Bloomberg News

Ukraine Offers Gas Permits to Weaken Russia Reliance, Boyko Says

June 05, 2012

Ukraine is offering two natural-gas exploration and extraction licenses to reduce its dependence on Russian imports and help unfreeze an international bailout, Energy and Coal Industry Minister Yuriy Boyko said.

“Priority number one is to increase domestic production,” Boyko said in a June 1 interview in Washington.

Ukraine is offering licenses for the Skifska and Foros fields on the Black Sea shelf, the government said in its official gazette, Uryadovyi Kurier, on June 2. Royal Dutch Shell Plc (RDSA) and Chevron Corp. (CVX:US) won extraction rights last month. The companies are expected to sign production-sharing agreements that will give the government more than 30 percent of output, Environment Minister Eduard Stavytskyi said May 16.

The country is trying to renegotiate a gas contract with Russia, which provides 70 percent of the country’s use of the fuel. The government wants to reduce the deficit of state- managed NAK Naftogaz Ukrainy and unlock funds from the International Monetary Fund without raising domestic tariffs for the fuel.

The IMF approved a $15.6 billion loan to Ukraine in July 2010, the second in two years, after the country’s economy plunged almost 15 percent in 2009.

Disbursements under the loan have been frozen after the government failed to raise natural gas price for households ahead of the general elections. Measures including increased domestic extraction and replacing natural gas with domestically extracted coal can help cut NAK’s losses without raising tariffs, Boyko said.

‘Find a Compromise’

“We don’t consider increasing tariffs as the only measure” to narrow Naftogaz’ shortfall, he said. “We are in dialogue with IMF, we want the program to be renewed, to find a compromise.”

Failure to cut import prices under the 10-year agreement with Russia prompted the nation to seek other suppliers and look for ways to boost its output. Ukrainian pipelines are also used to transmit about 80 percent of Russian gas sent to the European Union.

The country is trying to diversify its gas providers. An agreement to buy natural gas on the spot market from RWE AG, Germany’s second-biggest utility, will provide about 5 billion cubic meters of the fuel by the end of the year, Boyko said.

Ukraine is discussing the possibility of buying liquefied natural gas from the U.S. and Qatar, Boyko said. Importing gas from Turkmenistan, which may provide about 5 billion cubic meters a year as a payment for infrastructure projects, is also an option, he said, adding that such an accord would require Russia’s approval to use its pipelines.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net


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