07.05.2021

Gas production since the beginning of the year – 6 738 724 thcm

Weighted average price of natural gas (resource of May) – 7 571 UAH/thcm excluding VAT (100% prepayment terms)

TTF – 24.95 EUR/MWh ($317)

NCG – 25.23 EUR/MWh ($321)

GPL – 25.22 EUR/MWh ($321)

CEGH – 25.19 EUR/MWh ($320)

March 2021. Monthly gas market report

12/04/21

PRODUCTION

Ukraine produced 1.66 bcm of natural gas in March, which is 4% less than in March, 2020.

JSC Ukrgasvydobuvannya (Naftogaz Group) reduced gas production by 5% compared to the same period last year. PJSC Ukrnafta reduced gas production by 9.2% compared to the March last year. After a last month’s slight decrease in production, independent gas producers showed a growth of 0.4%.

Hence, the share of state-owned enterprises in the total amount of gas production in March was 75.6%, independent enterprises - 24.4%.
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PRICING

March 2021 has followed the trend of low prices at the beginning of the month, which grew steadily in the future. During the first week, the price gradually increased, and the volatility resulted in an increase of 5.5% or by 0.87 EUR / MWh ($11 per 1000 m3) to 16.71 EUR / MWh ($208 per 1000 m3). In the period from February 7 to 14, the largest increase for the month was recorded, amounting to 10.8% or 1.80 EUR / MWh ($22 per 1000 m3).

The highest value was recorded during the trading day on March 25, when the price was 18.69 EUR / MWh ($233 per 1000 m3). Thus, the difference between the lowest and highest price in March was 2.85 EUR / MWh ($35 per 1000 m3) or 15%.

As a result, the average cost of natural gas at the TTF hub in March was 17.70 EUR / MWh ($232 per 1000 m3), which is 9.10 EUR / MWh more than in the same period last year. Bearing in mind the changes in cross-rates, the difference was over 110% ($117 per 1000 m3).

Eventually, the average price at the TTF hub, including the cost of transportation to Ukrainian border, amounted to UAH 7339 ($264 per 1000 m3) excluding VAT. It decreased by almost 1% compared to February.

Among the main reasons that had a positive influence on pricing: colder than traditional temperatures in Europe, reduced LNG supplies due to the blockage of the Suez Canal, disruptions in gas supplies from Norway, reduced stocks of European underground storage facilities and increased CO2 emissions. Negative preconditions, in turn, were: normalization of LNG supplies within a month and resumption of electricity production using renewable sources.
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International Energy Agency (IEA), an autonomous international body within the Organization for Economic Cooperation and Development (OECD), emphasizes that although there are upcoming changes in the world today in terms of traditional fuel use, the situation in some countries is far from unambiguous.

The IEA notes that the demand for the use of natural gas to generate electricity in some regions may be limited until the end of 2021. According to the Agency, the growing share of renewable energy sources in the global energy sector will have the greatest impact. However, Asian markets are in contrast, demonstrating that a rapid transition to natural gas substitution is not yet to be expected. The Agency draws attention to the creation and promotion of a liquid global gas market, noting the growth of LNG, which was traded on a spot and short-term basis during the crisis of 2020.

Price correlation in Ukraine generally followed the tendency in European hubs and reflected regular fluctuations.

Hence, according to the results of e-trading on UEEX in 100% prepayment terms, the weighted average price in February amounted to UAH 6461 ($232) per 1000 m3 net of VAT, which is 2.2% less than the previous month and by 87% more compared to the same period last year.

The price of the resource of March in Naftogaz Trading for industrial consumers on the 100% prepayment terms decreased by 3% compared to the previous month and amounted to UAH 6303 ($227) per 1000 m3 net of VAT.

According to the Ministry of Economy, the import of natural gas to the territory of Ukraine in March was carried out at the average price of UAH 5821 ($209) per 1000 m3 net of VAT, which is 16% less than in the previous month.

DRILLING RIGS. UKRAINE AND EUROPE

According to the Association of Gas Producers of Ukraine, 32 drilling rigs were used in drilling in our country during March, which is 2 pcs. (+7%) more than in February.

In Europe, 71 active drilling rigs were used in drilling, which is 2 pcs. (-3%) less than in the previous month. Countries that showed a decrease: Norway (4 pcs. or -22%), Serbia and Montenegro (1 pc. or -50%). Turkey, on the other hand, managed to improve its performance by 3 pcs. (+18%). As a result, in March, it had 20 drilling rigs involved, which means leadership in terms of capital investment activities in the industry in Europe. The rest of the countries remained unchanged.
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DRILLING RIGS. THE REST OF THE WORLD

According to Baker Hughes Rig Count, the total number of active drilling rigs in the world at the end of March was 1234 pcs., which is 729 pcs. less (-37%) than the same period in 2020 and 40 pcs. (-3%) less compared to February.

The recent Statement of United States President Joe Biden, as well as the seasonal halt due to weather conditions, remain the main reasons for the reduction in drilling in North America. Otherwise, the United States continues to grow, however, it is slightly lower than expected. In March, 408 drilling rigs were used in the country, which is 11 pcs. (+3%) more than in February, but less by 363 pcs. (-47%) than the same period last year. Horizontal drilling was carried out using 369 pcs. (+4%), vertical - 24 pcs. (+5%), and direct - 15 pcs. (-14%).

In the first month of spring, Canada experienced drastic changes due to the seasonal cessation of drilling new wells, especially in Alberta. As a result, in March, the country recorded an average of 108 active drilling rigs, which is 63 pcs. less (-37%) compared to February and 25 pcs. (-19%) to March 2020. Rigs used for horizontal drilling amounted 102 pcs. (-35%), for vertical - 3 pcs. (-38%), and for direct - 3 pcs. (-67%).

Africa continues to increase drilling, thanks to Algeria, which is boosting for the third month in a row. Thus, in March, 25 drilling rigs were recorded in the country, which is 3 pcs. (+14%) more compared to February, but by 9 pcs. (-26%) less compared to March 2020. Another country that felt changes was Nigeria, which reduced its own indicators by 1 rig (-14%) to February and by 15 pcs. (-71%) compared to March 2020. As a result, 59 active drilling rigs (+2%) were used in Africa, which is 49 pcs. less than in the same period last year (-45%).
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In the Asia-Pacific region, the total number of active drilling rigs amounted 170 pcs., which is 9 pcs. (+6%) more than the previous month. Countries where growth is recorded: Australia by 1 pc. (+8%), the offshore part of China by 1 pc. (+3%), India by 1 pc. (+1%), Indonesia by 3 pcs. (+14%), New Zealand by 1 pc. (+50%), Thailand for 1 pc. (+50%), Vietnam for 2 pcs. (+200%). The only country with negative indicators was the Philippines, where was recorded a decrease by 1 drilling rig (-50%).

Although, Latin American countries have been showing fluctuations for more than a month period, this has not affected the total number of active drilling rigs in the region. Argentina, Brazil, Ecuador and Peru supported growth, equally increasing capital investment activities in the industry by 1 drilling rig, and showing an interesting gradation in percentage terms, respectively, namely +3%, +13%, +25% and +100% compared to February, 2021. In contrast, the countries where the decrease was recorded: Chile by 1 pc. (-50%), Colombia for 1 pc. (-50%), Mexico 2 pcs. (-4%). Each other country of the region remained unchanged.

The situation in the Middle East was similar to that of Latin America, but changes within the region still affected drilling volumes. The region showed an increase of 1 pc. (+0.4%), but this is still a decrease by 167 pcs. (-39%), compared with the same period last year. Growth compared to February 2021 was recorded in the following countries: Egypt by 2 pcs. (+10%), Iraq by 3 pcs. (+10%), Israel for 1 pc. (+100%) and Pakistan for 2 pcs. (+17%). Only three countries showed a decreased, among them: Kuwait by 1 pc. (-4%), Oman by 3 pcs. (-6%) and Saudi Arabia by 3 pcs. (-5%).

The whole world has high hopes for the resumption of business activity due to the reducing impact of the COVID-19 crisis in 2021. However, at the beginning of the year, a new wave of the pandemic forced the use of the lockdown mechanisms, and world agencies form new, unattractive forecasts. Such situation requires the most professional level of restraint and risk management, both at the level of companies and countries.

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