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Ukrainian gas industry welcomes new government strategy to boost gas output

Highlights

2030 strategy targets gas self-sufficiency

Plans improved terms for upstream gas work

Ukrainian gas output steady at 20 Bcm/year

London — Ukraine's gas producers on March 5 welcomed the approval by the country's government of a new economic strategy to 2030, which includes improved terms for the upstream gas sector designed to achieve gas self-sufficiency.

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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.

But work to develop new gas fields has been slow in recent years, with upstream companies calling on the government to make the investment climate more attractive.

As part of the newly adopted economic strategy, Kyiv has outlined a number of steps it plans to take to boost gas production, including a more beneficial tax regime, an improved production sharing agreement mechanism, and tools to attract new investors to Ukraine's upstream.

In a statement March 5, the Association of Gas Producers of Ukraine (AGPU) said it fully supported the government's strategic goal to increase gas production in the country and achieve energy independence.

"It is extremely important to quickly implement all the steps laid out in the strategy," AGPU executive director Artem Petrenko said.

"Joint and coordinated actions of government and business, and stability and predictability in the sector will help to achieve the strategic goal," he said.

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

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

These measures are included in the strategy along with a number of other steps designed to bolster domestic gas output, including the introduction of public-private partnership incentives for the development of new exploration and production technology.

New investment

Ukrainian Prime Minister Denys Shmyhal said March 4 the government had already begun the process of reforming the sector, including signing a handful of new PSAs at the turn of the year.

"Investments in exploration alone in the next 2-3 years will amount to Hryvnia 10 billion ($360 million)," Shmyhal was quoted as saying in a statement posted to the government website.

"We expect that the discovery of new fields will make it possible to fully meet the domestic needs of both the population and industrial consumers," he said.

PSAs were signed with state-owned Naftogaz subsidiary UGV for four blocks (Buzivska, Balakliyska, Berestyanska and Ivanivska), and with local players DTEK Oil & Gas for the Zinkivska block, Geo Alliance (Sofiyivska), and Zakhidnadraservis (Uhnivksa).

Ukraine has also awarded two other key blocks to Naftogaz in an attempt to accelerate work -- the Yuzivska block in eastern Ukraine and the Dolphin block in the Black Sea.

Yuzivska is estimated to contain 4 Tcm of gas and may be capable of producing 20 Bcm/year within the next 15 years, according to government estimates.

The project was originally meant to be developed by Shell, which signed a PSA with the government in January 2013.

However, Shell exited in June 2014 shortly after the start of the conflict between government forces and Russia-backed separatist groups in eastern Ukraine.

Naftogaz in January also secured a special license to drill at the Dolphin block in the Black Sea and expects to invest at least $40 million within the first 12 months of the project's implementation.

It also agreed last month with Romania's OMV Petrom to work together in the Ukrainian upstream, with an initial focus on the Black Sea.