Doubling gas extraction rental rates only strengthened the trend towards a decrease in gas extraction

Maksym Bielawski, Razumkov Centre energy expert and former PR director of Naftogaz of Ukraine, notes that today, there are about 390 gas, oil and gas condensate deposits in Ukraine. Around 250 of them are nominally under industrial development. The balance resources of natural gas amount to 1 trillion cubic meters, and if annual gas production reaches 30 BCM, they will be enough to fully meet Ukraine's domestic demand for some 30 years. 

"In addition," the expert continues, "Ukraine is among the 10 most promising countries of the world in terms of potential production of unconventional hydrocarbons (coal bed methane; shale gas; gas hydrates; gas from tight reservoirs), the potential of which is more than 40 trillion cubic meters. Gas hydrate reserves of deep sea segments of the Black Sea make no less than 20 trillion cubic meters. Shale gas resources — 1.2 trillion cubic meters. Gas from tight reservoirs — 8.5 trillion cubic meters. Methane from coal seams — 12 trillion cubic meters."

However, the doubling of rental rates for gas production in 2014-2015 led to a steady trend towards a decrease in production (and a corresponding increase in imports) in the following years, emphasizes Maksym Bielawski.

According to his words, without fiscal incentives, gas production will stay at a level of about 20 BCM per year with a downward trend.

"Over the past 10 years, the investment depletion of state-owned mining companies by the inflated rent has led to a dramatic drop in their production — from 18.3 to 13.7 BCM. Only an increase in the share of private companies that continue to make billion-dollar investments made it possible to increase the volumes from 2.2 to 6 BCM, maintaining a stable general level of gas production even now," explains Maksym Bielawski. "Today, the tax burden on the oil and gas extraction industry is unusually high and unjustified. The present tax burden model is typical for gas-exporting countries, while we are importers, unfortunately. My analysis of rental rates in more than 50 countries shows that the most common practice in 40% of cases for the rental load is to stay within the corridor of 10%–20%. The rental rate distribution depending on GDP is also indicative for the countries. According to it, the vast majority of developing countries set rates from 5% to 15%. Actually, the reduction of rental payments to this level is the main condition for reversing the downward trend and attracting new investors."