CAPITAL: KIEV
MONETARY UNIT: HRYVNIA
REFINING CAPACITY: 1,026,259 B/CD
OIL PRODUCTION: 47,700 B/D
OIL RESERVES: 395 MILLION BBL
GAS RESERVES: 39.6 TCF

The year 2000 began with the potential to have become Ukraine's first year of economic growth since it broke from the Soviet Union, said the US EIA.

From January through April 2000 the economy expanded by 5.5%, foreign trade was projected to increase by 1.7% on the calendar year, and GDP growth was forecast as high as 2% on the calendar year.

The energy sector was still considered to be in bad need of reform. Huge debts to Russia for gas and power and illegal diversions of Russian gas had strained relations and resulted in drastic action.

Russia imposed an oil blockade on Ukraine for several months in late 1999 and early 2000, and Ukraine refused to lower its tariff for oil transiting its territory towards the West. Kazakhstan began supplying about 25,000 b/d of oil to Ukraine, but high oil prices enticed some Russian exporters to sell elsewhere oil formerly shipped to Ukraine. Ukraine was seeking other gas suppliers.

Ukraine's parliament, wanting to turn the country into an attractive transit point for Caspian Sea oil, approved construction in 1995 of an 800,000 b/d terminal at Yuzhny near Odessa. The unbuilt terminal's cost estimate had grown to $1.3 billion from $790 million.

Upstream developments

Ukraine wanted to stem declines in its oil and gas production, and higher commodity prices led to several agreements during the year.

Regal Petroleum Ltd., London, and M.L. Cass Petroleum Corp., Calgary, planned to merge and further develop three gas and condensate fields near Chernigiv in the Dnieper-Donets basin 200 km east of Kiev. The fields were producing 7 MMcfd from five wells and were certified with proved and probable reserves of 906 bcf of gas and 52.2 million bbl of condensate.

Conel, Romania's national electricity company, had agreed to take the gas. The firms were to deliver as much as 75 MMcfd of gas in summer and 140 MMcfd in winter.

EuroGas Inc. and ZahidUkrGeologia drilled Taihilivske-1, Ukraine's first coalbed methane well, to 830 m on a 150 sq km concession covering the Volyn coal field near the Polish border. EuroGas said the well found indications of gas from two coal seams and associated sandstones.

Ukrainian officials said they would soon begin developing what were considered to be vast gas resources along the shelf of the Black Sea and Sea of Azov.

Bellwether Exploration Co., Houston, acquired majority interest in Carpatsky Petroleum Inc. in December 1999 with rights to 1-2 tcf of gas in the Ukraine's largest gas basin. Bellwether said legal, financial, and operational issues prevented the project from being economically viable. The company considered the venture a long-term project.

Essex Resource Corp., Vancouver, decided not to exercise its option to acquire a 12% working interest in the Tatyanovskoe and Oktyabrskoe licenses in the Autonomous Republic of Crimea, Ukraine. Essex said it wanted to focus on its Hassi Bir Rekaiz play in Algeria.

Processing activity

After several unsuccessful attempts, Ukraine began to auction stakes in its refineries.

Lukoil unit Luk Sintez Oil bought 25% more of the 56,000 b/d Odessa refinery through a stock swap valued at $2.5 million, bringing its stake to 76.9%. Luk Sintez paid about $6 million for 51.9%

of the refinery in 1999, promising to revamp it and supply it with 48,000 b/d of crude oil.

Tyumen Oil Co., Moscow, at midyear paid $9.76 million to acquire a 67.41% interest in the formerly state-owned 320,000 b/d Lisichansk (Linos) refinery in eastern Ukraine. The agreement would expand the lubricant marketing region of its partner Texaco Inc. to Ukraine.

Tyumen and Texaco expanded their relationship to include commodity risk management. They jointly marketed Texaco-branded imported lubricants and Tyumen and Texaco-branded lubricants produced and blended at the Ryazan refinery 120 miles southeast of Moscow.

Tyumen planned to modernize and expand the refinery, its first outside Russia, during 5 years. It planned to set up a sales and distribution network for Linos's products, including gasoline, diesel, fuel oil, polypropylene, ethylene, and other chemicals. It also was to sell lubricants in Ukraine through a joint venture with Texaco.

Gasoline marketing in western Ukraine was expected to benefit starting in late 2000 from a downstream alliance between Hungary's MOL Rt. and Slovakia's Slovnaft AS. Slovnaft was operating two service stations there and planned to construct more.

Transportation

The government planned to end the state petroleum company's monopoly in gas purchases, transportation, and sales.

The government was working on a gas market concept under which the right to trade gas with all users in a region would be awarded in a tender and participants would have to produce property guarantees. Municipal and regional gas-transporting agencies as well as commercial companies were to be allowed to take part.

An official said that gas transportation would be unbundled from sales and that if a company providing gas failed to collect fees it would lose the right to sell gas in the particular region and, if necessary, be held accountable with its property.

The plan was a reaction to the state oil company's inability to organize an effective system of gas supplies and collection of fees for delivered gas.