The Government of Ukraine (GOU) considers the oil and gas industry as a strategic sector to achieve independence from foreign oil and gas imports. Since the Revolution of Dignity in 2014, Ukraine has taken necessary steps to diversify fuel supplies, improve the output and production of electricity, oil, and natural gas, all efforts aimed at increased energy independence. Ukraine continues to follow its path to energy security and independence though legislative reforms. In 2017, the GOU finally reduced the royalty rates for gas exploration to 12 % (from 28%) for wells up to 5,000 meters and to 6% (from 14%) for deeper wells. This makes Ukraine’s royalty tax one of the lowest in the EU.
The Ukrainian Government adopted a Concept for Development of Ukrainian Gas Production Industry. According to this concept, Ukraine should increase gas production to 27 bcm by 2020, a 23% increase. There is a great opportunity for U.S. companies to play a significant role in achieving this 27 bcm goal by supplying new equipment, technology, and best practices to help Ukraine achieve its ambitious target. Oil and Gas Production – Ukraine has tremendous natural resources for ensuring domestic needs in energy resources, with estimates of approximately 900 billion cubic meters of proven reserves of natural gas. In Europe, Ukraine ranks # 2 in Europe for gas reserves. Three Ukrainian regions contain hydrocarbons resources: the Dnipro-Donetsk basin, the Carpathian region in western Ukraine, and the Black Sea and Crimea region in the south. The Dnipro-Donetsk basin is a major oil and gas producing region accounting for 90 percent of all current Ukrainian production. The structure of hydrocarbons production in Ukraine is following: natural gas 89 percent, oil 7.9 percent, and gas condensate 3.1 percent. The primary source of hydrocarbons in Ukraine is natural gas, though the most lucrative gas reserves are located below 5,000 meters. Gas imports cover lapses in domestic production. For 2017, Ukraine consumed a total of 31.9 bcm of natural gas, of which 11.1 bcm is supplied via reverse flow from the European Union.
The leading position in gas production in Ukraine belongs to the state-owned companies, namely: PJSC Ukrgasvydobuvannya, PJSC Ukrnafta – accounting for 74 percent and five percent of production respectively. Six major Ukrainian private companies produce 18% and the remaining 3% of gas production comes from 45 small private gas producers. Overall, for 2016 the breakdown of gas production in Ukraine in bcm is as follows: PJSC Ukrgasvydobuvannya – 15.3 bcm, PJSC Ukrnafta – 1.1 bcm, and private companies 4.4 bcm.
Oil & Gas Machinery – Boosting domestic oil and gas production will require Ukrainian companies to upgrade their obsoleted drilling fleet and improve oil and gas services. The exact market size for oil and gas equipment is unknown. Though, following results from an industry survey that CS Kyiv conducted and available data from open sources, there are approximately 150 drilling rigs with different lifting capacity in Ukraine and around 75 percent of them obsolete. For example, there are only five drilling rigs with Top Drive systems in Ukraine. There are around 5,000 drilled producing wells in Ukraine and approximately the same number of depleted/sealed wells. By providing well workovers and utilizing new enhancement technologies, the Ukrainian oil and gas industry can recover at least 1,000 of the wells.
Primary market obstacles in Ukraine’s oil and gas sector include currency devaluation, customs clearance problems, delays in reforms (permit system and licensing). Although there is a sufficient number of potential local partners and subcontractors in oil and gas industry, the lack of a qualified and well-experienced workforce is also a major hindrance.