGS on its own initiative. Usually it requires to set up a local
subsidiary to run E&P in Ukraine.
Key advantages of license-based option:
Control over the activities of the company.
No Antimonopoly Committee Approval required.
It is important to note that the Code of Ukraine on Subsoil and the Law of Ukraine "On Oil and Gas"
prohibit any transfer of the license for the use of subsoil by the holder, including a direct prohibition for the
application of these rights in JAA, as well as a prohibition on the transfer of these rights into a pledge.
PSA option
The subsoil right for an investor arises from a contract with the Ukrainian Government. PSA contracts are
signed with the winner of a tender announced by the Ukrainian Government.
Key advantages of PSA option:
Duration. PSAs may be executed for a term of up to 50 years.
Regulation stability. The relevant law provides provisions designed to protect investors under
production sharing agreements from adverse changes to the law. The legal stabilization provision
does not restrict investors from taking advantage of any beneficial legislative changes.
Protecting investors’ rights. PSA agreements could be executed under international arbitration
institutions in case of a dispute.
Government Assistance. The PSA Law determines that all of these regulatory authorizations (permits,
licenses, approvals) will be provided to the investor. Therefore, under a PSA arrangement, an investor
can expect reasonable assistance from the State in obtaining such licenses, permits and other
approvals, which may in fact be crucial for the successful implementation of a project.
No Antimonopoly Committee Approval Required.
2017 | National Investment Council | Ukraine Gas Upstream 16Key Regulation of Upstream Sector
Investments and Operations
JAA Option
The JAA option provides a possibility to jointly develop natural gas reserves with a company holding an
existing oil and gas exploration and/or production license. Under the JAA cooperation model, partners
share any profits obtained as a result of joint activity pursuant to an agreed proposition.
It is important to note that the JAA model of cooperation according to current legislation is required to pay
70% of royalties, which makes it economically ineffective.
Fiscal policy
In 2017, the taxation system for hydrocarbons still remains complicated and inefficient.
There is a diversification of 8 different rent rates based on:
Type of hydrocarbon
Depth and extraction complexity
Type of cooperation
Rent rates for production of natural gas, oil and natural-gas concentrate, %
Natural gas in JA
Natural-gas condensate, NOT
80 70% deeper than 5000 meters
70 Natural gas and oil, NOT
60 deeper than 5000 meters
50
45% Natural-gas condensate,
deeper than 5000 meters
40 29%
30 Natural gas and oil, deeper
21% than 5000 meters
20 14%
11% Natural gas, offshore
10 2%
0 Investment projects with
government share >25%
Source: Associations of Gas Producers of Ukraine
For Production Sharing Agreement, the rent rate is determined by the agreement.
17 2017 | National Investment Council | Ukraine Gas UpstreamOngoing Sector
Reforms
2017 | National Investment Council | Ukraine Gas Upstream 18Ongoing Sector Reforms
Morgan Williams
President/CEO, U.S.-Ukraine Business Council (USUBC)
Business Opinion
Energy independence of Ukraine should be considered as number one priority by both
government of Ukraine and its international partners.
The U.S. businesses will be willing to expand its presence in the Ukrainian energy market
based on competitive and equal business environment for all market players. Such high
quality investment climate with no preferences and, consequently, vested interests is
required for rapid development and foreign investors commitment. .
The USUBC expects that Ukrainian government will put significant efforts into up-stream
gas extracting industry, which should pave the way for energy independence of Ukraine.
Based on international experience we believe that to stimulate Ukraine’s domestic gas
extraction all new up-stream licenses in the sector should be issued in a transparent and
competitive manner based on the best international practices. At the same time, government
should stimulate those companies, which currently holds licenses but do not fulfill their
investment obligations according to the Ukrainian law, using transparent mechanism either
to perform their investment commitment or transfer licences to active investors, ready to
allocate capital resources and technology for the benefit of industry development.
Another effective possible option to work with private companies in the oil and gas sector,
including the US businesses, is to conclude the Production Sharing Agreement in a very
transparent manner.
All the above steps should increase the local production of oil and gas in Ukraine. The energy
market will be eventually opened. And, Ukraine would gain its real energy independence.
19 2017 | National Investment Council | Ukraine Gas UpstreamOngoing Sector Reforms
To attract private investment and ensure modern technology transfers into the industry, the Government of
Ukraine approved a Roadmap for further reform of the upstream sector. In 2016, the Government approved
a Concept of Gas Production Development, which is designed to offer clearer incentives for investments in
the sector both in the short and long terms. To implement the Concept the Government approved an action
plan - a road map that includes key regulatory incentives to overcome remaining burdens and implement
best global practices to stimulate capital flows to the industry.
Opening access to geological information
Current status Key upcoming improvements
Industry is encountering a lack of public The Government plans to amend legislation to
access to the mass geological data possessed open access to the digital geological data. As a
by the state and private entities. Such a lack of result, new licensing rounds can be unlocked
access does not allow new potential investors and more potential investors will be willing to
to select viable sites and nominate new blocks start exploration and production in the country
for auctions on their own. As a result, no new by freely obtaining required geological data.
auctions for oil and gas licenses have been Open access to geological data is a worldwide
conducted for over a year. This restrains the practice that provides potential investors with
carrying out of new exploration activities, needed data.
slowing down reserves replacement as well as
future production.
Establishing an attractive tax regime
Current status Key upcoming improvements
Industry faces comparatively high tax rates in The Government plans to introduce new
comparison with neighboring EU countries. legislation to provide fiscal stimulation of new
The fiscal burden on natural gas production in wells. By introducing a flat lower (around 12%)
Ukraine is more than twice the average royalty rate (instead of the current 29/14 %,
European level. This means that by keeping which depends on the well’s depth) on new
the current tax regime in place, Ukraine wells, the Government is going to bring
ultimately loses the battle for international Ukrainian gas royalties in line with the average
investments. European level, and provide incentives to attract
investments necessary for dynamic growth.
2017 | National Investment Council | Ukraine Gas Upstream 20Ongoing Sector Reforms
Reduction of entry barriers for new investors
Current status Key upcoming improvements
The prevailing permit system is rather strict The Ukrainian authorities introduced legislation
(44 various permits and approvals), does not aimed:
have a single decision-making center (16 To simplify the process of allocation of
governmental institutions), and is tracts of land for drilling wells that is one of
exhaustingly long-lasting – the permit the major obstacles both for getting
procedure alone to put a greenfield site into licenses and starting drilling.
operation takes more than 3.5 years.
Moreover, a company additionally spends Significantly remove the number of
over a year to obtain a drilling permit for each outdated procedures and duplicated
new well. approvals
It is expected that the implementation of such
initiatives will greatly simplify the bureaucratic
processes of field development, saving time to
enter the market and start drilling.
Introduction of transparent licensing and PSA auctions
Current status Key upcoming improvements
Current legislation, which was improved in The Government expects to eliminate remaining
early 2016, provides possibilities to obtain issues with auction procedures, cutting
new licenses without auctions. possibilities to obtain them without
competition, canceling various government
For the last 3 years, the number of auctions bodies’ pre-approvals etc.
for new licenses was quite few. Among all 21
issued licenses, only a few went through In parallel, it is expected that new licenses and
transparent and open auctions. PSA auctions will be helped through competitive
procedures, allowing international players to
participate.
The implementation of these changes will be an important catalyst for the entry of international upstream
companies to Ukraine.
They will bring international capital and qualified experience, both combined with modern technologies.
The mix of these factors will create the necessary conditions for a revolution in the Ukrainian gas industry,
which will provide for Ukraine’s energy independence and enhance Europe’s energy security.
21 2017 | National Investment Council | Ukraine Gas UpstreamProduced by the Office of the National Investment Council of Ukraine.
For any questions or comments please contact office@nicouncil.org.ua
This report has been prepared by the Office of the National Investment Council for information purposes only. Although the
information in this report comes from sources we believe to be reliable, and although we have made every effort to ensure
its accuracy at the time of publication, we make no warranty, express or implied, of this report's usefulness in predicting the
future performance. Nor should this report be regarded as a complete description of the macroeconomic situation and
markets regulation in Ukraine.
Office of the National Investment Council doesn’t do or seek to do business with companies covered in its research reports.
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is required.
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