Record gas production does not lead to tariff reduction: what is the reason?

20 January 12:41
Komersant ukrainskyi ANALYSIS

In the context of a full-scale war, the Ukrainian gas production industry demonstrates stability and even growth. At the end of 2024, Ukrgasvydobuvannya JSC, a member of Naftogaz Group, increased commercial gas production to 13.9 billion cubic meters compared to 13.2 billion cubic meters in 2023. This was reported by the press service of Naftogaz.

Last year, 83 new wells were commissioned, including 60 production wells and 23 exploration wells. Particular attention was paid to drilling directional wells, which allow gas production in hard-to-reach areas – 60 such wells were drilled in 2024 (51 in 2023).

In total, the company drilled 370 thousand meters last year. This is 14% more than in 2023 and is the highest figure in recent years.

Production dynamics

According to the estimates of the industry publication ExPro, in 2022 Ukraine produced a total of 18.54 bcm of gross natural gas. In 2023, this figure was 18.7 billion cubic meters, and in 2024 – 19.12 billion cubic meters.

Of this volume, Ukrgasvydobuvannya produced 12.5 billion cubic meters of natural gas in 2022, 13.2 billion cubic meters in 2023, and 13.9 billion cubic meters last year.

As can be seen from the data, it is Ukrgasvydobuvannya that provides the positive dynamics in terms of increasing its own gas production in Ukraine. Other industry players have slightly reduced production over the past three years.

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Current gas tariffs

For the second consecutive heating season, Ukraine has been using domestically produced gas, and it is obvious that this is a direct result of the increase in production. So Ukraine is directly experiencing these achievements.

Gas tariffs for household consumers in Ukraine have not changed since January 1, 2021. Currently, the price of natural gas for household consumers is UAH 7.96 per cubic meter. Industrial consumers have to pay more: their tariff is UAH 14.58 per cubic meter.

After the start of the full-scale invasion, the Verkhovna Rada of Ukraine passed a law regulating natural gas prices during martial law. According to it, tariffs for natural gas distribution, heat energy and services for its supply and hot water supply are prohibited from being increased.

Does production correlate with consumer tariffs?

But does the growth in gas production correlate with prices for end consumers? After all, it can be assumed that an increase in the physical volume of gas, provided that the volume of its consumption decreases due to the war (massive departure of people abroad and destruction/occupation of industrial enterprises), could reduce the price of natural gas. According to the classical laws of the market, an increase in the volume of a product and a decrease in demand for it should reduce the price of the product.

On this issue [Kommersant] turned to energy expert Gennadiy Ryabtsev with this question.

“There is no connection between gas prices and production volumes,”

– the expert categorically stated in an exclusive commentary to . According to him, pricing in the Ukrainian gas market has its own peculiarities.

“The price of gas for households is determined by the government in accordance with the special responsibilities assigned to Ukrainian gas production. And the price for industry is determined with reference to external indicators, in particular, quotations at European gas hubs, primarily at the TTF hub on the North Sea coast,”

– explains Ryabtsev.

He argues that attempts to change this situation and establish certain price indicators are constantly being made, but are not successful.

“Despite all the efforts of a number of MPs and specialized experts to convince the government that Ukraine needs to create internal price indicators, such as exchange indicators, and oblige companies to sell their gas through exchange mechanisms, the volume of exchange trading remains extremely low. This does not make these trades liquid and their prices indicative,”

– says the expert.

However, the increase in own production, according to him, is an undoubted achievement and an indicator of Ukrgasvydobuvannya’s performance.

“It is not significant, within the statistical error, but still the increase in production by Ukrgasvydobuvannya amounted to about 5%. The increase in production is also due to certain efforts of the new member of the Board responsible for these works. He is implementing the program that he proposed when he was appointed, and so far we see small but still positive results,”

– gennadiy Ryabtsev summarized, without specifying which member of the Board he was referring to.

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Остафійчук Ярослав
Editor