Free «Gazprom in Ukraine» Essay Sample

Ukraine has diversified its energy sources within the economy, for instance the country utilizes natural gas energy, nuclear power, oil energy, and renewable energy sources such as solar energy, wind energy, biogas, and hydro electric power. This is because Ukraine is among the largest energy consumers in Europe with an estimate percentage of 8.91 percent energy consumption. Zaporozhe Nuclear Power Plant is the Europe's largest nuclear power plant which is located in Ukraine and it has a net capacity of 5718 MW. The government of Ukraine has a plan to establish eleven new nuclear reactors by 2030, which can possibly double the current capacity of nuclear power. Currently, Ukraine has got four operational nuclear power plants all of which having a combined capacity of 12.8 Giga Watts and this accounts for roughly 24 percent of Ukraine's aggregate power generating capacity. The nuclear energy accounts for 16.5 percent of primary energy demand in Ukraine (Fitzpatrick 140). After many years of decline, the oil and gas industry has now started to gain stability. Due to the National Program for Oil and Gas in Ukraine, developments are scheduled in the following major areas: increased developmental drilling; increased geological research as well as exploration drilling; and stabilization as well as steady increase of gas, condensate, and oil production. These areas have provided very important opportunities toward foreign investment, with specific concern to exploration and provision of most advanced technology, services and products to bring about increased production. For instance, they have used their technology for horizontal drilling and reservoir management. The pipeline products and services are of great interest to those who take part in operating the huge gas and oil pipeline networks. Oil consumption in Ukraine constitutes 12.5 percent share of primary energy demand (Swain 57).Ukraine has been proved to have 395 million barrels of oil reserves, most of which are found in the Dnipro-Donets basin within the eastern region of the country. It is now that the pace of exploration is picking up. In particular, in the Sea of Azov which is one of the sectors in Ukraine, oil production has been very low from the time of independence. It is clear from statistical figures that oil production has been decline over time. In the year 1992 Ukraine produced 95,000 barrels every day while in both 2000 and 2001 the oil produced per day was 84,000 barrels. It is evident from the figures that Ukraine can not depend on her oil production only to satisfy the county's economic needs but has to depend highly on the imports from foreign countries. The available domestic oil is seen to satisfy only 25 percent of the domestic needs within the country. Most of the oil imports are from Russia, but Ukraine also imports lesser amounts from Kazakhstan. Ukraine has got a highly developed system of oil pipeline and it plays a significant role as a transit nation for the Russian oil exports to European countries. For instance Druzhba pipeline from Russia transits the country en route to Hungary, Slovakia, and to Western Europe. Ukraine is very fortunate with regard to its geographical location such that it has an excellent chance to play a significant role in ensuring increased oil exports from Kazakhstan and Azerbarbaijan to oil markets in Europe. Rather than attempting to import Caspian Sea region oil for mere domestic consumption, Ukraine is wishing to gather tariffs for Caspian oil that is transiting her territory heading westwards (Halbouty 75).

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Ukraine's natural gas reserves are approximately 40 trillion cubic feet, from which an approximate of 0.68 trillion cubic feet was produced in the year 2004 and this is the year when the country consumed natural gas amounting to 3.1 trillion cubic feet, making Ukraine the largest natural gas net importer among the countries within the Former Soviet Union. In the world, Ukraine becomes the sixth largest natural gas consumer as it consumes more gas than the combination of Slovakia, Poland, Hungary, and Czech Republic. Ukraine plays a very important role as an intermediary to the world energy markets since it connects Russia, which is the largest natural gas producer in the world, with growing markets in Europe. As the natural gas exports from the Caspian to Russia and Europe grow, Ukraine acts as the largest market for the natural gas. Approximately, 93 percent of natural gas imports in Ukraine are re-exported to the world markets. In January 2006, the dependency of Europe on natural gas exports from Russia brought about a worldwide attention when a longstanding conflict over payment mechanisms and price in the in-kind agreements resulted into Gazprom shutting off the gas supplies to Ukraine. Because of this, the gas supplies to Europe were affected as well. Due to the threat of natural gas cutoff, Russia has demanded higher prices of natural gas in the recent years, but this was the first time when a supply interruption impacted the flows to Europe. In Ukraine, gas is the dominant fuel and it constitutes 37.6 percent share of primary energy demand (Halbouty 73).Ukraine has a state support program for the development of renewable energy sources as well as small hydro-electricity power plants. It has been found that the target set for the renewable energy output in the year 2010 is 10 percent. In 1996, wind generated energy was declared as a national priority by the president of Ukraine. The established target was 200 MW of energy in the year 2010. Ukraine has an average technical latent for solar energy. Solar radiation incidence increases in the direction of northwest to southeast. The highest potential for solar radiation is experienced on the Crimean peninsula. So far, the development of hot water heating using solar has been emphasized. Hydro electric power has met 7 percent of energy demand in Ukraine. On the Tisa River is a 220 MW hydro project. The biomass potential has been found to be 4.0 million ton and this constitutes straw, lumber mill waste, and livestock manure. Greatest concern has been put on livestock manure as the raw material for biogas power generation. Ukraine has substantial geothermal resources and these are usually used for heat supply. The total established capacity of the thermal systems amounts to 13 MWth but plans have been put in place to increase this energy to 250 MWth by the year 2010. The abandoned gas and oil fields are used for the establishment of geothermal plants (Evans 440).Gazprom is a giant energy company among other large companies in Europe and in the whole world. The major business lines of Gazprom are the hydrocarbons' geological exploration, its production, transportation, storage, processing, and marketing of the products as well as generating and marketing heat and electricity. The mission of Gazprom is to ensure that there is a balanced and efficient gas supply to the customers of Russia as well as to reliably accomplish long-run gas export contracts. It is true that Gazprom is pursuing the strategic objective to be a leader among the world's energy companies. The lanterns of natural gas were first lit in Russia back in 1819. The "big gas" history in the Soviet Union started in 1946 after the Saratov - Moscow gas trunk line was commissioned. It was until 1989 when the Concern of Gazprom State Gas was established as it was founded by the USSR Gas Industry Ministry. The Concern set the foundation for establishing Gazprom Russian Joint Stock Company in 1993. In 1998 it was renamed as Gazprom Open Joint Stock Company. This company has got registered trademarks both in Russia and overseas, with the privilege to use them controlled by Gazprom (Stern 84).

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Gazprom's ownership structureGazprom has got numerous shareholders totaling to about 460,000. The state is the major shareholder of Gazprom Company having 51 percent of the total shares. The Russian legal entities own 36.81 percent of the shares while the non-resident entities own 11.50 percent of the total shares. Gazprom is controlled though not completely owned by Kremlin. It is therefore evident that the ownership structure of Gazprom is S2 which is state owned without control. In the year 2005 the majority state ownership was strongly established as the state bought another 10 percent through Rosneftegaz which is a majority state-owned company (Stern 85).Gazprom's projects in UkraineThis is the Gazprom's gas pipeline project whose construction started in the year 1995. It is constructed from the Urengoy field which is in the Western Siberia up to the town of Torzhok. This town serves as one of the major points of the Unified Gas Supply System. This gas pipeline will be a decisive element of the functional gas transmission system that passes from Urengoy to Torzhok. After its completion, the gas pipeline system will enable to advance gas supply capacities to the Northwestern region of Russia's consumers as well as securing gas export through the Yamal-Europe gas pipeline. Gazprom's strategy of implementing this pipeline project, is to increase the volumes of gas production. Promising fields are to be developed so that to upgrade gas production, gas transmission, gas processing and its storage capacities. Specifically, the gas transmission hub expansion of Urengoy and the SRTO - Torzhok gas trunk line construction are meant to withdraw extra volumes of gas from the Nadym - Pur - Taz region. The technical features of the gas pipeline project are that, the gas pipeline length is 2,200 km and the capacity of its design varies from 20.5 to 28.5 bcmpa at various sections. In the year 2006, the linear section if the gas pipeline as well as the four compressor stations were amply commissioned. The total number of the compressor stations planned is 13. Three compressor stations were commissioned in 2007. Another two compressor stations are planned to be commissioned in 2008. The pipeline facilities are thought to be complete in 2011 (Stern 45).Pochinki - GryazovetsIt is the gas pipeline project that will run over the Vladimir, Nizhny Novgorod, Ivanovo, Vologda Oblasts and Yaroslavl. The 1,420 - millimeter pipeline will be operated at the pressure of 7.4 MPa. This pipeline will stretch roughly 650 kilometers and deliver 36 billion cubic meters annually at full output. The gas pipeline will include up to six compressor stations having the total capacity of 580 MW to be place on-stream as required. The Pochinki - Gryazovets gas pipeline is planned to improve the flexibility and reliability of the Unified Gas Supply System of Russia in the Central and Northwestern regions on the country. The Pochinki - Gryazovets gas pipeline, initially will secure extra gas supplies to the Northwestern region and deliver gas to Nord Stream. When the natural gas supplies from Yamal are started, this pipeline will be exchanged to reverse the flow such that the gas will be diverted to the Central region. The construction of this gas pipeline project was set up in September 2007. It is planned to be commissioned in 2011.Bovanenkovo - Ukhta and Ukhta - TorzhokThe management committee of Gazprom ordered to establish the investment stage of the Bovanenkovo field development as well as the construction of trunk line transport system. From the year 2007, the activities that were intended to construct the Bovanenkovo - Ukhta gas trunk lines system facilities have been continuing in the Republic of Komi. In August, the year 2008 Gazprom established the construction of the most complex section along the gas trunk line system that is a submerged crossing through the Baidarata Bay. Celebrations were held on December 3, 2008 committed to the establishment of the construction as well as the welding of the first joint along the Bovanenkovo - Ukhta gas trunk line system.The Gazprom Management Committee discovered theYamal Peninsula in January 2002 as a region of the Company's strategic concern. The Yamal fields' commercial development will enhance the development of the local gas production to 250 bcmpa. The significance of accessing Yamal is to ensure the growth of gas production. The predominant development target on Yamal is the Bovanenkovo field's Cenomania-Aptian deposits. So that to channel gas from the Bovanenkovo field with anticipated production of 115 bcmpa, it is scheduled to build a multi-line gas transmission system that would link the central Russia and Yamal Peninsula. The construction of the pipeline envisages applying 1,420 mm pipes planned for an elevated pressure against the one of the existing gas pipelines. The Bovanenkovo - Ukhta gas trunk line is planned to be commissioned in the 3rd quarter of 2012.The Shtokman gas and condensate field were exposed in 1988. This field is found in the central part of the Russian sector of the Barents Sea shelf that is about 600 kilometers northeast of Murmansk, where local sea depths range from 320 to 340 meters. The Shtokman development project predicts to be producing some 70 bcm of natural gas per annum, and this can be compared to the yearly gas throughput of Norway which is one of the largest gases suppliers in Europe. The field production will be successful if specialized support vessels and deep water production can be performed. The feedstock that is produced will be delivered through offshore pipelines to the coast of the Teriberka Bay, where a technological complex and port transportation, LGN plant, a comprehensive gas treatment unit as well as other facilities of production will be located. It is planned to construct the Murmank - Volkhov gas pipeline to supply natural gas to the Russia's Unified supply System (Evans 423). The phase 1 of the field development introspects of producing 23.7 billion cubic meters of natural gas every year. The final investment decision on pipeline gas production is planned to become operational in March 2011as well as the decision on LNG production which constitutes Phase 2 before the end of 2011. That approach will enable to establish LNG and pipeline gas production in 2016 and 2017 (Evans 418). Gazprom has found the Shtokman gas and condensate field management to be of strategic significance. Due to this, the field will become a resource foundation for export of Russian pipeline gas and liquefied natural gas to the markets of Atlantic Basin. In July 2007, Total and Gazprom put their signatures on the Framework Agreement regarding the key terms and conditions of cooperation when building up Phase 1 which constitutes condensate field and Shtokman gas. Similar agreement between StatoilHydro and Gazprom was signed in October 2007. Substantial assistance to the project will be offered by the pursuant of the Russian Federation Navy as well as the Murmansk Oblast administration to the Cooperation Agreements with Gazprom signed in November 2005. In October 2006 the year long public discussions of the project in the Murmansk and Leningrad Oblasts, as well as the republic of Karelia were seen successfully completed (Evans 420).In 2008, Gazprom, Total, and StatoilHydro signed the Agreement of Shareholder to establish the special-purpose company Shtokman Development AG. Gazprom has a 51 percent stake in the company, while Statoil and Total - a 24 and a 25 percent stakes accordingly. The Phase 1 infrastructure of the Shtokman gas and condensate field will be owned by Shtokman Development AG for 25 years right from the date of field commissioning. The relationships between the peculiar-purpose Company and Gazprom neft shelf should be grounded on the contract specifying that Shtokman Development AG will bear all the technical, geological, and financial dangers that are linked with gas and condensate extraction, as well as production of LNG. Gazprom is 100 percent owner of Gazprom neft shelf and holds all the rights to sell the products (Evans 424).

By now, Shtokman Development AG has established an integrated basic project concerning the whole process chain from well drilling to the final products such as pipeline, liquefied natural gas and condensate, delivery to the owner of the license for trading at sales markets. A rigorous engineering survey has been executed, front-end engineering as well as the design (FEED) documents have been built up due to international and Russian standards and a package of project specifications has been made ready. The project risks have been evaluated and the ways of extenuating them have been detailed. The review of state experts for the offshore amenities has been completed. The work is underway to optimize technical solutions and to elevate economic practicality of the project (Aslund 200). The Vyborg Shipbuilding Plant setup the construction of two semi-submersible drilling rigs (SSDR) to drill production wells within the Shtokman field in 2008. By the first quarter of 2010, the first SSDR will be ready while the second one will be ready in the first quarter of 2011. In phase 2 and 3 of the Shtokman project dobycha shelf is preparing for the comprehensive offshore engineering survey to be executed within the Teriberka Bay for the summer periods as from the year 2010 to the year 2011 so that to build up the process ofIn 2006, the Federal Nature Management Supervision service allowed the approval of the state environmental expertness on the Phase 1 investment rationale of the Shtokman field improvement covering liquefied natural gas production as well as sea-borne transportation.There are many requirements that are used to ensure that the Shtokman field development project is successfully executed, they include plenteous gas reserves provide adequate long-term supply; an opportunity to broaden supplies by parallel pipeline and liquefied natural gas shipments to USA and Europe through different routes regarding the market situation; conducive feedstock composition allows reducing gas treatment and separation costs; a chance to substantially expand gas production according to the market situation; the low regional temperature saves energy costs of the gas liquefaction process; since there is no transit nations alongside the delivery route of natural gas from the Shtokman field to Germany brings about the project competitiveness hence higher profits; availability of an improved infrastructure on the Kola Peninsula hence creation of a friendly environment for the execution of the project; comparatively short distances from feedstock base to sales market makes Russia LNG competitive; and absence of permafrost and ice is a great advantage of the Shtokman field development as compared to other Arctic fields (Aslund 208). Murmansk - VolkhovThe Murmansk - Volkhov gas pipeline will enhance the delivery of gas from the Shtokman field to the consumers of the gas in the northwestern Russia as well as to export the gas through the North Stream Project. The designed capacity of the Murmansk - Volkhov gas pipeline which is 1,365 km long will account for 28 -50 bcm hinging on production volumes. This gas pipeline project was commissioned to be complete in 2013 (Aslund 210).South Stream ProjectSouth Stream is a proposed Gazprom's project that is supposed to be established in Ukraine. The 900 kilometer seabed section of the South Stream is planned to cross the exclusive economic zone of Ukraine for most of its total length, and a small part the economic zone of Romania. Both countries will obtain potentially significant leverage due to this project. This project is particularly planned to bypass Ukraine such that the share of the Russian-delivered gas to Europe through Ukrainian pipelines can be reduced. By the time this project is built it would enable Gazprom to assume the decisive infrastructure in Europe; monopolize markets in southeastern and central Europe and at the same time expanding the market share of Gazprom in the countries of West Europe; and set the stage for the continued dominance of Gazprom in Europe by control of transport (Evans 423).Merging Gazprom with NaftogazIn April 2010, Vladimir Putin, the prime minister of Russia offered Ukrain a Gazprom and Naftagaz merger as a way to do investment in the modernization of the gas transit system of Ukraine. Yanukovych refuted the proposal by saying it could be possible only if both companies exchanged equal percentages of their stocks, that is, 50 percent of their stocks. Otherwise it could be irrational since Gazprom's enormous size can not be compared with that of Naftagaz (Evans 453). Energy and politicsIt has been seen that the current policies of the Government of Russia, under the Prime Minister Vladimir Putin, introduces a substantial challenge to the development of the democratic governments that are transparent as well as free markets in the countries that depend on Russia for energy resources. In the past years, the Kremlin progressively used its energy monopoly to determine policies within the neighboring countries of Latvia, Poland, Estonia, and Ukraine (Evans 442).


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