Ukraine managed to maintain stability in the gas sector even during a full-scale war. This was achieved, in particular, thanks to imported supplies and the expansion of its own production.
Ukraine refused direct supplies of Russian gas back in November 2015. This decision is supported to this day, and is confirmed by Ukrtransgaz, which keeps a “still alive” counter, which has already counted 3,118 days. Thus, Ukraine has been successfully functioning without gas from its former supplier for almost nine years.
During this time, the Ukrainian gas market has undergone significant changes, including reforms at Naftogaz, which has ceased to be unprofitable. Before 2014, Ukraine imported significant volumes of gas on favorable terms from Gazprom, but after 2015 this happened only from European sources.
“Ukraine buys gas on the European market, all agreements and contracts are concluded with European counterparties. Ukraine’s principled position is not to have agreements and contracts for the purchase of gas with the Russian Gazprom, because the Kremlin has long been using gas as a political weapon,” explained Andriy Gerus, the chairman of the parliamentary energy committee, in May 2022.
The Kremlin had previously hoped that Ukraine would comply on the gas issue, but that did not happen. However, the country was successfully supplied with gas thanks to imports from other sources and increased domestic production.
Ukraine recently consumed about 30 billion cubic meters of gas per year, about a third of which was imported from Europe. This is a contrast to 2013, when consumption was much higher and imports from Russia amounted to about 30 billion cubic meters.
Refusal of direct supplies from the aggressor country brought Ukraine not only market, but also energy and political independence. However, closing the valve was only the beginning, as the contract with discriminatory conditions was valid until 2019.
Under the contract, Ukraine was required to buy 52 billion cubic meters of gas or pay a fine. However, the prices were tied to oil prices, making gas more expensive than on the European market. This situation made it difficult to fulfill the terms of the contract, which led to an increase in the debt to Russia to $50 billion.
The settlement of this issue was thanks to the Stockholm Arbitration, which in February 2018 decided to go in favor of Naftogaz and awarded almost $5 billion. Part of this amount was paid in cash by the Russian side, and the rest remained credited for gas supplied in 2014.
The realization that Moscow could blackmail Kyiv and demand political concessions in exchange for gas supplies prompted the search for alternative suppliers. Talks about the possibility of obtaining gas from Europe began during the 2009 gas war, but they were actually implemented in the spring of 2014, when European companies agreed to supplies through Poland, Hungary, and Slovakia.
As a result, 5 billion cubic meters of gas were imported from the western border in 2014. These supplies were a real reverse, since the contracts at the time provided for control over electronic metering devices at the exit from the Ukrainian gas transmission system, which belonged to the Russians, and for the reverse, it was necessary to create loops across the border.
Overall, a quarter of Ukraine’s gas imports in 2014 were reverse flows from Europe, with the rest coming from Gazprom. However, the following year, Gazprom’s share of Ukraine’s imports fell to zero.
In 2020, a virtual reverse began, when gas flows were mutually compensated. Russian gas entered European countries through the Ukrainian GTS, and Ukraine, according to agreements, received a certain amount for its storage facilities, without physically leaving the pipelines.
However, the Russian-Hungarian contract stopped the possibility of a virtual reverse from Hungary. At that time, the gas supply routes were as follows:
- Poland – “Hermanowicz” point
- Slovakia – “House” point
- Romania – Orlivka point
- Moldova – “Kaushany” and “Aleksiyevka” points
These European routes have increased Ukraine's energy security in the face of a full-scale war. According to the GTS Operator, in 2023, more than 4.3 billion cubic meters of gas were delivered from the European Union and Moldova, which is twice as much as in 2022. This is a significant figure, considering that the level of gas consumption in 2023 was 19.8 billion cubic meters.
The main volumes of gas arrived during the injection season to the UGS. Approximately 42% of the total volume came from the Slovak direction, 31% from the Hungarian, 14% from the Polish, and 13% from the Romanian-Moldovan direction.
Work is currently underway to expand reverse capacity, in particular through the Trans-Balkan Pipeline in cooperation with Romania and Moldova. Also in July, a new phase of the “Vertical Corridor” initiative will start with the participation of gas transmission system operators from Central, Southern and Eastern Europe.
The full-scale war caused a 30% drop in gas consumption – from 28.7 billion cubic meters in 2021 to 19.8 billion in 2023. The bulk of this decline – almost 60% – fell on industry. As a result, Ukraine for the first time provided itself with gas during the winter from its own resources.
“A historic event. Ten years ago, no one would have believed it. Two years ago, when a full-scale war began, it was also hard to believe,” said Naftogaz Chairman Oleksiy Chernyshov in March.
Natural gas production has always been a challenge for Ukraine, which has become even more difficult during the period of independence due to Russia's hybrid war. After the invasion in February 2022, production volumes suddenly decreased by almost 10%. Some of the fields are controlled by the occupiers, while others are stopped due to proximity to the front.
The largest gas fields are located in Kharkiv and Poltava regions, such as Shebelynske, Zakhidno-Khrestishchenske and Yefremivske, with total reserves of over 970 billion cubic meters. Approximately 17% of production is accounted for by fields in Ivano-Frankivsk region.
Ukrgazvydobuvannya managed to contain production volumes, avoiding the sharp decline observed in the private sector. In 2023, it showed stable growth. If 2022 was dedicated to the stabilization of production, then in 2023 there was a confident growth, exceeding the indicators not only of the previous year, but also of 2021 before the full-scale invasion.
As a result, Ukraine increased gas production by 0.9% in 2023, reaching 18.7 billion cubic meters. Of this amount, Ukrgazvydobuvannya extracted 13.9 billion cubic meters, Ukrnafta - almost 1.1 billion, and the remaining 3.7 billion fell to private companies.
According to Energy Minister Herman Galushchenko, Ukraine can become self-sufficient in domestic gas production as early as 2024.
“We are very close to this. There are real chances of achieving a zero gas balance this year… It is important to understand that our consumption has decreased significantly. Much will depend on the further development of the industry and the economy,” he said in a January interview with Reuters.
As last year, increasing gas production remains a top priority.
“Our goal for 2024 is to increase natural gas production by at least half a billion cubic meters. We are accelerating the process of drilling new wells and using advanced technologies for both geological research and efficient production,” Oleksiy Chernyshov emphasized in March.
As a result, in February, Ukrgazvydobuvannya reached the highest level of daily production in the last five years. In particular, as of February 8, 2024, the company received 38.54 million cubic meters of commercial gas.
“This is an impressive result, achieved thanks to the commissioning of a record number of new wells, including a significant number of high-flow wells, which provide production of more than 100 thousand cubic meters per day,” he added.
In April, the Naftogaz Group set a historic record for monthly drilling. In the second month of spring, the Ukrburgaz Drilling Department drilled over 40,000 meters of wells. This figure exceeded the previous maximum historical drilling achievement set in November 2023 by 24%.
In May, Ukrgazvydobuvannya put into operation two high-yield wells in one of the deepest fields in eastern Ukraine. In total, they produce 390,000 cubic meters per day. These wells were drilled in the same formation and almost simultaneously, which is why they are called “twins” in technical slang.
And they were also drilled in record time. Previously, drilling wells with a depth of more than 6,000 meters took from two to three years. These were ready in 8 months. As Naftogaz specified in May, in 2024 it is planned to reach 15 billion cubic meters of annual production. In total, in the first five months of this year, Ukrgazvydobuvannya increased natural gas production by 10% compared to the same period in 2023.
In total, since the beginning of the year, Ukrgazvydobuvannya has launched 36 new wells, including 11 high-yield wells. If the pace continues, the plans will most likely be implemented.
