Ukraine is offering direct access for international investors to build and operate a liquefied natural gas (LNG) terminal on the Black Sea coast enabling the import and regasification of LNG. The ‘LNG Terminal’ project is fully backed by the State in the form of guarantees for land plot allocation, issuance of necessary permits and licenses, stability within the legislative and regulatory environment pertaining to the LNG Terminal’s pricing policy as well as flexibility in the State’s share in the future investor consortium.

The ‘LNG Terminal’ project diversifies and strengthens the energy supply route from Asia to Europe. The plant will constitute an essential element of the memorandum ratified between Ukraine and Azerbaijan in September of this year. The agreement between the two countries also decrees the formation of a new Ukrainian-Azerbaijani joint company, representing the State Oil Company of the Azerbaijan Republic (SOCAR) and the State Agency for Investment and National Projects of Ukraine. The joint company will conduct a feasibility study into the delivery of liquefied gas to the Black Sea coast of Ukraine.

Completion of Phase 1 of the ‘LNG Terminal’ project in 2015 will enable processing of up 5 billion cubic metres of natural gas annually reaching a capacity of 10 billion cubic metres of natural gas per year upon the completion of Phase 2 in 2016.

Ukraine is currently one of the larger consumers of Russian gas (importing 65% of its domestic gas demand from its Eastern neighbour) as well as being its main transit route to European countries, with 80% of the EU’s Russian gas imports passing through Ukraine. LNG will provide an appreciably cheaper alternative to the Russian gas used for consumption in Ukraine; other countries that are looking to receive Caspian gas through the LNG Terminal will also eventually benefit from this LNG delivery system.

The LNG Terminal project is guaranteed by the State and forms an essential element of a broader strategy to encourage long-term cooperation with investors on projects of national importance. Designated areas of immediate priority include the diversification of energy supply including emphasis on renewable sources and critical infrastructural updates.

The State Agency for Investment and National Projects of Ukraine has been tasked with the implementation of the strategic national projects under the aegis of the President of Ukraine and with the direct support from the relevant Ministries. One of the principal objectives of the Agency is to actively attract foreign direct investment (FDI) into Ukraine. The LNG Terminal project, with required investment estimated at $1.5-2 billion, will prove instrumental in reaching the $7.5 billion FDI target set for the end of this year. This positive trend is expected to continue with the attraction of an additional $10 billion in FDI in 2012.

Vladyslav Kaskiv, Head of the State Agency for Investment and National Projects of Ukraine, noted: “Ukraine is moving forward with a resolute reform programme to increase foreign direct investment. This reform programme, developed on the principles of transparency and liberalisation on the Ukrainian investment market, allows us to offer secure and viable investment opportunities designed to the best international standards. The ‘LNG Terminal’ project, which we offer on a turn-key, one-stop-shop basis, will ensure long-term investor profitability and create conditions for greater energy security in Ukraine.”

A Spanish company, SOCOIN Ingeniería y Construcción Industrial, S.L.U., won the tender to develop the preliminary feasibility study, which will detail the technological and economic requirements for the project. The tender was announced in August and, following a transparent bidding process, five companies were short-listed for consideration.

The results of the feasibility study are expected to be released in mid-January 2012 and will include, among others, recommendations on five potential sites – currently identified as two plots in Odesa’s Pivdennyy port, two plots near Ochakiv in Mykolayiv region and the potential construction of an offshore terminal near Odesa. The study will also provide an accurate cost estimate for the entire project as well as offer an independent assessment of the payback period, currently estimated at 6 to 8 years given the projected pricing policy.

Pending the conclusion of the feasibility study, the State Agency for Investment and National Projects of Ukraine will announce a further tender early in 2012 for the selection of the construction firm.

The LNG Terminal and other investment opportunities are currently being presented in 16 of the world’s largest financial centres. A large-scale road show, started in late October of this year, is under way in cities across Europe, the United States, Asia and the Middle East.