Independents Crucial For Gas Growth

BMI View: Production boosts from smaller independents in Ukraine will help the country mitigate the lack of supply coming from Russia over the second half 2014. That said, without Russia Ukraine will struggle to source sufficient gas to meet the high demand in winter.

Key to Ukraine's detachment from Russian gas dependency will be the success of domestic production efforts. Gas supplies from Russia for consumption in Ukraine were stopped on June 16 due a dispute over unpaid gas bills. Russia is now demanding prepayment for all future natural gas deliveries.

We forecast that Ukraine will be able to cope through the winter of 2014/2015, as long as the government's gas consumption efficiency efforts are adhered to, and the winter is not unusually cold ( see 'Hoping For A Mild Winter', July 15). That said, Gazprom is reportedly putting pressure on European utilities to reduce reverse flows to Ukraine though interconnectors in Poland and Hungary - a key source of natural gas imports with Russian supplies turned off. The Russian gas giant has been vocal in its opposition to reverse flows, denouncing them as 'semi-fraudulent'.

On The Up
Ukraine Natural Gas Production (bcm)

BMI View: Production boosts from smaller independents in Ukraine will help the country mitigate the lack of supply coming from Russia over the second half 2014. That said, without Russia Ukraine will struggle to source sufficient gas to meet the high demand in winter.

Key to Ukraine's detachment from Russian gas dependency will be the success of domestic production efforts. Gas supplies from Russia for consumption in Ukraine were stopped on June 16 due a dispute over unpaid gas bills. Russia is now demanding prepayment for all future natural gas deliveries.

We forecast that Ukraine will be able to cope through the winter of 2014/2015, as long as the government's gas consumption efficiency efforts are adhered to, and the winter is not unusually cold ( see 'Hoping For A Mild Winter', July 15). That said, Gazprom is reportedly putting pressure on European utilities to reduce reverse flows to Ukraine though interconnectors in Poland and Hungary - a key source of natural gas imports with Russian supplies turned off. The Russian gas giant has been vocal in its opposition to reverse flows, denouncing them as 'semi-fraudulent'.

Despite the ongoing challenges in eastern Ukraine, we forecast natural gas production to increase over the coming years. We see domestic gas production at 20.8bn cubic metres (bcm) in 2014, rising to 25.6bcm in 2020, largely due to small incremental efforts from private companies.

On The Up
Ukraine Natural Gas Production (bcm)

Domestic Production Boost

Despite the ongoing security problems in Ukraine, particularly in the east of the country where the Dnieper-Donets basin is situated, operations in a number of oil and gas producing regions continue.

Gas production growth will be driven by smaller independents targeting proven gas producing areas and tight gas basins in Ukraine. Larger companies with larger acreage holdings will play less of a role.   Royal Dutch Shell for example, while not withdrawing from Ukraine, has chosen to put its shale projects in the country on hold. Other majors with Black Sea licenses offshore Crimea also remain in limbo with uncertainty now lying over jurisdiction of the region ( see 'Crimea Oil & Gas Grab To Prolong Russian Dependency', March 19).

Smaller companies such as JKX Oil and Gas and Cub Energy as well as domestic natural gas producers are showing more positive signs. JKX increased its gas production in Ukraine in H1 2014 compared to H1 2013 following the commercial start up of the Elizavetovskoye field in January. The company's assets produce around 240mn cubic metres (mcm) a year, which is expected to increase further over the remainder of 2014 with the addition of new wells. This volume is more than double the current rate of gas being supplied from Europe via reverse flows from Hungary and Poland.

Cub is also expecting 2014 to be a significant growth year and is currently drilling 2 wells with six more targeted before the end of the year. According to the company, the six development wells could bring as much as 19,600 cubic metres of new production per day (7.1mcm a year). Planned workovers and fracture stimulation will see a further increase in output.

Read the full article

This article is tagged to:
Related sectors of this article: Oil & Gas, Upstream, Development, Production
Geography: Ukraine
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.