Prospectors asking for a price

As though in response to Russia’s gas ultimatums, the last one coming from Gazprom’s deputy head Aleksandr Ryazanov, concerning price increases (up to $120-130 per thousand cubic meters), Naftohaz Ukrainy is increasing its own extraction. Last Friday two gas fields were unveiled in Komyshnia and Kopyliv. Experts insist that Ukrainian gas meets every technical standard and matches Russian and Turkmen gas.

Until recently the Komyshnia gas field was considered depleted and was barely active over the past several years. It had only one working well that was almost empty. However, a company called Ukrhazvydobuvannia carried out additional prospecting, and its forecasts showed that local gas deposits reach nearly 15 billion cubic meters. The company’s chief engineer Borys Syniuk says that drilling at several wells has shown that gas extraction from this deposit could be increased by almost three billion cubic meters.

This deposit is also rich in gas condensate. Every day the well yields 120 tons of condensate from a depth of 6,000 meters (only two tons before reconstruction). According to the developers, the condensate contains some 80 percent of gasoline. A ton of condensate costs 2,500 hryvnias, so it is not difficult to calculate the monetary “turnover” of a single deposit. According to the director of Poltavahazvydobuvannia, Ihor Atamanchuk, gas condensate was ignored in the past because there was enough gas being supplied; depleting gas wells were considered unprofitable and then shut down. This practice has now ended.

Ukrhazvydobuvannia’s director-general Illia Rybchych does not seem to share this optimism. He stresses that these gas deposits are the last ones to be discovered by the company: “No other gas fields have been discovered to date, and there is nothing else we can launch into operation.” Naftohaz Ukrainy cannot prospect for new gas deposits because the Ministry of Ecology is delaying the issuance of required licenses.

However, the reason for the many problems in the gas industry is Naftohaz Ukrainy’s lack of funds. Rybchych says this is due to the economically unjustified gas prices practiced in Ukraine. Today Ukrhazvydobuvannia receives 112 hryvnias in return for 1,000 cubic meters supplied to the population, while the net extraction cost, along with taxes, amounts to 168 hryvnias. In other words, gas extraction is not profitable.

“The leadership of this country understands this and gas prices will increase,” says Rybchych, adding that “414 hryvnias” worth of gas supplies to the population, along with transportation costs, would be acceptable to Naftohaz Ukrainy.” For those unable to afford this price, state subsidies will be issued.

Fair gas prices will substantially increase Ukrhazvydobuvannia’s payments to the state budget. The company plans to pay 2.4 billion hryvnias this year.

For extraction companies one of the main tasks is to prevent the depletion of deposits, so Naftohaz Ukrainy annually increases prospected gas deposits by 17 billion cubic meters while extracting between 14 and 15 billion cubic meters.

There are five new wells at the Komyshnia drill site. Each cost Naftohaz Ukrainy 20 million hryvnias. They had to be drilled to a depth of six kilometers because there is hardly any gas left in shallower sites in Ukraine. The Kopyliv drill site contains less gas: 7.3 billion cubic meters, enough for 30 years of exploitation. There are two working wells, and seven exploratory wells are being drilled.

Last year Naftohaz Ukrainy spent 600 million hryvnias on gas prospecting projects. Why? After all, it is possible to buy gas from neighboring countries without spending so much money, and according to Rybchych, the national company is in the red these days. Yet he is confident that every new deposit lessens Ukraine’s dependence on foreign suppliers and has a direct effect on gas prices.

He is also confident that the company will continue prospecting at its own expense and will take credits. Ukrhazvydobuvannia has taken out comparatively modest loans amounting to 100 million hryvnias. Ukraine appears to be an amazingly promising country in terms of gas deposits; unexplored: deposits are estimated at 4.5 trillion cubic meters. Considerable coal fields are expected to be found in the Black Sea and the Sea of Azov. An increase in the scope of geological prospecting works will allow Ukraine to increase its annual gas extraction to 22-24 billion cubic meters by the year 2010. As usual, this will take sizable capital investments.