Ukraine Oil & Gas Report Q3 2016 - New Market Report

From: Fast Market Research, Inc.
Published: Wed Jul 20 2016

A volatile security situation and continuing geopolitical tensions hamper exploration and production activities in Ukraine. Regulatory challenges, ill ustrated by recent tax hikes on oil, gas and mineral extractio n , are expected to act as a further deterrent to investment in Ukraine's oil and gas sector . Despite Ukraine's significant gas supply diversification efforts, we expect the country will continue to depend to some extent on Russian gas supplies over the coming winters.

Key forecasts and developments:

We maintain our forecasts for oil and gas reserves this quarter. However, we note that Chevron and Shell's exits from their respective shale gas exploration projects create increasing downside risk to our gas reserves forecasts.

Full Report Details at

Downside risk to oil production exists over the coming year from a tax dispute between Ukrnafta and the Ukrainian state. In March 2016 the company received a formal notification from the State Service of Geology & Mineral Resources of Ukraine that 16 of its licenses could be suspended, in addition to three recent suspensions. According to the company, the suspension of these licenses would stop production of about 6,500b/d of crude oil, a significant proportion of the company's production and of the country's total 38,000b/d crude and condensates production in 2016.

Most of Ukraine's refineries remain closed as of 2016, leading to a severe underutilisation of its refining capacity. We maintain this situation will endure until an amelioration in the political, economic and security situation comes through.

Given the country's disastrous refining sector, crude net imports have fallen substantially over the past decade and are expected to remain low over the coming decade. Nevertheless, this has also translated into increasing refined products import requirements, as domestic production is insufficient to meet demand. Net imports of refined products will pick up speed as consumption recovers. This is unlikely to change unless the refining sector undergoes a significant revamp.

Despite large reserves and an active exploration scene, gas production in Ukraine is forecast to shrink across our forecast period to 2025. Upstream activities will suffer from an unpredictable regulatory and fiscal environment, the legal uncertainties regarding offshore Crimean licenses and the ongoing security situation in the east of the country.

While the government has enacted legislation early 2016 to reduce subsoil taxes to the same levels that were in effect prior to the increase in 2014, the unpredictable environment is clearly not incentivising for companies wanting to explore and develop hydrocarbon projects in Ukraine.

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