Archive 2010

  • 26.08.2010

    Implications of recent developments in global and European natural gas markets for Ukraine


    The global gas market is experiencing a revolution. Shale gas is dramatically changing the structure of gas production. Increasing production of shale gas has made the US the biggest gas producer in the world. Gas initially destined for the US market is shipped to Europe in the form of Liquefied Natural Gas (LNG). The global oversupply allows Europe to diversify its gas imports, to lower sourcing cost and to challenge the prevalence of long term contracts. In addition, the extraction of domestic shale gas might potentially slow down the decrease in Europe’s gas production. The shale gas induced revolution of global gas markets coincides with major developments in Europe’s gas market. Due to the economic crises and the expansion of renewable power generation the demand for natural gas in Europe is developing below expectations. Furthermore, significant transit pipelines for Eurasian gas are projected and built. These developments will not leave the Ukraine unaffected.

    The bad news first: Revenues from gas transit, currently accounting for 1.7% of GDP, are predicted to decrease significantly as pipeline projects circumventing Ukraine will compete with the current routes and European natural gas imports from Russia will not grow as anticipated. The good news is that the “unconventional gas revolution” will not shun Ukraine, as a significant potential for unconventional gas production is expected in the country. According to its resources of conventional and possibly unconventional gas, Ukraine might become independent of gas imports. In case Ukraine could attract major investments in exploration and production the country might even turn into a gas exporter. Then, the Ukrainian transit pipeline system might keep its value by transporting Ukrainian gas towards European customers.

    However, such a positive scenario is only possible, if gas exploration and production in Ukraine is cost competitive. While the purely geologic and geographic features (friendly climate, short distance to consumer) are favourable, the business environment is very detrimental. Consequently, significant and quick changes will be necessary to attract this highly technology and capital intensive industry to Ukraine. Otherwise, Ukraine might be the big loser of the unconventional gas revolution.

    Attached file  (398.2 kb)
    Authors:  Naumenko Dmytro,
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