Since energy security runs a close second to fighting the war in the east on Ukraine’s priorities, the drive for reducing the nation’s dependence on Russian supplies is moving into higher gear.
The need is especially urgent since Ukraine use of energy is three times as wasteful as the European Union, according to Anders Lund, manager of E5P, an EU-backed energy investment fund.
The key figure to reach is 45 billion cubic meters — the amount that Ukraine is expected to consume this year.
The following are four projects that could transform the face of Ukraine’s energy complex.
1. Gas pipelines to EU well on their way
Ukraine signed deals this year with Hungary, Poland and Slovakia to supply up to 10 billion cubic meters per year in the short term and up to 30 billion in the long term. A reverse pipeline was opened on the border with Slovakia on Sept. 2 to go around the trunk line that Russia’s Gazprom claims it has contracted to use.
In October, state-owned Naftogaz agreed with Poland’s Polenergia to construct a 110-kilometer link between the nations with a 10 billion cubic meter per year capacity. Prime Minister Arseniy Yatsenyuk said, however, it could eventually have a capacity to supply 80 million cubic meters a day, which is 28 billion cubic meters annually. Ultimately, the Polish side wants to connect this tube with Germany and an LNG terminal that is currently under construction at the port of Swinoujscie in the northern part of the country.
European Bank for Reconstruction and Development and European Investment Bank are expected to finance the pipeline for it to be completed by 2016. Naftogaz estimates that the project will cost $200-245 million and be ready only in 2019-2020.
Moreover, on Oct. 1 Ukraine signed a contract with Norway’s Statoil, Western Europe’s biggest oil and gas producer, to secure additional 11 million cubic meters of blue fuel a day, according to what sources in the Energy Ministry told the Dzerkalo Tyzhnya, a weekly.
Ukraine is projected to need 45 billion cubic meters of gas in 2015. Ukraine bought 26 billion from Russia, a major source of political risks, in 2013.
2. Conventional gas extraction can be raised a little
Due to technological and investment constraints, the prospects of significantly raised domestic output in the short term are slim, according to energy analyst Mykhailo Honchar of the think tank XXI Strategy. “At best, Ukraine can maintain its gas extraction levels of 20-21 billion cubic meters per year,” Honchar said. However, booster compressor stations could be employed to rejuvenate extraction from these wells by as much as 10 percent, he added.
Ukraine produces enough natural gas to cover about 40 percent of its needs, but the government has stated repeatedly that it wants to push this figure up to 60 percent. The problem is that about 75 percent of existing wells are near depletion.
Public companies accounted for 90 percent of output in 2013, or 18.7 billion cubic meters, while private companies extracted 2.3 billion cubic meters. With the Russian annexation of Crimea in March, Ukraine lost control of the state company Chornomornaftogaz, which produced 1.65 billion cubic meters in 2013. The country’s proven conventional gas resources were estimated at 1,092 billion cubic meters by the U.S. Energy Information Agency.
3. Shale gas prospects
Royal Dutch Shell and Chevron, two energy giants, are conducting testing drills in eastern and western parts of Ukraine to check the opportunities for extracting the shale gas, but haven’t reported much success so far.
Oilprice.com reported prospecting found less shale gas than expected that in several Eastern European countries, and so Lithuania, Bulgaria and Poland have seen several shale projects shut down because they are not economically viable.
Enthusiasm for the shale gas revolution in the U.S. spilled over into Europe in the early 2010s, and by January 2013 Ukraine had signed a production-sharing agreement with Royal Dutch Shell to develop the Yuzivka site in eastern Ukraine. Shortly thereafter, Chevron was invited to develop a shale gas field in western Ukraine. U.S. Energy Information Agency estimates country’s shale gas reserves at 5.5 trillion cubic meters.
4. Expanding nuclear power production
The government wants to sell 40 percent of the state-owned nuclear monopolist Energoatom to attract financing to modernize old power blocks and build new ones.
Energoatom produces 13.8 gigawatts of electricity, nearly half the country’s needs. “To add a single gigawatt of power, it would cost $300 million to extend the operating life of one block or $5 billion to build a brand new one,” explains nuclear power analyst Olga Kosharna of Ukrainian Nuclear Forum, “and would take 5-7 years to complete.”
Analyst Alina Leuska of Pro Capital Investment values Energoatom at $15 billion, making 40 percent of the holding worth around $6 billion.
One inhibiting factor is the Russian technology Ukraine uses, which would be of interest only to Russia’s Rosatom, according to Denys Sakva of the investment house Dragon Capital. Another problem is the low tariff rate for nuclear power, says Michael Krist of Westinghouse. Thermal power plants receive Hr 0.6 per kWh while nuclear gets just Hr 0.3 per kWh.
Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected].
