Ukraine’s oil and gas industry supplies only a small part of the country’s needs

World Oil staff, incorporating EIA material

As the Russian invasion of Ukraine continues, we at World Oil think it’s important to review the amount of oil and gas infrastructure that is at risk in Ukraine. Please note that some of the facts and figures cited here come from the U.S. Energy Information Administration (EIA).

Fig. 1. The Yuliivka Gas Processing Department in Kharkiv Oblast is just one example of Ukraine’s vast natural gas infrastructure. Image: Naftogaz.

Ukraine has been producing petroleum and other liquids, natural gas, coal, nuclear power, and renewable energy. However, the country’s energy demand regularly exceeds domestic energy supply. Imports are said to cover a roughly 35% energy gap. Natural gas represents nearly one-third of Ukraine’s primary energy consumption, followed by coal (30%) and nuclear (21%). Together, petroleum and other liquids and renewable energy account for the remaining 18% of primary energy consumption.

Ukraine is strategically important, as it is a primary transit point for exports of Russian oil and natural gas to countries in both Eastern and Western Europe. Furthermore, the country’s hydrocarbon resources are concentrated in the Dnieper-Donetsk region of the east, the Carpathian region in the west, and the Black Sea/Sea of Azov region in the south. The Dnieper-Donetsk region produces 90% of Ukraine’s natural gas output. The remaining 10% are produced in the Carpathian and Black Sea/Sea of Azov regions.

Since the Russian takeover of Crimea in 2014, Ukraine has suffered the effects of losing jurisdiction over the Crimean Peninsula. The Ukrainian Energy Ministry says that the country lost 80% of its oil and natural gas facilities/assets in the Black Sea and a significant portion of its port infrastructure.

The Ukrainian economy is one of the most energy-intensive economies in Europe. The country’s industrial sector has made gains in energy efficiency, but overall economic growth has slowed. This is due to a lack of investment in energy infrastructure modernization, unstable energy supplies, and inefficient energy consumption. Furthermore, before the Covid-19 pandemic, Ukraine’s economy faced significant problems, including crushing national debt. The pandemic increased the magnitude of these problems, with both energy demand and production decreasing, thereby reducing Ukraine’s ability to repay debt.

Petroleum and other liquids. According to data supplied directly to World Oil by Ukrainian officials, the country’s proved oil reserves at the end of 2021 were 843.3 MMbbl. There were 79 wells drilled during 2021 in Ukraine, nearly all of them for natural gas. This year, before the Russian invasion occurred, the country expected to drill 90 wells, a 13.9% increase. Crude and condensate production, we were told, averaged just 48,420 bpd during 2021.

No surprise, then, that Ukraine relies on imports to meet its petroleum and other liquids demand. For instance, during 2020, imports met about 70% of Ukraine’s liquids consumption. Most of those imports came from Belarus, Russia, and Germany, although sourcing was being expanded to Azerbaijan and Kazakhstan.

As alluded to earlier, Ukraine is a transit point for Russian crude oil exports, which make their way to Hungary, Slovakia, and the Czech Republic. This is primarily through the southern branch of the Druzhba pipeline network, averaging 400,000 bpd. Ironically, in late 2019, Ukrainian pipeline operator, Ukrtransnafta, extended its contract with Russia’s Transneft to transport crude oil through 2030. Accordingly, in 2020, roughly 244,000 bpd of Russian crude traveled through Ukraine.

Natural gas. According to additional data supplied to World Oil, Ukrainian natural gas reserves totaled 25.4 Tcf at the end of 2021. During 2019, the country’s gas consumption was about 1.0 Tcf, or 50% lower than the 2010 level. Domestic natural gas output supposedly met over 70% of total consumption, with the remaining 30% supplied by imports, Fig. 1.

Historically, Ukraine has received a majority of its gas imports from Russia. However, after Russia took over the Crimean Peninsula, Ukraine halted direct gas imports from Russia and replaced them with gas from European countries. However, much of that gas imported from Europe originates in Russia. It travels into Ukraine via reverse flows from Central and Eastern European countries.

Ukraine’s gas transportation network features 72 compressor stations and includes almost 28,000 mi of pipelines and 13 underground storage facilities, with a total working capacity of 1.1 Tcf. After Russia, Ukraine holds the second-largest storage capacity in Europe and Eurasia.

With the world’s largest gas transit infrastructure and lying adjacent to Russia, Ukraine has been a prominent transit country for Russian gas supplies to Europe. European markets receive 2.9 Tcf to 3.3 Tcf of Russian gas annually through Ukraine. At least 17 countries receive Russian gas, partly or exclusively, via Ukraine. In the past, disputes between Russia and Ukraine over natural gas supplies, prices and debts have resulted in interruptions to Russian gas exports through Ukraine.

Two major pipeline systems carry Russian gas through Ukraine to Western Europe. The Bratstvo (Brotherhood) pipeline—originating from Urengoy gas field—crosses from Ukraine to Slovakia and splits into two directions, supplying northern and southern European countries. The Soyuz (Union) pipeline—originating from Orenburg gas field— links Russia’s pipelines to natural gas networks in central Asia. It supplies additional gas to countries such as Slovakia, Hungary, and Romania. A third major pipeline through Ukraine delivers Russian gas to the Balkan countries and Turkey.

The newly completed TurkStream and nearly complete Nord Stream 2 pipelines have been expected to replace pipeline systems that previously passed through Ukraine. The decrease in flows of Russian gas through Ukraine would tend to reduce Ukraine’s role as a transit country for gas flowing from Russia to Europe. However, we must now see how the Russian invasion of Ukraine alters that picture.

Daily updates. Meanwhile, Naftogaz is putting out daily updates of the status of its operations, in the middle of hostile conditions. As of Monday, Feb. 28, most of the firm’s operations were still proceeding normally or semi-normally.