• Institutional changes currently taking place in Ukraine are crucial for the further operation of the household gas market segment. The Law "On Natural Gas Market" has clarified that the functions of distribution and sale of gas by distribution network operators and gas supply companies must be separated.

    From 1 July 2015, in addition to distribution systems operators ("oblgazes"), retail suppliers were established. Previously the oblgazes provided both distribution and supply services to end consumers.

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    As of 31 December 2015, over 13 million households in Ukraine used gas (excl. Crimea and Sevastopol)

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    The separation of the gas supply from transmission services and free market pricing are the two mandatory prerequisites to create conditions for a free competition in the gas supply market for household consumers.

    Today, share of Naftogaz in both distribution and retail supply markets is negligible. The only enterprise in this segment consolidated in the financial statements of the Naftogaz group is Kirovohradgaz, where Naftogaz owns 51% of shares. The share of this company in the gas distribution market is less than 1%.

    In supplying to end users, Naftogaz caters directly to the following categories of consumers:

    1. District heating companies (DHCs) and combined heat and power (CHP) plants:

    • for the production of heat for households and religious organizations (regulated);

    • for the production of heat for budget and other organizations (non-regulated).

    2. To industrial enterprises and CHP plants for electricity generation.

    3. To gas transmission and distribution operators to satisfy their operating needs and cover imbalances.

    Furthermore, Naftogaz sells gas in the wholesale market to retail suppliers that further sell gas to:

    • households;

    • public sector enterprises;

    • religious organizations;

    • certain industrial enterprises and DHCs.


    HOUSEHOLD CONSUMER SEGMENT

    The retail sale of gas to household consumers is one of the regulated segments of the Ukrainian gas value chain. Throughout 2015 and 2016, retail margins were regulated by the state, but from April 2017 the market is expected to be liberalized. Retail market of gas supply to households should become free and attractive for new players.

    Households by type of gas consumptionNaftogaz is considering entering the market for retail supply in the future.

    Household consumers can be grouped in different categories depending on their use of natural gas.

    Category 1: integrated use (heating, water heating and cooking): 7.5 million households (57% of all household customers). This first category accounts for 91% of total gas consumption by households in Ukraine.

    Category 2: water heating and cooking only: 1.1 million households (9% of household customers and 3% of gas use in the consumer segment). The category receives centralized heating services from DHCs and CHPs.

    Category 3: cooking only: 4.5 million households (34% of residential customers and 6% of gas use in the segment). These households typically receive hot water and heating from DHCs or CHPs.

    DHCs and CHPs providing thermal energy to households (hot water and central heating supply) are a major gas consumer in the household market segment. These companies cover the heating needs of 40% of Ukrainian households. In 2015, centralized heat producers accounted for 17.5% of total gas consumption in Ukraine, or 5.9 bcm.

    The relative reduction in gas demand by centralized heat producers during 2014-2015 was lower compared to the demand decrease from households.

    This fact may be explained by the double influence of lower growth in real prices for heating compared to other types of gas consumption, and the very limited ability of consumers to measure and control the amount of heat they receive.

    LIQUEFIED PETROLEUM GAS (LPG)

    Households whose apartments are not connected to gas distribution networks and/or not connected to the centralized heating use liquefied petroleum gas (LPG) as their energy resource. In 2014, approximately 13% of Ukrainian residential consumers used LPG for their homes.

    In addition, LPG is also gaining popularity as a motor fuel. In 2015, the share of LPG accounted for almost a quarter in total consumption of motor fuel in Ukraine.

    The largest producer of LPG in Ukraine is Naftogaz subsidiary UGV. In 2015, the company produced 172 thousand tons of liquefied gas. Total LPG consumption in Ukraine reached 1.1 million tons.


    COMPRESSED NATURAL GAS (CNG)

    Ukravtogaz, a 100% subsidiary of Naftogaz, produces compressed natural gas (CNG) and sells it through its network of 90 CNG filling stations throughout Ukraine.

    Their total capacity amounts to 687.5 mcm. Nine stations are located in areas currently not controlled by the government of Ukraine.

    Ukravtogaz supplies about a third of the compressed natural gas sold in Ukraine. In 2015, the company sold 65.3 mcm of CNG as motor fuel, 32.9% less than in 2014. This decline in sales was caused primarily by a contraction of the CNG market caused by the growth of natural gas prices, which is the raw material for CNG production.

    The CNG market was negatively affected by the reduction in price for petroleum products during 2015 which resulted in a decline in prices for LPG, an alternative to CNG. Ukravtogaz plans to expand its market through installation of LPG points at a number of existing CNG stations and introducing other related services.

    ACCESS TO GAS FOR HOUSEHOLDS AND GAS METERING

    ACCESS TO GAS FOR HOUSEHOLDS AND GAS METERING

     

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