Zelenskiy launches biomethane market in Ukraine, aims to attract international investment

Zelenskiy launches biomethane market in Ukraine, aims to attract international investment
Ukraine has officially inaugurated the biomethane market that could produce 22bcm of gas that would cover 20% of Europe's needs. / bne IntelliNews
By bne IntelliNews May 30, 2024


President Volodymyr Zelenskiy of Ukraine has officially inaugurated the biomethane market in the country, a move that could stimulate foreign investment and eventually see Ukraine exporting 22 bcm of the product to cover 20% of the EU’s needs.

With one of the largest agricultural land masses in Europe, Ukraine stands poised to become a major player in the continent's biomethane market. The country's unparalleled biomethane potential not only exceeds the annual natural gas consumption of a medium-sized European nation, but also boasts cost advantages over other EU states, wrote energy journalist Dr Aura Sabadus for the Atlantic Council.

The legislation signed into law by Zelenskiy relates to customs control and clearance of biomethane transported via pipeline across Ukraine's customs border.

Ukraine currently boasts 22 biomethane plants poised to integrate into the gas distribution network. The Gas Distribution Networks of Ukraine has already granted technical approval for the connection of plants in the Kyiv and Dnipropetrovsk regions, with approvals pending for facilities in the Khmelnytskyi and Chernihiv regions. Naftogaz Group estimates the potential connection to the gas transportation system at 7.2 bcm and through gas distribution networks at up to 2.4 bcm. Additionally, the option exists to connect biomethane plants via gas filling stations and Ukrgazvydobuvannya's infrastructure.

Currently, five biomethane refining plants are gearing up to produce and export 77mn cubic metres of biomethane this year, with an additional ten plants expected to double production by 2025. As international demand for Ukrainian biomethane grows, projections suggest a potential to cover 20% of the EU's biomethane demand by 2030, with annual output potentially reaching 22 bcm within two decades.

Despite having enacted legislation regulating biomethane production last year, Ukraine faced limitations due to wartime restrictions imposed at the outset of the war. These restrictions, intended primarily for natural gas, inadvertently affected biomethane exports, forcing many companies to halt production or delay investments.

The shift towards biomethane not only reduces Ukraine's reliance on Russian gas and coal imports but also harnesses the potential of its agricultural resources for sustainable energy production, benefitting local producers and European consumers alike.

The recent lifting of export restrictions has reignited optimism among biomethane producers, with plans to commence exports to Germany as early as May. Ukraine aims to establish EU-aligned guarantees of origin, ensuring compliance with European sustainability criteria and facilitating integration into the EU's single market. While this process may take time, Ukrainian companies can initiate exports by providing customs-agreed certificates of compliance or proofs of sustainability.

The new law is also expected to develop a burgeoning energy production sphere and its alignment with international commitments on decarbonisation. Additionally, it facilitates compliance with the Carbon Border Adjustment Mechanism (CBAM) requirements for exporting products to the European Union, thus enhancing Ukraine's export potential.

Under the provisions of the new law, biomethane transported across Ukraine's customs border will undergo the same customs control and clearance procedures as natural gas. Customs clearance of biomethane will be based on information regarding the volumes of biogas or other alternative gas sources, which can be interchanged with natural gas or their mixture during transit through the gas transport system.

Hanna Zamazeyeva, the head of the State Agency for Energy Efficiency, emphasised the need to stimulate both export and domestic trade of biomethane to reduce reliance on Russian gas and meet international obligations towards renewable energy sources. Deputy Minister of Energy Mykola Kolisnyk affirmed that the necessary technical prerequisites for biomethane production have been established in Ukraine, underscoring the imperative to attract investment to the industry.

Potential measures to attract manufacturers include offering equipment discounts through a refinancing mechanism. Naftogaz, the national energy company, has expressed readiness to support investment in expanding biomethane production and facilitating its transportation. The company also aims to procure biomethane from Ukrainian producers.

Oleksiy Lukashuk, a top manager at Naftogaz Group, underscored the ample infrastructure available to accommodate the burgeoning biomethane industry and that Ukraine's production potential surpasses annual natural gas consumption.

A month ago Naftogaz held its first Ukraine Biomethane Forum. However, the industry's success still hinges on export viability, as current regulations do not subsidise internal production. Challenges include navigating opposition from European farmers and addressing concerns over fair competition. Ukrainian and EU policymakers must find mutually beneficial solutions to integrate Ukraine into the European single market while ensuring fair competition for farmers.