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Ukraine's private gas producing companies are doing everything they can to raise gas output as the country continues to look to eliminate the need for gas imports, industry group chief Artem Petrenko said in an interview.
Artem Petrenko, executive director of the Association of Gas Producers of Ukraine, told S&P Global Commodity Insights that private producers were also selling large volumes of gas to state-owned Naftogaz, given a fall in demand from industry.
Total Ukrainian gas production, including by Naftogaz unit UGV, last year fell by 6.6% to 18.5 Bcm, according to official data, after Russia's invasion and subsequent Russian attacks on producing fields and infrastructure.
Petrenko said that in the immediate wake of the invasion, gas production fell sharply, but that with the counteroffensive last autumn producers were able to boost output as territories were liberalized.
Some private companies, he said, were able to increase daily gas output by 30% or 40% and to restore production to pre-war levels.
"Companies are producing gas where it is possible, they are drilling wells where it is possible, and of course they're trying to increase gas production where it is possible," Petrenko said.
However, he said Russian attacks against energy infrastructure continued and were likely to continue during winter.
Ukraine has set an ambitious goal to get through the 2023/24 heating season without imports, focusing primarily on its own production.
"Gas production is a question of energy security for Ukraine," Petrenko said. "Energy independence is when Ukraine produces more gas than it is able to consume."
Gas consumption
Petrenko said the war had also led to a fall in gas consumption in Ukraine.
"Currently we are in a situation where gas consumption in all sectors including household and commercial customers has been dropping due to the war," he said.
"In a lot of cities, such as Mariupol, their industries have simply been destroyed by the Russians so there has been a big decrease in gas consumption," he said. "Last year, the industry's consumption rates decreased by nearly 50% compared to pre-war levels. Already in 2023, it is expected to be even lower."
The industrial sector previously bought gas from private gas producing companies at market prices, so now private producers are instead selling some gas to Naftogaz on the Ukrainian Energy Exchange.
Since late April, Naftogaz has bought almost 740 million cm of gas on the exchange from private producers and traders.
"Due to the fact that there is a big decrease in consumption by commercial users, we have the situation where the private gas producing companies are producing more gas than the commercial users are able to use," Petrenko said.
"Right after the Russian invasion, private gas producers faced problems with gas sales. Considering all possible consequences, the Association constantly negotiated with the state. One of the ideas was for Naftogaz to purchase domestically produced gas transparently," he said.
"And starting from April 26 this year, Naftogaz started buying gas in a transparent and market way at the Ukrainian Energy Exchange."
Petrenko said this development had been crucial for gas producing companies as they are able to sell gas in a transparent, market-based way.
"The sale of gas on the exchange allows companies to invest in new drilling and workovers, pay royalties to state and local budgets, and plan new projects," he said.
"And of course it's good for Naftogaz because Naftogaz is buying gas that is being produced in Ukraine and not imports."
Naftogaz has said it wants to eliminate the need for gas imports this winter, which is key to strengthening Ukraine's energy security.
"It's a matter of the energy security of Ukraine and we see that Naftogaz is practically trying to do everything they can not to import gas," Petrenko said.
Ukraine also imposed a ban on exports of domestically produced gas in March 2022 following the Russian invasion in order to help ensure security of supply.
The ban remains in place, with the government only expected to make a decision on lifting it if the country's gas market balance allows and demand is low enough.
"It's essential to analyze the gas market within the country and in Europe, observe trends, and continue the discussion in the future about the possibility of, in particular, partial exports," Petrenko said.
"If we have the situation that consumption is low, you could provide some parts of the gas production to be exported to Europe," he said.
European gas prices remain relatively high; Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF price at Eur27.20/MWh on July 18.
New licenses
Despite the war, Ukraine has continued to license new blocks to upstream companies and new exploration and development work is ongoing.
In November last year, DTEK Oil & Gas acquired the right to develop two gas fields in the Poltava region for Hryvnia 1.3 billion ($36 million) at an open auction.
"DTEK has long been studying the possibility of investing in these areas. Successful development of these fields will significantly strengthen Ukraine's energy independence," DTEK said at the time.
Petrenko said the sale of the field licenses by the Ukrainian Geological Survey was proof that private companies believe in Ukraine and its attractiveness for investment.
More international companies have also entered the Ukrainian upstream in recent years.
In November 2021, Ukraine signed production sharing agreements with a consortium of Czech EPH and Slovakia's Nafta for the Grunivska and Okhtyrska blocks.
And last year, amid the war, Ukraine began gas production under a PSA for the first time in its history. The production is carried out by the Zakhidnadraservis group of companies, which is developing an area in western Ukraine.
Petrenko added that the Ukrainian Geological Survey also had new blocks available that could be auctioned in a transparent way.
"After the war, I think international companies will join with great investments in new upstream activity in Ukraine," he said. "We have many promising projects that we can offer to new players. These include, but are not limited to, the development of the Black Sea shelf, deep drilling, the development of hard-to-reach deposits, and partnerships."