Big plans, continuous improvement
While the current set of challenges will be a headache for energy companies – experts warned that just like its international peers, Naftogaz of Ukraine has pulled the brakes on investments – oil and gas will continue to dominate in coming decades, especially given that natural gas is the best transition fuel on the way towards a greener, hydrogen-based economy.
Indeed, hydrogen is attracting a growing amount of attention as a potential solution for governments eager to move from fossil fuels and make their economies greener.
To take full advantage of hydrogen, however, additional investments are needed. But that does not mean that Ukraine has been waiting around – indeed, Ukraine’s gas sector has benefited from some tectonic changes over the past couple of years.
We are ready to be involved in the construction of the new green economy. We are ready to produce and even export hydrogen
In recent months, the long-regularly retail portion of the market has finally been liberalized, which means that consumers will pay market prices – but also benefit from better services and more competitive offers, likely bundling gas with electricity provision.
Created through the electrolysis of water, hydrogen can be mixed in with natural gas in the current networks of pipelines (current estimates are that 15-20% of hydrogen could be introduced into the gas mix in countries like Ukraine).
It all depends on the abundance of electricity, however, making it particularly interesting for countries, like Ukraine, which have a surplus, Lana Zerkal, Advisor to Naftogaz CEO argues.
One of the main is the long-awaited unbundling of the transmission system operator (TSO), which has brought Ukraine in line with European regulations on market liberalization. Together with a new transit contract with Gazprom, this puts Ukraine in favourable situation to continue to be the main route for Russian (and Central Asian) gas to transit to European consumers.
In recent years Gazprom has attempted to push Ukraine out of its position as the central transit role – in addition to the existing Nord Stream 1, which carried over 58 bcm in 2018 under the Baltic Sea, Gazprom is planning a second line that would be able to carry 31.5 bcm. Together with the TurkStream, planned under the Black Sea, this would make it possible to entirely circumvent Ukraine.
For now, however, it has been blocked by partners for reasons that range from ecological concerns to a recognition that it is a geopolitical project rather than an economic one.
Yet transit is not the only front on which Ukraine has made substantial progress. In particular, the modernization and professionalization of the sector overall is already playing a big role.
The operational side has also improved, particularly in terms of digital solutions for sub-soil users – for instance via the use of e-auction to sell licenses. These have increased from just 10 a few years ago to 36 in 2019 and 35 already in 2020. This has not just substantially increased revenues for the state, but also made the process more transparent and convenient.