Naftogaz stops stockpiling gas, starts ambitious conservation program

Ukraine’s state natural gas giant Naftogaz has stopped accumulating gas in its underground facilities for this winter season and has started tapping its stockpiles, Interfax-Ukraine reported on Nov. 3, citing CEO Andriy Kobolev. He highlighted that gas stockpiles are higher this year than in 2014 and are enough to get through the heating season smoothly.

Naftogaz also shared its plans to spend USD 3.65 bln in possible loans from the Chinese state bank, preliminary agreed in 2012, for the projects aimed at decreasing Ukraine’s dependence on imported gas. According to the company’s press release of Nov. 3, it signed a memorandum of understanding with the Kyiv city administration to construct two heat and power generating stations that will burn coal under CFB technology. The projects, which may cost USD 1.35 bln, will enable the construction of power units with total electric capacity of 820 MW and heating capacity of 1,160 MW. It will enable the Kyiv city to reduce gas consumption by about 0.6 bcm p.a., Naftogaz said. In this way, Naftogaz will initiate a new business segment of heat and power production, the press release stated. Another part of the possible Chinese loan, about USD 2 bln, could be used by Naftogaz to purchase drilling equipment for its gas production subsidiary and the substitution of gas-burning individual heating units for low-income citizens.

Alexander Paraschiy: This season’s maximum amount of natural gas stockpiles (17.06 bcm) was recorded on Oct. 29, which exceeds the last year’s peak (on Oct. 19) by just 1.8%. We believe the accumulated gas will indeed be enough for the country to get through the winter season, given that gas consumption has decreased radically as compared to last year. In particular, domestic gas consumption decreased 20% yoy in 9M15 and 25% yoy in September 2015.

The Naftogaz initiatives to invest in the projects aimed at decreasing gas consumption are clearly positive as they will enable reducing overall energy use in Ukraine. However, the construction of power units with a fuel alternative to gas should be also accompanied by an increased resource base for the alternative fuel. Recall, coal production in Ukraine was cut in half this year, as most of the nation’s coal deposits are located on the occupied territories of Donbas. For that reason, Ukraine has become a pure importer of coal. Other key questions are how will the permanently insolvent Naftogaz secure a multibillion loan from abroad and why should a state-controlled holding, which by definition cannot be efficient in Ukraine, enter new business segments.

If fulfilled, Naftogaz’s investment initiatives with the Kyiv city government could affect negatively DTEK (DTEKUA), we believe. Currently, the heat and power generating stations at which Naftogaz is planning its construction projects are being leased by Kyivenergo of DTEK from the Kyiv city government.

Источник: Конкорд Капитал