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Naftogaz of Ukraine

Native name	Нафтогаз України
Type	National joint-stock company
Industry	Oil and gas
Founded	1991 as Ukrgasprom; reorganized in 1998 under current brand[1]
Founder	Ministry of Energy
Headquarters	Kyiv , Ukraine
Key people	Andriy Kobolyev (CEO)[2]
Products	natural gas crude oil condensate petrol
Services	Pipeline transportation, oil production, gas production, municipal heating
Owner	Government of Ukraine
Number of employees	175000 (2014)
Parent	Ministry of Fuel and Energy
Divisions	Mining and refinery, transportation, distribution
Subsidiaries	UkrGasVydobuvannya, Ukrtransgaz, Ukrtransnafta, Ukrspetstransgaz
Website	www.naftogaz.com, www.naftogaz-europe.com

Naftogaz of Ukraine (Ukrainian: НАК "Нафтогаз України", Naftogaz Ukrayiny; literally "Petro-Gas of Ukraine") is the national oil and gas company of Ukraine. It is a state-owned company^[3] subordinated to the Government of Ukraine.^[4] The company is involved with extraction, transportation, and refinement of natural gas and crude oil.^[5]

Ukraine's system of trunk natural gas pipelines and underground natural gas depots is operated by Ukrtransgaz, a subsidiary of Naftogaz.^[6] As of 2009, the company had 38,200 km of high pressure gas transit pipelines and more than 30 billion cubic meters of gas storage capacity. This major gas infrastructure located between Russia and the European Union has led the company to feature prominently in regional politics. Another subsidiary of Naftogaz, Gas of Ukraine, is responsible for domestic gas distribution to the local district heating companies.^[7]

Naftogaz is a major Ukrainian employer with 175,000 workers. It received more than $6 billion of subsidies in domestic bonds from 2009 to 2012 as regulated gas prices and expensive Russian energy imports led to heavy losses.^[8] Former PricewaterhouseCoopers management consultant Andriy Kobolyev took over as CEO after the 2014 Ukrainian revolution tasked with reducing the country's dependence on Russian gas and reforming the company's business practices.

History

Gas pipeline network in Ukraine

The company was founded in 1998 after previously being named Ukrgazprom.^[1] The main initiators who created the company were Ihor Didenko and Ihor Bakai (better known as Igor Bakai).^[9][10] The last one was the first deputy chairman of the Ukrainian State Committee on Oil and Gas. Before Naftogaz, both Bakai and Didenko worked for other gas trading companies "Republic Corporation" and "Intergas".^[9][10]

At the end of 1990s Ukraine was consuming a record of 75 billion m³ per year which was the fourth indicator in the world and seemed strange to say the least considering that the country was not part of the top 20 in GDP volume.^[11] Eighteen billion m³ were mined inside Ukraine by Naftogas along with some joint enterprises such as "Poltavska Naftogasova Kompania", Plast, Ukrnaftogastekhnologia and others.^[11] All the gas that was mined by Naftogas and received through transit in obligatory order was being sold to population and state organizations.^[11] The remaining volume of natural gas, Ukraine was receiving from Russia as part of payment for transit or was buying from Turkmenistan.^[11] That gas was sold to industrial enterprises or was being re-exported.^[11]

After the dissolution of the Soviet Union, oil and gas industry went through number of changes. In the early 1990s there was privatization of gas distribution network known as Ukrgas.^[9] The process took place unnoticed and when Naftogas was constituted, not all privately owned distributors wanted to transfer their own stocks to the statutory fund of the National Joint Stock Company.^[9] Along with the gas distribution network in the same way there were privatized enterprises of petroleum products provision including filling station and fuel repositories that belonged to Ukrnaftoprodukt.^[9] The whole petroleum products retail network had to be created by Naftogas from zero.^[9]

Also, instead of investing more funds in geological exploration for the Ukrgasprom, its money was used to patch budget and foreign debts holes, which led to decrease in mining of hydrocarbons and decline of industry.^[9] Most of oil refineries were sold out to Russian companies.^[9] The only refinery that belongs to Naftogas is Shebelynsky Gas Refinery which Naftogas controls through Ukrgasvydobuvannia.^[9] It should be noted that Ukraine never had enough mined oil resources capable to provide for oil refining capacity that Ukraine inherited from the Soviet Union.^[9] Most successful in oil mining is Ukrnafta, however recently Chornomornaftogas had more and more plans to develop newly found deposits.^[9]

Before 2001 Ukraine had two state enterprises in transportation of oil "Main oil pipeline "Druzhba" and "Cisdnieper main oil pipeline".^[9] The pipelines were often used by Russian companies, but after Ukraine built connecting pipeline Odessa – Brody (Black Sea coast – West Ukraine) Russian companies installed an alternative pipe route Sukhodolnaya–Rodionovskaya.^[9]

Structure^[12]

Production and refinery

• 
  UkrGasVydobuvannya (UGV), a subsidiary


• 
  Ukrnafta (50% + 1), open joint-stock association


• 
  Chornomornaftogaz, state joint-stock association, currently after a corporate raid under control of the Russian authorities as part of the 2014 Russian annexation of Crimea
  

Transportation

• Ukrtransgaz, a subsidiary


• 
  Ukrtransnafta, open joint-stock association


• Ukrspetstransgaz, state joint-stock association

Distribution

• Gas of Ukraine, a subsidiary


• Ukravtogaz


• other enterprises

Subsidiary enterprises

• Ukrnaftogazkomplekt


• Gaz-teplo


• VZP Naftogaz


• LIKVO


• Naukanaftogaz

Disputes

In August 2014 Ukrtransgaz, the operator of the Ukrainian gas transport system, along with its Slovakian counterpart Eustream, launched natural gas supplies from Slovakia to Ukraine after signing a Memo of mutual understanding in April.^[13] This initiative was driven by Russia’s decision in June to cease gas supplies to Ukraine in retaliation for the country seeking closer ties with the European Union. By launching reverse flows, Ukraine claims it is seeking no concessions – only implementation of existing EU law on EU territory. The Third Energy Package was proposed by the European Commission in 2007 and adopted by the European Parliament and the Council of the European Union in July 2009. This legislation clearly allows for gas to be traded like other commodities, thus creating a more efficient market which is less vulnerable to political pressure. In October 2014 the EU further committed to better connecting its energy grids, saying countries should be able to export 15% of their generation capacity by 2030.^[14] The consultancy firm Strategy& (formerly Booz & Co) believes the EU could save €40bn a year by 2030 if it integrates its energy grids.^[15]

Slovakia can provide more gas than Ukraine needs. In 2013, Ukraine imported 25.8bcm. Slovakia could provide Ukraine with 30bcm. Ukraine is asking that the EU fully support west-to-east exports to Ukraine, which would eliminate the scope for Russia to use gas as a weapon to achieve its political aims in Ukraine.^[16] Norway’s energy giant Statoil began transiting gas eastwards from Slovakia in 2014,^[17] and Shell began in 2015.^[18]

In response to the reverse flows initiative, Russia has cut supplies to central and eastern European countries, seeking to prevent exports to Ukraine.^[19] In September, Hungary stopped supplying gas to Ukraine, days after a meeting between Hungarian Prime Minister Orban and Gazprom’s CEO.^[20] Gazprom charges widely different prices to different European countries, which many believe is based on Russia’s political goals in the region.^[21]

Ukraine is seeking arbitration from the Stockholm Chamber of Commerce to fairly assess past debts between the two countries and to establish a fair basis of future operations.^[22]

International activities

Ukraine now plays a vital role in both the storage and transit of gas in Europe and in improving EU energy security. Ukraine has the largest storage capacity in Europe, which enables the country and its European partners to accumulate over 30 bcm of gas during summer periods when prices are lowest. Ukraine is also strategically placed to play the role of a transit hub. Its interconnectors have the ability to transfer gas from central Europe to South-Eastern Europe, which is the most exposed region to Russia's gas monopoly. Naftogaz asserts that ensuring gas flows freely will significantly improve the liquidity and the stability of the EU market, making it more resilient to political pressure.

The company drills for oil in the Western Desert in Egypt. On December 13, 2006, Naftogaz and the Egyptian General Petroleum Corporation had signed an agreement on the exploration and development of oil and gas deposits on the eastern territory of Alam El Shawish East in the Western Egyptian desert.^[23] In 2014 Naftogaz began natural gas extraction in Egypt. The company's oil production in Egypt estimated at 260,000 tonnes for 2014, which is more than 10% of annual production in Ukraine. A new natural gas pipeline allowing for extraction of approximately 300,000 cubic meters per day has also been launched [1].

Criticism

Naftogaz has been seen as one of the biggest sources of corruption in Ukraine for years with many of the country's billionaires having acquired much of their wealth through gas arbitrage based on differences between the prices of Russian gas imports, gas exports to the EU and government energy subsidies to homes and businesses.^{[8][24][25][26]}

In October 2014, George Soros named Naftogaz to be "a black hole in the budget and a major source of corruption" and called for a radical reform of the company, which could "totally eliminate Ukraine's dependence on Russia for gas".^[24]Radio Free Europe/Radio Liberty produced a short documentary entitled "The Palaces of Ukraine's Oil and Gas Men" about the homes of Naftogaz management during the presidency of Viktor Yanukovych, who was overthrown in 2014.^[27]

Reform

Since April 2014, Ukraine is the only non-EU country to voluntarily publish its volume in storage facilities on the EU transparency platform of Gas Storage Europe (GIE). The company also publishes data on the amount of gas entering and leaving the country.

In November 2014 Ukrtransgaz, the operator of Ukraine’s gas transportation system, began posting daily statistics on the information platform of the European Network of Transmission System
Operators for Gas (ENTSOG). The information can be viewed at https://transparency.entsog.eu

Naftogaz launched a new website www.naftogaz-Europe.com which will showcase its transparency initiatives.

Directors

• 1998–2000 Ihor Bakai^[11]
  


• Vasyl Rozhonyuk (acting)


• 2000–2000 Ihor Didenko


• 2000–2002 Vadym Kopylov
  


• 2002–2005 Yuriy Boyko
  


• 2005–2006 Oleksiy Ivchenko


• 2006–2006 Oleksiy Bolkisyev


• 2006–2007 Volodymyr Sheludchenko


• 2007–2007 Yevhen Bakulin


• 2007–2010 Oleh Dubyna
  


• 2010–2014 Yevhen Bakulin


• 2014–present Andriy Kobolyev
  

References

External links

• 
  Naftohaz Ukrayiny - Official website


• Official website of Ministry of Fuel and Energy of Ukraine


• Zanuda, A. 20 years of Ukraine-Russia gas relations: want a peace - be ready for a war (20 років україно-російських газових відносин: хочеш миру - готуйся до війни). BBC Ukraine. 7 February 2013.


• Lisnychuk, O., Sushko, O. Are the political-economic groups an obstacle for political development in Ukraine? (Чи є політико-економічні групи перешкодою для політичного розвитку України?). Friedrich Ebert Foundation, Regional representation in Ukraine, Belarus and Moldova. Kiev, 2005


• Yeryomenko, A. "Naftogaz Ukrayiny": Brief history in events and personalities («НАФТОГАЗ УКРАЇНИ»: КОРОТКА ІСТОРІЯ В ПОДІЯХ ТА ОСОБАХ). Mirror Weekly. 23 May 2003.


• Yeryomenko, A. Bohdan Klyuk: We consume gas as if to spite our enemies (Богдан КЛЮК: «У НАС ГАЗ ПОТРЕБЛЯЮТ, СЛОВНО НАЗЛО ВРАГАМ»). Mirror Weekly. 15 August 1997.


• 
  An off-shore company will help Naftogas to restructure its debt (Офшор допоможе "Нафтогазу" реструктурувати борги). Асоціація «Газові трейдери України») (original source: Naftogas will restructure its debts through an off-shore company ("Нафтогаз" реструктурує борги через офшор?). Ukrayinska Pravda (Ekonomichna Pravda). 28 July 2009