Naftogaz weights up war's impact on operations: interview
We discuss the impact of Russia's invasion of Ukraine on the operations of Ukrainian state natural gas supplier Naftogaz with Myron Wasylyk, the advisor to the company's CEO.
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Q: In figures, to what extent has the fighting impacted Naftogaz’s production operations?
A: Damage to infrastructure (direct bombing of distal gas gathering processing sites), damage to the electric grid, and direct threats to our employees near the presence of Russian military aggression has led to a 5% drop in gas production at Naftogaz's UkrGazVydobuvannya (UGV) subsidiary, versus the level at the start of the war. Many private producers shut down their production facilities to mitigate damage to high pressure vessels and gas processing equipment. Ukraine’s domestic gas production is down roughly 10% compared to pre-war levels (from 55.8 to 50.3mn m3/day). Shortly after the Russian invasion, domestic gas production was down by 15%, but has since recovered slightly.
Q: What specific fields and facilities have been affected by the fighting?
A: As a precaution, we have shut in gathering stations that are located close to Donbas, and in close proximity to the invasion front line. These fields are fortunately not our most productive, hence the relatively low impact on company-wide production. However, the fighting is getting much closer to the largest production sites and the impact will be significant.
Q: Naftogaz does not directly oversee gas transit now, but in general what risk does the Russian invasion pose to gas transport to Ukrainian consumers and gas transit to Europe?
A: With regard to our domestic gas pipeline infrastructure, after the first week of Russia’s invasion of Ukraine, Russian troops quickly turned to bombing and shelling infrastructure such as schools, hospitals, ports, roads, apartment buildings, nuclear power plants and our gas distribution network. Shelling local gas distribution networks to cities and villages is creating a huge humanitarian crisis. Almost every day around the country we are repairing part of the domestic gas pipeline to keep homes heated. Because of Russian military shelling, some gas treatment plants have been temporarily shut down. The majority of them have not been damaged.
Unfortunately, these actions have resulted in the loss of life and we regret to inform that several employees have died from bullet wounds and from shelling of our oil, gas and combined heat and power stations (CHPS). Our employees at the Kherson combined heat and power (CHP) station were held hostage inside their premises. The Russian army is deliberately shelling the energy infrastructure in many cities, and the Severodonetsk CHP has been almost destroyed, leaving the city without the heat.
In regions close to the theatre of military actions, we have been forced to suspend drilling of new wells and service operations.
Internationally, with regard to Russian gas flowing through Ukraine’s gas transmission system, Gazprom increased its transit on the day of the invasion from 60mn m3/d to 109mn m3/d, which has remained unchanged during the duration of the war. Naftogaz is not the operator of this system, but has no intention to slow down the flow to Europe. Russia is well aware of the international transit facilities and avoids shelling them, and in some cases even uses those facilities as shields from Ukrainian military forces.
Q: What is the threat to European energy security that Moscow’s actions pose and what lessons should Europe learn from the crisis?
A: The threat to Europe is that Russia uses its gas, oil and other energy commodities as leverage for achieving the Kremlin’s geopolitical objectives. The growth in dependence of the EU and individual Member States on Russian energy exports has been admitted by the European Commission and steps are being planned to curtail that dependence. The EU is also looking into increasing significantly the minimum storage levels of natural gas to prevent exposure to Russian decreased exports. The Ukrainian point of view, which is shared by several East European countries, is that alternative sources of energy are needed to mitigate against aggressive Russian military and hybrid activities.
Q: Are there any other points you would like to make?
A: The international community has begun the imposition of “war time” sanctions against Russia for its invasion on Ukraine, which is a violation of international law. The first steps have been taken, however, additional steps are required to increase the economic pain against the Kremlin war machine. Recognising Russia as a “state sponsor of terrorism” should be adopted by Western countries. Next, Western governments should move forward on introducing escrow accounts for the proceeds from the sale of Russian oil, natural gas and other commodities until the Kremlin withdraws its military troops from Ukrainian soil and ceases air raids and the bombing of Ukrainian cities. If and when Russia complies with international law, the escrow accounts would be used to compensate for war-time losses to the Ukrainian economy. Concurrently, the EU and the US should sanction the Nord Stream 1 pipeline, and force Gazprom to end its monopoly over eastern gas supply flows to Europe. Moving the delivery points to the eastern Ukrainian border would help increase flows of Kazakh, Turkmen and other natural gas from Central Asia.