Ukraine Opening Its Energy Market To The U.S.

Kenneth Rapoza

Wellp, it was inevitable, right? The U.S. is making inroads into Ukraine’s energy sector, judging by talks this week in Washington.

Representatives from Ukrainian natural gas company Naftogaz participated in the first U.S.-Ukrainian Business Forum on Monday. Andriy Kobolyev, Naftogaz’s CEO, met with U.S. business leaders, government officials and international financial institutions to discuss Ukraine’s natural gas market and the prospects for future investment.

Naftogaz has long been a partner of Russian state controlled behemoth Gazprom. But the two are going through a bitter divorce. The two countries have been locking horns for over a year and a half now, putting the U.S. and E.U. in the middle as peace brokers. While Gazprom has been a partner with Naftogaz for years, replacing it with someone else in Ukraine, or elsewhere, is probably high on its radar. Gazprom and Naftogaz are currently in pay disputes being brokered by the E.U. The two sides can barely talk to each other without a European intermediary.

The rift has created opportunities for U.S. energy companies looking to get into the lucrative European market.

Some of the reforms in the works in Ukraine that bode well for American firms include:

1. Elimination of intermediaries in gas trade, previously the primary source of corruption in Ukraine’s gas sector;
2. Strengthening the country’s energy security through diversification of gas imports away from Russia;
3. Initiation of the liberalization of domestic prices for natural gas, which paves the way to new projects in energy efficiency and increasing domestic gas production;
4. Development of a new corporate governance strategy at Naftogaz; and lastly…
5. Adoption of Ukraine’s new Gas Market Law, which is fully compliant with the E.U. Third Energy Package and makes the Ukrainian gas market more transparent.

“We’re inspired by this considerable interest in our country, and we highly appreciate US support for reforming Ukraine’s oil and gas sector. These changes make the sector attractive for western investments at each stage of the value chain, including gas production, transportation and consumption. The investments are needed to reduce Ukraine’s dependence on gas imports, create new jobs and make energy consumption in Ukraine more efficient”, Kobolyev said in a statement on Wednesday from Kyiv.

Naftogaz signed a two-year Memorandum of Understanding with Houston-based Frontera Resources, a penny stock traded OTC. Frontera and Naftogaz will conduct feasibility studies for joint exploration and development projects in Ukraine, and — of course — importing Frontera LNG out of terminals in Georgia in the American south. The company’s proven reserves of natural gas in Georgia amount to about 300 billion cubic meters.

Another U.S. company, Austin-based TrailStone, announced plans to enter the Ukrainian market this fall. Naftogaz said it welcomed TrailStone’s move. Kyiv is keen on attracting Western investment into the country through privatization programs as the country tries slipping away from Russia’s sphere of influence.

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