Ukraines Gas Market Reform: Green Light to Investments in Natural - - PowerPoint PPT Presentation

Ukraine’s Gas Market Reform:

Green Light to Investments in Natural Gas Transmission, Production and Energy Efficiency

July 2015 www.naftogaz-europe.com www.naftogaz.com Andriy Kobolyev, CEO, Naftogaz of Ukraine

Gas business ess: : 90% of earnings ings A vertically integrated group: entire supply chain

153 bcm transit capacity 31 bcm of underground

gas storage

62 bcm transit in 2014 38 bcm transmitted

domestically

15 bcm

annual production

39

gas processing plants

230+

• il, gas,

condensate fields

till 2012 monopoly

importer

2012 –15 major importer

wholesaler

Naftogaz

• gaz Gas Busin

iness ess

Upstream, gas processing Gas transportation & storage Wholesale gas trading

major

supplier to households, DHCs

100%

2014-15: Gas market liberalization initiated  Gas Market Law: compliant with EU Energy Law

3

Key milestones already reached:  EU-UA Gas Network Integration to diversify supply  Price Reform: gradual liberalization of gas prices  Corporate Governance Reform: OECD standards

Naftogaz effectively diversified gas imports 2013 2014 1Q 2015 Russia, single supplier Europe, multiple suppliers

8% 92% 26% 74% 61% 39%

Sources of Ukraine’s gas imports

4

2015 and on: building competitive and efficient market  Production:

• increase upstream production
• potential partial privatization of upstream

5

Competitive and efficient gas market will develop as we: Consumption: improve energy efficiency Transmission :

• unbundle by mid 2016
• new players and JV
• enhance interconnectivity with EU

Storage:

• new players and JVs
• potential partial privatization

6

Critical funding need for strategic gas purchases Avoiding risk of transit interruptions on political grounds: 21 bcm in storage = no Russian gas required this winter Political risk guarantees: OPIC, WB/MIGA or commercial institutions Repayment source: borrower’s revenues secured by regulated RAB-based tariffs Loans: US$1.8 bn to buy 6.5 bcm of gas from commercial banks, IFIs Collateral:

• Gas in storages;
• Operating cash-flows (transmission revenues);
• Ukraine Sovereign guarantees

Naftogaz

Opportunity: transmission and storage partnership

7

Ukraine Cabinet of Ministers State Property Fund

100%



Ownership unbundling of the transmission system operator (TSO) in compliance with 3rd energy package (EU)



EU and/or US companies to be invited as partners in gas transmission and gas storage business



On-going transparency and efficiency improvement through stronger corporate governance in compliance with OECD principles Transmission SO Storage SO

Controlling interest Controlling interest

US/EU Partner US/EU Partner

Non-controlling interest Non-controlling interest



State will remain the owner of the gas transmission system and underground gas storages

99 104 84 86 62 59 54 74 72 96 2010 2011 2012 2013 2014

Transit volumes Excess Capacity

8

Natural gas transit via Ukraine, bcm

Potential benefits for Partner in natural gas transmission operations

Strategic advantages:

 Crucial role in the European

transit system, accounting for up to 15 % of total gas import to EU

 Sole transmission system operator

158



Most powerful transit infrastructure in the world with capacity of exit - 158 bcm/Y, entry – 288 bcm/Y

 Direct interconnections

with EU (PL,SK,HU,RO) and with RU, MD, BY

27 27 27 26 23 25 27 24 20 16 2010 2011 2012 2013 2014

Industry Production and tech. costs Households, District Heating, Government financed institutions

Natural gas domestic supplies, bcm

CAGR: -6%

 Supplies to 18 European countries  Revenues ensured by regulated

RAB-based tariffs

 Substantial potential of transit

volumes increase without significant investment

24 21 20 15 17 7 10 11 16 14 2010 2011 2012 2013 2014

Capacities load (end of injection period) Available storage capacity

9

Potential benefits for Partner in gas storage operations

Strategic advantages:



Storage capacity of over 25 bcm on border with the EU



Largest storage capacity in Europe - 31 bcm (1/3 of EU28)



A valuable complex of assets with potential privatization of some storages

31

Natural gas storage volumes, bcm Huge potential for further development



Strategic geographical location of storages allows gas supply from

• ne point on the Ukraine-EU

border to 6 countries



Essential infrastructure for EU gas stock (both security and commercial) and creation of a gas hub

Energy independence: energy efficiency, production growth

Ukrainian gas import requirement

Energy efficiency Domestic production growth

~20

bcm

3-7

bcm

2015 2020F

How will this be achieved? bcm

6-8

bcm

7-9

Required investment*: US$10-15 bn Required investment*: US$5-6 bn *Preliminary estimates

10

Opportunity: Energy Efficiency

~15.9

Gas savings, bcm/y Invest- ment, US$bn Where What Alternative fuel boilers More efficient gas boilers Pipes replacement and insulation Thermo modernization Thermo modernization Heat meters with temperature regulators Project scope and time to capture the effect Investment efficiency, cm/US$

0.6 0.8 0.2 0.4

~20 ths boilers

3-5 years

~7mn HH

3-5 years

~250 DHC

3-5 years

~7 mn HH

10 years

~100 ths buildings

10 years

~100 ths buildings

1-2 years

Impact is calculated for each measure separately. Total gas savings in case of implementation of all measures

Alternative fuel boilers More efficient gas boilers

0.3 Total 0.5

~US$36bn ~12 bcm/y

~1.7 3.7 ~2.0 ~2.4 ~10.3 5.5 ~0.8 1.1 ~3.4 ~3.0 ~0.7

11

Energy efficiency measures can save ~6 bcm/y by 2020 and ~12 bcm/y by 2025

Opportunity: Upstream Development

12

Projections

10 20 30 40 50 60 70 1955 1990 2000 2010 2020 Conventional gas production Unconventional gas production Incremental unconventional gas production 2030 2014

Bcm

• Conventional resources potential

39Tcf = 1.1Tcm 1

• Reserves-to-production ratio 34,3 –

the largest in continental Europe 2

1 Source: US Energy Information Administration 2 Source: BP Statistical Review of World Energy, June 2015.

With sufficient investment production could increase by 7-9 bcm by 2020 and more than double by 2030:

• Future production depends on

application of modern technologies for seismic evaluation, drilling, completion, well stimulation, and production management. Ambitious plans present opportunities for international gas production companies and companies offering equipment, services and know-how

Source: Energy Strategy of Ukraine till 2030, Ministry of Energy and Coal Industry.

Other urgent investment opportunities

Other urgent investment opportunities

Poland-Ukraine 110 km gas interconnector with capacity of 8 bcm/y will allow to:

▪ Satisfy c. 40% of Ukraine’s

total requirement for natural gas imports

▪ Increase current gas import

capacity from EU by 53%

▪ Contribute to development of

the pan-European “North- South Gas Corridor”

▪ Provide access for EU

traders to UA gas storages with capacity of 31 bcm

14

Complete overhaul of drilling rigs and equipment will allow to:

▪ Expand exploration and

production drilling capacity to 300-350 ths. m/Y by 2020

▪ Increase the average

drilling depth over 6 ths.m

▪ Expand drilling equipment

range to meet current complex drilling tasks

Modernization of Shebelinka Refinery to achieve Euro-5 quality standard will allow to:

▪ Significantly improve

• perational results after

modernization

▪ Potentially increase market

share of the Company up to 15%

▪ Decrease dependency

from imported fuels

▪ Ensure immediate pricing

premium for sales through

• wn filling stations chain

▪ Wider use high pressure

equipment and hydraulic fracturing techniques Estimated project cost – 245 mln USD Estimated project cost – 356 mln USD Estimated project cost – 185 mln USD