Ukraine’s largest oil and gas producing company hopes to end the country’s reliance on petroleum imports — and wants Canadian businesses to pitch in.
Ukrnafta executive vice-president Denys Kudin is in Canada this week in between stops in Vienna, Washington D.C. and Houston, courting investors willing to help the country rejuvenate its mature oil fields.
“We believe that it’s not only a good thing to do, but it’s also something that can bring you some commercial reward,” said Kudin, speaking to CBC News on the sidelines of this week’s Global Energy Show in Calgary.
On stage and in private conversations, he’s pitching it as an opportunity to get in on the ground floor of a promising oil market while helping Ukraine achieve energy independence — a long-held goal that’s become more urgent amid the country’s war with Russia.
But Kudin faces the challenge of convincing investors to put up money for development in a country at war, at a time when climate concerns have made oilpatch investment a tougher sell around the globe.
Energy independence
Despite having its own hydrocarbon reserves and a century-long history of oil and gas production, Ukraine still relies heavily on imports of these products from other countries.
At the outset of the war, Kudin said the country was importing the bulk of its oil from Russia, Belarus and, to some degree, Poland, and has since scrambled to find new supply chains.
“In one day we had to change logistics from east to west, and it was very challenging because the infrastructure was not ready,” said Kudin, who was formerly Ukraine’s first deputy minister of economy.
“As the short-term solution we found to bring diesel and petrol by cars, which puts a huge premium on the price and that’s all on the shoulders of the customers.”
Years-long conflict in the Donbas region has also severely curtailed Ukraine’s coal production and transportation. All of this means the country is in the urgent position of needing to ramp up its domestic energy production.
For Ukrnafta, which was taken over by Ukraine’s government last fall under wartime law, a key part of that plan is to redevelop 20 mature oil brownfields in the country’s west and north-east. These fields are currently out of operation but still have large oil reserves, Kudin said.
Kudin contends they’re also far enough away from the active conflict zone to be a safe place to invest. The immediate goal of the project would be to use the oil within Ukraine, rather than exporting it abroad.
The project is expected to cost $1 billion US in capital investment a year, he said. Ukrnafta has raised about $250 million US so far, but needs partners to help fill in the gap.
“We believe Alberta to be the oil and gas capital of Canada, so we believe that this is the most appropriate place to visit, and we’re happy to say that Canadian companies are quite favourable to our offer now,” said Kudin.
Beyond the dollars and cents, Zenon Potichny, with the Canada-Ukraine Chamber of Commerce, said there’s a moral argument for investment.
“Absolutely companies will not go [in] if they know 100 per cent they’re going to lose money,” he said.
“But I mean, if you’re making 10 per cent or eight per cent or six per cent, it might not be a huge difference if you’re also helping the country that is fighting for democracy, for freedom of the whole world.”
Conflict, public perception carry risk
Still, investing in a country at war does carry a risk, says Philippe Le Billon, a professor in the University of British Columbia’s school of public policy and global affairs.
Even if development falls outside the current conflict zone, there is still a chance that oil projects could become targets for drones and missile strikes, he said.
There’s also a public relations danger.
While some might see investment in Ukraine as a contribution to its defense against Russia, others might view it as adding fuel to the war or unfairly profiting off the conflict.
“Even if [Ukraine is] actually actively pursuing investments, we know that they’re not in the best position for negotiating the terms of those investments,” said Le Billon, who is also the author of Wars of Plunder: Conflicts, Profits and the Politics of Resources.
“It’s all open to interpretation.”
For prospective investors, securing financing and insurance could be another hurdle.
As of January, Export Development Canada — a financial Crown corporation that provides Canadian companies with commercial loans, equity and insurance — no longer provides new direct financing to the “unabated international fossil fuel [sector],” a spokesperson said.
This is in line with the federal government’s target to reach net-zero emissions by 2050, announced by Prime Minister Justin Trudeau at the COP26 summit in Glasgow.
While the word “unabated” leaves some potential wiggle room, depending on the specifics of the project, Le Billon said that policy doesn’t bode well.
“I would not [rule] it out, but certainly climate change concern adds one more hurdle to attracting foreign direct investments into oil and gas within Ukraine,” said Le Billon.
“It’s not a sexy project for them, for sure,” he said.
Hope for Canadian support
Kudin, for his part, believes that refitting the Ukraine oilfields — currently running on decades-old equipment — with modern technology will itself help reduce carbon emissions from oil and gas production.
He also hopes EDC might consider giving a waiver to companies wishing to purchase risk insurance for projects in Ukraine, given the current political situation.
For now, he continues his global tour, which includes stops in Italy, the Czech Republic and culminates in London next week for the international Ukraine Recovery Conference.
Still, he’s holding out hope for Canadian companies.
“We know that Ukrainian diaspora is active in Canada and that we hope that those ancestor roots will help us reach our goal,” he said.
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