Ukrainian gas producers slam lack of incentives in state recovery plan

London — Ukraine's gas industry association has criticized the government for not including sufficient support for the sector in the country's COVID-19 economic recovery plan.

In a statement July 23, the Association of Gas Producers of Ukraine (AGPU) said the industry downturn and the economic slowdown triggered by the coronavirus had already seen Ukrainian gas output slide by 3% year on year in the first half.

"Unfortunately, we are already witnessing the beginning of stagnation in the industry," AGPU Honorary President Daniel Maidanik said.

"All producers are reviewing their investment plans and significantly optimizing them and investors are looking at new projects with great caution because the risks remain very high," Maidanik said.

"Without state support, especially in today's conditions, investments in the sector will stop and Ukraine risks losing its own gas production," he said.

Ukraine last year produced 20.7 Bcm of gas, almost enough to meet consumption of 26.4 Bcm, and the government has opened up large swathes of acreage for new exploration over the past year.

Ukraine's political aim is to be self-sufficient in gas in order to eliminate the need for imports, and even to become a gas exporter in the future.

AGPU had called on the government to include financial incentives in Ukraine's State Economic Incentive Program, which is designed to overcome the negative effects of restrictive measures due to the coronavirus pandemic in the period 2020-2022.

However, AGPU said the program did not provide "adequate support" for the oil and gas industry, and did not help producers to overcome the effects of the economic crisis.

"Unfortunately, most of the proposals of the industry, which were voiced and sent to the government, are not taken into account in the final version of the program," it said.

'Catastrophic' price drop

Ukraine imports gas from Europe to meet total demand, having ceased direct Russian gas purchases in November 2015.

AGPU members, it said, have "repeatedly stressed that a catastrophic drop in prices, coupled with a deepening global economic crisis, could completely halt investment in the sector."

"This will lead to a number of shocking consequences: falling Ukrainian gas production, unemployment for many Ukrainians working in this and related industries, reduced revenues to state and local budgets and, of course, a weakening of Ukraine's energy security," it said.

AGPU again called on the government to extend the state-guaranteed period of fixed taxation on production from new wells from five years to 10 years and for financial incentives to promote unconventional gas production.

It also called for a comprehensive revision of tax on production to bring it into line with the European average.

"Implementation of these priority steps will allow gas companies to continue investing in the industry and partially minimize the current crisis situation," AGPU executive director Artem Petrenko said.

"Without state support, we risk losing domestic hydrocarbon production, which will lead to even greater dependence on imported gas and the loss of the lion's share of taxes," Petrenko said.

Ukraine, whose gas production has been steady at some 20 Bcm/year for the past 25 years, has vast untapped potential in its onshore blocks -- both for conventional and unconventional resources -- as well as in the Black Sea.