Ukrainian private companies' lower gas production results in $400 mln annual losses - experts

MOSCOW. March 15 (Interfax) - A drop in natural gas production by private companies in Ukraine in 2022-2023 has resulted in an estimated annual loss of $400 million, therefore, reopening its exports would provide new sales outlets, help earn money for investing in production and gain extra forex proceeds, D.Trading CEO Dmitry Malyar said.

"We can calmly watch the private output falling by 1.3 bcm - 1.4 bcm (over 2022-2023), but if you convert that into money, then it is $400 million annually. We could earn $400 million by exporting gas in the absence of domestic demand. I do not think it is an effective solution that the country loses $400 million annually," Ukrainian media quoted him as saying at a roundtable on the second year of banning gas exports from Ukraine, which took place in Kiev.

By the time Naftogaz started buying gas from private producers on the stock exchange in the spring of 2023, the company had accumulated $300 million worth of it in underground gas storage (UGS) facilities, which lowered the investment in production, Malayr said.

"If you didn't get money for gas, there is nothing to invest in production," he said.

He praised Naftogaz decision to step up gas purchases from private producers in 2023, but said export contracts allow raising money in foreign currency and for a long period.

"We do not know for sure whether or not NAK will be buying and at what price. Now in March, NAK buys the March resource, and the money for production is invested for the long term, at the same time there is no long-term product from NAK. And at the same or even lower price, certainty with the price in foreign currency and longer period means much more for the producer," Malyar said.

The reopening of exports should be considered at least in certain formats, with due account of the country's energy security, he said.

"It could be quotas. If there are questions about transparency, then gas should be primarily offered to the domestic consumer or NAK in a stock exchange format. If there is a company that exports further, it should be allowed to do so within the quota. But NAK and domestic consumers can compete for this volume," Malyar said.

As reported, in 2021, private companies produced a record five bcm of gas, but production fell by 700 mcm in 2022 and by another 600 mcm in 2023, Executive Director of the Association of Gas Producers of Ukraine Artyom Petrenko said.

He said lower consumption by the industry and the exports ban were the main reasons behind the decreased gas production since the beginning of the crisis.

At the same time, Petrenko pointed to the insignificant gas purchases from private companies by Naftogaz in 2022 (250 mcm) and an increase in the purchases in 2023 (1.1 bcm).

According to Deputy Energy Minister Nikolai Kolesnik, there were 8.1 bcm of gas reserves in Ukraine's UGS facilities as of March 14. Of this volume, 0.74 bcm belongs to non-residents, 2.2 bcm to residents, and 4.6 bcm to Naftogaz Group, Ukrtransgaz commercial department director Agneta Kutselim said.

As noted by the roundtable participants, Ukraine consumed 19.6 bcm of gas in 2023. In particular, the industry consumed 3.4 bcm, with gross production of 18.9 bcm, including 3.1 bcm by private producers.