State-owned energy firm Naftogaz plans to invest $7.3 billion in upstream gas production by 2025 as it readies itself for an initial public offering, according to the company’s strategy document.
Naftogaz, which is Ukraine’s leading gas producer, aims to invest even more in gas exploration in the future, after it starts to be publicly traded on one of the major stock exchanges. Its ambition is to pour $25 billion in gas exploration by 2030.
Naftogaz top executive Otto Waterlander said the company won’t be able to spend as much without external investors, according to Interfax-Ukraine.
The firm — which supplies natural gas to households, budget-funded institutions and utilities at prices set by the state — hasn’t mentioned when it will go public or its offering price.
To make the company more attractive before the IPO, Naftogaz wants to grow its gas reserves. Naftogaz estimates that it will increase its reserves to 600 billion cubic meters by 2025 from its current capacity of 254 billion cubic meters. The firm also has prospective gas reserves with a potential 157 billion cubic meters.
According to the strategy presented by the top executives on Feb. 18, the company will continue to invest more in its current gas reserves until 2023, when the majority of investments will start going to unexplored fields for the first time.
Naftogaz will put $600 million into explored fields and $200 million into unexplored ones in 2021. In 2025, it plans to invest $400 million in explored fields and $1.5 billion in new ones.
The state granted Naftogaz a series of upstream licenses for exploration and hydrocarbon production on the Black Sea shelf in December 2020. This is favorable for the firm’s ambitious plans and the government’s expectations.
“Increasing gas production to fully meet the domestic needs of the state is a strategic goal of Ukraine for the next five years,” Prime Minister Denys Shmyhal said at a briefing in Kyiv. “Our own gas production is national security.”
Two days before the business plan came out, Yuriy Vitrenko, Ukraine’s acting energy minister, accused Naftogaz of failing to meet its natural gas production target for 2020. It failed to increase gas production to 27.6 billion cubic meters by the end of the year, Vitrenko said. In 2019, Naftogaz produced 20.7 billion cubic meters.
Vitrenko has even asked the Cabinet of Ministers to consider the dismissal of Naftogaz CEO Andriy Kobolyev.
“The State Audit Service checked Naftogaz at the end of last year, and the production plan, which shows a decline, not an increase, was only recently delivered to the ministry,” Vitrenko said on Feb. 16.
This is the third attempt by Naftogaz to determine the company’s development strategy. In 2014 and 2017, Naftogaz’s strategic goals were not approved by the Cabinet of Ministers.
Gas supply
Naftogaz wants to grow from a regional gas supplier to a national energy service provider — a further goal of the new business strategy.
The firm wants to increase its retail market share to 35% from the current 9% by 2025.
Over 600,000 new customers across Ukraine have chosen Naftogaz as their retail gas supplier since the market liberalization.
In August 2020, the Ukrainian government abandoned the Public Service Obligations, which prevented Naftogaz from selling gas directly to end users — it had been allowed to sell it only via intermediaries before that.
Entering electricity market
Naftogaz also wants to add electricity into its product portfolio to win more customers.
“We are waiting for a reform in the segment of the electricity market. We need it because we want to sell not only gas but also electricity to household consumers,” said Naftogaz CEO Andriy Kobolyev.
The share of renewable energy in Ukraine’s energy mix is planned to increase to about 25% by 2035, while the share of coal and oil products is to be reduced by half, according to Naftogaz’s business plan.
The National Energy and Utilities Regulator estimated that green energy comprised 11.6% of the country’s overall energy generation in 2019.
Ukraine is a full-fledged partner in the EU’s Green Deal, the large-scale European program that aims to turn Europe into the world’s first carbon-neutral continent by 2050.
The country, however, amassed a $1 billion debt to renewable energy producers, hampering investor confidence in Ukraine’s renewables and making many question Ukraine’s ability to take part in Europe’s Green New Deal.
