energy market

Liberal values

16.01.2015 | Andriy Zakrevskiy

Ukraine is able to fully provide itself with hydrocarbons. There are 360 gas fields in our country. In 1975 we produced almost 70 bn cubic m of gas, and in 2014 only 20 bn cubic m.

And in order to reach the production level of forty years ago we only need to liberalize the gas market and eliminate Naftogaz the structure, which is absolutely unnecessary for Ukraine. After all, all governments of independent Ukraine have been methodically destroying the industry and are still doing it now.

The assertion that our deposits are depleted is nothing but a myth. Yes, they are depleted, but only for long-obsolete methods of production of hydrocarbons. Using modern techniques horizontal drilling or hydraulic fracturing the wells could be used for a long time.

For example, at one of the major fields, Shebelynske, producers annually extract less than 3% of the proved reserves. Why not double the production volume? The life of an average well is 10 20 years, and with the help of modern methods of production it could be extended for much longer.

Today the volume of oil and gas production by private companies is increasing, but the state-owned corporations cannot boast of such results. For example, Ukrgazvydobuvannya shows a positive result only because in its statistics it takes into account activities of Karpatygaz, which introduces new technologies at existing public wells.

With every passing year the state-owned companies reduce the amount of drilling. At present their rates are at the level of 160,000 linear m of the needed 1 mn linear m per year. But private companies have drilled almost 200,000 linear m over the same period, while having only 15% of the market.

And the reason for declining production at the SOEs is not only the fact that Ukraine has lost the Crimean Chornomornaftogaz, which in recent years has significantly increased its production. We have a huge number of drilled wells close to 2,000 - and they still remain unworked.

In summer of 2013 the government of Mykola Azarov tried to expropriate 50% of gas from private companies and pump it into underground storages. But after that the Cabinet has left private gas producers alone. This summer, the government of Arseniy Yatsenyuk had a similar initiative. But having faced the threat of litigation, simply decided to increase the tax burden on the gas producing companies by increasing the fee for subsoil use up to 70%. Yet later some changes were made in the bill and the fee was cut to 55%.

Nevertheless, over the year, during which the authorities have forgotten about the industry, private companies and Karpatygaz were able to increase gas production from 2 bn cubic m to 3.8 bn cubic m only because of that.

One would think let alone the drillers and in ten years due to the efforts of the currently existing private companies alone we will be fully able to provide our country with gas. But instead of listening to the common sense Yatsenyuks government increased rents for private production. They say the domestic oil and gas companies are swollen with money, but they forget to explain that they also bring 88% of all natural resource rent revenues in the country.

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