Natural gas in Ukraine

Domestic production peaked in 1975 at 68.1 billion cubic meters (bcm).[4][nb 1] Since then production gradually declined and has stabilised in recent years at around 20 bcm.[4][nb 2]

Since 2011 Ukraine has been trying to raise its natural gas production levels in the Black Sea from 1 bcm in 2011 to 3 bcm in 2015.[4] In 2012 Black Sea production reached 1.2 bcm and it is predicted to rise to 1.65 bcm in 2013.[4][nb 3]

By 2030 about half of Ukraine's production will come from non-traditional gas deposits (including 6-11 bcm of shale gas a year); according to the Ukrainian Government's plans.[4]

Since 2012 Ukraine has gradually been switching from natural gas-based to coal gasification technologies developed by China.[4]

The oil and gas industry has activities in six regions of Ukraine:

• Chernihiv Oblast
• Ivano-Frankivsk Oblast
• Kharkiv Oblast
• Lviv Oblast
• Poltava Oblast
• Sumy Oblast

Ukraine remains a major gas consumer, ranked thirteenth in the world and fifth in Europe.[4] Heavy industry is the largest consumer of natural gas in Ukraine (accounting for 40% of domestic consumption) followed by households (over 30%) followed by communal heating systems supplying both government buildings and residential properties (20%).[4] It is estimated that 9% of gas is wasted.[4][nb 4]

Consumption levels have fallen from 118 bcm in 1991 to less than 55 bcm in 2012.[4]

Naftogaz stated that on 17 December 2013 that only four Ukrainian Oblasts (provinces) made regularly payments for natural gas.[10]

Ukraine announced on 26 March 2014 that household natural gas prices would rise by 50% from 1 May 2014 in order to receive an IMF $14bn-$18bn rescue package.[11]

In the first seven months of 2014 gas consumption in Ukraine fell by 15%;[12] this was amidst the 2014 Crimean invasion and the 2014 Russian aggression in Ukraine.[8]

Despite its own production of natural gas Ukraine still has to import about 80% of its natural gas needs.[13] After 2008 the Ukrainian volume of imports of natural gas dropped.[4]

Traditionally Ukraine imports natural gas mainly from Turkmenistan and Russia (about two-thirds of its gas in 2012).[2][14] Since November 2012 Ukraine is diversifying its suppliers of imported natural gas.[15][4][nb 5] On 9 January 2014 Ukrainian Energy and Coal Industry Minister Eduard Stavytsky stated that Ukraine (at that time) will buy only Russian natural gas "because it's currently the most profitable".[17]

Since 16 June 2014 Russia has halted its natural gas supplies to Ukraine because Ukraine refused to pay a debt to Gazprom of $4.5 billion that had arisen after Russia denounced the 2010 Kharkiv Pact on 31 March 2014.[18] Since June 2014 Ukraine imports more natural gas from Poland and Hungary.[12]

Prices of import

After 2004 Russia began to steadily raise the price of its natural gas supplied to Ukraine, it wanted to eventually bring it in line with the rates paid by other European states.[4] Until 2005 Ukraine was charged $50 per 1,000 cm; since then the price has risen to $426 per 1,000 cm in 2012.[4] In January 2013 Ukraine paid $430 per 1,000 cm.[19][nb 6] There have been disputes over prices that lead to several economic conflicts with Russia since 1990.[21]

Then Ukrainian Prime Minister Yulia Tymoshenko and Russian Prime Minister Vladimir Putin making a joint press statement on 18 January 2009 after they reached a deal on restoring gas supplies to both Europe and Ukraine.[22]

After 2008 a rapid increase in price has raised Ukraine's annual cost of gas imports; from less than $4 billion in 2005 to $14 billion in 2011 and 2012.[4] Natural gas is Ukraine's biggest import at present and is the main cause of the country's structural trade deficit.[4]

In the 17 December 2013 Ukrainian–Russian action plan it was agreed that the cost of Russian natural gas supplied to Ukraine would be lowered to $268 per 1,000 cubic metres (this price was more than $400 in December 2013).[23][24]

During the Russian - Ukrainian crisis, starting in February 2014 with the Russian military intervention in Crimea, severe tensions extended to the gas sector. Eventually, the EU commissioner for energy Günther Oettinger was called in to broker a deal securing supplies to Ukraine and transit to the EU. The package signed on 30. October included Russian supplies of gas to Ukraine in the period November 2014 through March 2015, conditioned on the payment of undisputed Ukrainian gas debt ($3 billion). The price for November and December 2014 was set at $378 per thousand cubic meters, to be adjusted in January. Deliveries were to be prepaid.[25] During that winter Ukrainian monopoly Naftogaz was able to import limited quantities of gas from the EU (reverse flow from Slovakia, Poland and Hungary) at Central European hub prices, around $250 per thousand cubic meters.

Due to severe drop of oil market price (the price halved from mid-2014 to end of the year) Gazprom had to reduce the oil-linked gas price. On 9 January 2014 Naftogaz and Russia's Gazprom signed a supplement to the Russian-Ukrainian gas contract, setting the price of natural gas for Ukraine in the first quarter of 2014 at $268.5 per 1,000 cubic meters.[26]

Ukraine remains the main transit route for Russian natural gas sold to Europe, which earns Ukraine about $3 billion a year in transit fees, making it the country's most lucrative export service.[4] Following Russia's launch of the Nord Stream pipeline, which bypasses Ukraine, gas transit volumes have been steadily decreasing.[4] In 2004 more than 120 bcm of Russian gas was transported through Ukraine; this figure dropped to just 84 bcm in 2012.[4]

Russia–Ukraine gas disputes left many countries with a significant drop in their supplies when Russia cut off all natural gas supplies passing through Ukraine in 2009 and 2006.[21][27]

Ukraine has Europe's third-largest shale gas reserves at 1.2 trillion cubic meters (tcm).[14] There are two potentially large shale gas fields.[14] The Yuzivska gas field located in Donetsk Oblast (province) and Kharkiv Oblast; and the Olesska field in Lviv Oblast and Ivano-Frankivsk Oblast.[14] Ukraine signed a shale gas 50-year production sharing agreement with Royal Dutch Shell on 25 January 2013 involving the Yuzivska gas field.[4][19] The $10 billion deal was the largest foreign direct investment ever for Ukraine.[19] Full shale gas production depends on successful results from 15 test wells.[19] Ukraine expects commercial shale gas extraction in 2017.[28][nb 7] On 13 September 2013 Ukrainian Prime Minister Mykola Azarov stated that the (containing all expenditures) price of shale gas will be $120–130 per 1,000 cubic meters.[29]

By 2030 a production of 6-11 bcm of shale gas a year is wanted by the Ukrainian Government plans.[4]

• Russia–Ukraine gas disputes

• Ukraine - Energy Information Administration