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The never-ending collapse. The state of the Ukrainian oil sector

OSW Report
2017-05-04

The oil industry does not play a major role in the Ukrainian energy sector and has smaller economic and political significance than the gas, coal and nuclear sectors. The issues linked to the Ukrainian fuel sector are rarely given publicity in the mass media. Meanwhile, a comprehensive analysis reveals that there has been a painful and durable collapse in this strategic branch of the economy. What once was a powerful Ukrainian refining sector has been plunged into deep crisis for years. Only one out of the six existing refineries is currently in operation, using only a small section of its production capacity. For years all the refining companies have suffered from underinvestment, have not been modernised and have been unable to produce fuels in the quantities and at the quality required by the market. Another problem that has remained unresolved for years is the supply of crude oil to be processed. As a result, Ukrainian refineries are the most outdated in Europe, and the oil processing output in Ukraine has reached a record-low level of around 2.5 million tonnes annually. At the same time, the market share of imported fuels over the past few years has reached 80–85% of total consumption. A significant part of the imports originates from Russia. It is difficult to expect that the situation in the Ukrainian fuel sector will improve to a significant degree in the coming years. Its condition is also a good case study laying bare the numerous weaknesses of the Ukrainian state. 

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The never-ending collapse. The state of the Ukrainian oil sector