Incentives for methane mitigation and energy-efficiency improvements in the case of Ukraine's natural gas transmission system



Reducing methane losses is a concern for climate change policy and energy policy. The energy sector is the major source of anthropogenic methane emissions into the atmosphere in Ukraine. Reducing methane emissions and avoiding combustion can be very cost-effective, but various barriers prevent such energy-efficiency measures from taking place. To date, few examples of industry-wide improvements exist. One example of substantial investments into upgrading natural gas transmission system comes from Ukraine's natural gas transmission company, Ukrtransgaz. The company's investments into system upgrades, along with a 34% fall in throughput, resulted in reduction of Ukrtransgaz system's own consumption of natural gas by 68% in 2011 compared to the level in 2005. Evaluating reductions in methane emissions is challenging because of lack of accurate data and gaps in accounting methodologies. At the same time, Ukraine's transmission system has undergone improvements that, at the very least, have contained methane emissions, if not substantially reduced them. In this paper, we describe recent developments in Ukraine's natural gas transmission system and analyze the incentives that forced the sector to pay close attention to its methane losses. Ukraine is one of the most energy-intensive countries, among the largest natural gas consumers in the world, and a significant emitter of methane. The country is also dependent on imports of natural gas. A combination of several factors has created conditions for successful reductions in methane emissions and combustion. These factors include: an eightfold increase in the price of imported natural gas; comprehensive domestic environmental and energy policies, such as the Laws of Ukraine on Protecting the Natural Environment and on Air Protection; policies aimed at integration with European Union's energy market and accession to the Energy Community Treaty; and the country's participation in international cooperation on environment, such as through the Joint Implementation mechanism and the voluntary Global Methane Initiative. Learning about such case studies can help policymakers and sustainability professionals design better policies elsewhere.

1 Introduction

Natural gas is a critical energy source, providing 21% of the world's total primary energy supply [International Energy Agency (IEA), 2012b]. But natural gas primarily consists of methane, a potent greenhouse gas (GHG), and one volume of methane traps radiation more than 20 times more effectively over a 100-year period than the same volume of carbon dioxide [Myhre et al., 2013]. Reducing methane emissions can slow down the impact of GHGs on warming the planet and serve as a source of revenue for companies.

One of the top sources of methane emissions globally is the oil and natural gas industry, which releases gas from leaks, incomplete combustion, and flaring, as well as venting during production, processing, transmission, or distribution of natural gas and oil products. Recovering methane in this sector has been particularly cost-effective [Lechtenböhmer et al., 2007; Bylin et al., 2009]. However, barriers for methane mitigation, such as lack of financing for upgrades, no strategic political framework to encourage methane mitigation, and lack of awareness, exist. Some of these barriers can be more challenging in developing countries. Case studies on overcoming these barriers are valuable in helping policymakers and sustainability professionals understand how to design approaches that incentivize emission reductions in industry.

Ukraine is the eleventh largest consumer of natural gas and is among world's most energy-intensive countries [IEA, 2012a]. Ukraine also possesses one of the largest natural gas transmission systems and is responsible for transporting a large share of Russian natural gas to Turkey and Central and Western Europe. Not surprisingly, the United States Environmental Protection Agency's (EPA) global GHG study ranked Ukraine as eighteenth largest emitter in the world, emitting 23.7 tonnes of CO2-equivalent in methane from natural gas and petroleum in 2010 [Environmental Protection Agency (EPA), 2012]. Both the volume of natural gas transported and existing system infrastructure create important opportunities for methane mitigation projects in Ukraine.

Ukraine's natural gas transmission company, Ukrtransgaz, made company-wide investments in improving energy efficiency of the infrastructure. In this paper, we describe the company's recent investments and analyze what incentivized the industry to pay close attention to its methane losses and overcome barriers to mitigation. Understanding the motivating factors can help researchers and policymakers learn what has worked in reducing both the sector's emissions and the impact on climate.

2 Overview of Ukraine's Natural Gas Transmission Sector

Natural gas is an important fuel in the Ukrainian economy, constituting about 40% of the country's total primary energy consumption [IEA, 2012a]. In 2011, Ukraine consumed 59.3 billion cubic meters (bcm) of natural gas, of which about 33% came from domestic supplies [IEA, 2012a].

About 67% (44.8 bcm in 2011) of consumed gas is imported, primarily from Russia's Gazprom. The high price for Russian natural gas (over $400 per thousand cubic meters) forced Ukraine to reduce domestic natural gas consumption both in industrial and residential sectors, with a particularly drastic dip in 2008. Domestic consumption of natural gas fell from 76.4 bcm in 2005 to 59.3 bcm in 2011 (22%) [IEA, 2012a]. At the same time, demand for natural gas in other, mainly European countries decreased, and the volume of natural gas transmitted to foreign countries also fell from 137.1 bcm in 2004 to 104.2 bcm in 2011 (a 24% decrease) [IEA, 2012a]. Since most of the revenue for maintaining the natural gas transmission system comes from transmitting Russian natural gas to European countries, the drop in transmission volume resulted in challenges for the natural gas transmission system to cover its expenses. Tariffs increased at the same time as well [IEA, 2012a].

The natural gas transmission system in Ukraine began operations in the late 1960s and became a part of the larger transmission system that covered most of the Soviet Union. When Ukraine gained independence in 1991, the country inherited the segment on its territory, which remains closely linked with neighboring Russia and Belarus, and became a defining characteristic for the country's natural gas sector policy.

State-owned company Naftogaz has dominated Ukraine's natural gas sector under the supervision of selected members of the Cabinet of Ministers. Naftogaz controlled several subsidiary companies that extract and process (Ukrgazvydobuvannya), transport and store (Ukrtransgaz), and distribute natural gas (Gas of Ukraine). Since 2005, Ukraine pursued reforms of its gas market structure to harmonize with European Union (EU) legislation under the Energy Community Treaty. The terms of the accession to the treaty have a formal schedule for Ukraine's legislative action, but the Ukraine's policy has been conflicted, and the schedule has been delayed. Despite the delays, Ukrgazvydobuvannya and Ukrtransgaz were registered as new joint stock companies in 2013, but their shares remain with Naftogaz. This move aims to increase the industry's transparency and will allow these companies to act more independently from regulators.

The major characteristics of Ukraine's natural gas transmission system are listed in Table 1. The size of the system has remained approximately the same, with insignificant increases in pipeline length in recent years.

Table 1. Characteristics of Ukraine's Natural Gas Transmission System [Ukrtransgaz, 2013]
Characteristics of Ukraine's Transmission SystemValue
  1. akm = kilometers,
  2. bbcm = billion cubic meters,
  3. cMW = megawatt.
Total pipeline length (km)a, including for38,550
Major pipelines22,160
Branch pipelines16,390
Annual stated carrying capacity (bcm/year)b: 
At inlet287.7
At outlet178.5
Number of compressor stations72
Number of compressor facilities110
Number of compressor units702
Capacity of compressors (MW)c5,440
Number of underground storage units12
Total volume capacity of underground storage (bcm)31
Number of gas distribution stations1,455
Number of employees28,000

3 Efforts to Reduce Emissions in Natural Gas Transmission

In recent years, Ukrtransgaz reported that it invested heavily in reducing its system's own consumption of natural gas. According to Ukrtransgaz's website, consumption of natural gas for running the transmission system—total reduction in system's own use due to all factors—decreased from 3.36 bcm in 2011 to 2.11 bcm in 2012 [Ukrtransgaz, 2013]. This represents a 68% improvement from 6.6 bcm in 2005 [IEA, 2012a]. These numbers are consistent with data found in Ukrtransgaz's Joint Implementation (JI) project registered with United Nations Framework Convention on Climate Change (UNFCCC) [Ukrtransgaz, 2011]. Transmission volumes fell 34% during the same time, from 203 bcm in 2005 to 134 bcm in 2012 [Ukrtransgaz, 2014]. However, reduction in transmission volumes does not lead to a proportional reduction in the system's own use. One of the reasons is that equipment of the transmission system operates less efficiently when not at full capacity. Therefore, a substantial amount in the 68% reduction of system's own use can be attributed to investment and upgrades.

Evaluating the share of Ukrtransgaz's methane emission reductions from these data is challenging, because the company does not segregate its direct methane emissions from combusted methane. National Reports to the UNFCCC provide the best available and objective data, even though the accounting methodologies have many pitfalls, such as using general industry emission factors, no systematic reports on leaks and venting from all equipment elements, and companies estimating and calculating emissions rather than measuring them directly [Picard, 2001]. According to UNFCCC data for 2011, the sector emitted 115.4 Gigagrams (Gg) of methane through leaks and 105.46 Gg through vented emissions, a total of 220.9 Gg. This total appears to be stable over the past decade (see Figure 1). When converted to volume of natural gas, using the density of methane at standard conditions as 0.668 kg/m3, methane emissions amount to approximately 0.33 bcm of natural gas [United Nations Framework Convention on Climate Change (UNFCCC), 2013]. This represents a small fraction of the total system's own consumption of natural gas—3.35 bcm that same year. Given that the system's own use of natural gas decreased by 4.5 bcm from 2005, while total methane emissions remained stable, we conclude that significantly more emission reductions reported by Ukrtransgaz are from reducing combustion of natural gas rather than direct methane mitigation activities. However, many equipment upgrades would also reduce methane emissions.

Figure 1.

Ukraine's methane emissions from its natural gas transmission sector between 2000 and 2011, in Gg [UNFCCC, 2013; State Environmental Investment Agency of Ukraine (SEIA), 2013].

UNFCCC data show that Ukraine's methane emissions from venting have decreased compared to the early 2000s, whereas leaks have slightly increased in recent years (see Figure 1). The increase in leaks does not come as a surprise, given the aging transmission infrastructure. The company's reported efforts might only be containing leaks and preventing them from escalating.

The reduction in vented emissions coincides with a decrease in transmitted volumes of natural gas. However, as discussed above, methane emissions may not be directly related to throughput volumes. Equipment will operate less efficiently at partial load. For example, gas expansion starters in compressors might actually release more methane if they are turned on and off more frequently [EPA, 2011a]. Therefore, reducing methane emissions under falling transit volumes might actually be a more difficult goal.

Despite the data uncertainty, various reports indicate that the emission reduction efforts have been substantial [IEA, 2012a, 2012b; EPA, 2013; Ukrtransgaz, 2013]. Since 2005, Ukrtransgaz's reduced its methane emissions and fuel consumption by:

  1. Procuring and applying high-quality sealant materials that reduced fugitive gas losses by close to 1.5 million cubic meters in 2009.
  2. Implementing innovative pipeline and joint repair methods, using a technology that functions like a composite wrap. The company conducted these and other repairs using in-line pump-down in about 40 locations over the past 3 years, saving about 120 million cubic meters of gas in total.
  3. Creating six ecological laboratories that are trained, equipped, and staffed to implement Directed Inspection and Maintenance (DI&M) programs throughout Ukrtransgaz's system. The work of the laboratories provides a framework for identifying and tracking additional cost-effective mitigation projects.
  4. Replacing gas-fired turbines with electric compressors. By 2011, 17 such compressors have been outfitted, reducing natural gas consumption by approximately 385 million cubic meters that year and estimated natural gas leaks from the fuel supply system by 20 million cubic meters.

The company also plans to invest in further system-wide methane-saving opportunities, such as installing additional electric compressors, purchasing up to six mobile compressors to expand the use of pipeline pump-down, using dry seals on new compressors, using seal gas from existing compressors with wet seals, and installing low-bleed pneumatics [EPA, 2013].

Since 2007, Ukrtransgaz has saved about 153 million cubic meters of natural gas in direct methane emissions and about 385 million cubic meters of natural gas by avoiding combustion. The company valued these aggregated natural gas in over $415 million [EPA, 2013].

Understanding the motivating factors for such large-scale reductions can help policymakers and sustainability professionals design better policies to reduce the sector's emissions and impact on climate.

4 Policies and Other Incentives for Pursuing Methane Mitigation in Ukraine's Natural Gas Transmission

Methane mitigation in the oil and gas sector can be highly cost-effective, since the value of natural gas can be high. Despite this fact, many barriers exist for improving the efficiency of natural gas infrastructure. The IEA report on methane regulation [2009] lists such barriers as:

  1. Lack of financing for capital upgrades and other improvements
  2. Poor or no access to segments of the infrastructure to provide servicing and identification of unplanned methane leaks
  3. Lack of awareness about methane losses and their value
  4. No strategic policy framework to encourage methane mitigation in the natural gas sector.

Some countries have successfully addressed some of these challenges, but more information needs to be published to share best practices and raise global awareness. In some developing countries, these barriers are aggravated by other challenges, such as nonfunctional financial markets, high inflation rates, weak local currencies, political instability, low institutional capacity, and others.

The experience of Ukrtransgaz presents a valuable case study of an industry successfully reducing methane losses and system's own fuel use in its transmission operations. Several policy measures, factors, and activities facilitated the company's methane mitigation success. We discuss the factors that incentivized Ukrtransgaz to overcome barriers to improve the natural gas industry infrastructure.

4.1 Political and Economic Factors of the Natural Gas Market

Possibly the most important factor in motivating Ukrtransgaz to invest in upgrading its transmission system was the eightfold increase in price for natural gas imported from Russia. Before 2005, Ukraine paid about $50 per thousand cubic meters, but by 2012 the price was more than $424 per thousand cubic meters (see Figure 2). For comparison in 2012, the U.S. import price for natural gas averaged $2.9 per thousand cubic feet [EIA, 2013], or $100.4 per thousand cubic meters [$2.9/0.0288951 cubic meters]. Germany's border price for Russian natural gas reached around $435 per thousand cubic meters in 2012 [International Monetary Fund (IMF), 2013].

Figure 2.

Average annual price of natural gas imported from Russia, in dollars per thousand cubic meters [Ministry of Economic Development and Trade of Ukraine, 2013; National Institute for Strategic Studies (NISS), 2012].

At $400 per thousand cubic meters, annual methane emissions of 0.33 bcm cost the company over $130 million a year. Even more is spent on fuel gas, emitted as CO2. As the company reports, about 2% of the gas transit volume is spent on fueling compressors [Ukrtransgaz, 2013]. Given that in 2012 the company received 134,590 million cubic meters of natural gas, without any improvements the company would have spent close to a $1 billion on fuel that year.

With such a high price for natural gas, many investments became cost-effective and had a short payback time. For instance, according to EPA [2011b], installing an electric motor starter on compressors can cost between $1000 and $10,000 and save 38.4 thousand cubic meters per year. At $400 per thousand cubic meters, the installation will pay for itself in just over 6 months at most. Coincidentally, in 2011, the company announced that it was pursuing many gas-saving investments.

The high price of Russian natural gas drew attention to the infrastructure losses and their value, which helped address the awareness barrier. However, the financial barriers can be difficult to overcome. European financial institutions attempted to aid this challenge in 2011. The European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) discussed signing a loan to Ukrtransgaz under conditions that the country implements provisions of the Energy Community Treaty, such as liberalization of the gas market and unbundling production, transmission, and distribution. However, the progress was slow; questions lingered over market operations, transparency, and financial state of the company. Thus, financing has not yet materialized [IEA, 2012a].

In 2012, Deutsche Bank AG showed interest in financing Ukrtransgaz's upgrades, with participation of Germany's Ferrostaal Industrieanlagen GmbH. The pilot project aims to upgrade the Bar compressor station on the Soyuz trunk gas pipeline and to extend its technical lifespan by 15 years. On April 29, 2013, Ukrtransgaz signed an agreement with Ferrostaal Industrieanlagen GmbH for €51 million (excluding the value added tax). Deutsche Bank is financing 85% of the project, and Ukrtransgaz is co-financing the remaining 15%. The Ukrainian government is providing a guarantee on repayment, and Eurler Hermes Deutschland AG is ensuring the loan. Ferrostaal is expected to complete the work by October 2015. The contract duration is 10 years and 9 months, during which Ukrtransgaz will be repaying the loan from avoided expenses on fuel and losses. Ferrostal also expressed readiness to upgrade the whole transmission system if Ukraine makes this decision [Interfax-Ukraine, 2013;, 2013].

The sector's history of nontransparency and questionable transactions makes it difficult to make a clear judgment about the announced investments. However, the cost-effectiveness of such investments in Ukraine suggests that the project is based on the economic interests of both parties. The structure of the financing is similar to the model used by Energy Service Company (ESCO) for improving energy efficiency in buildings. In ESCO projects, repayment of financing is performed from energy savings. Because of the high price of natural gas, the repayment term is relatively short. Thus, the natural gas price served as a strong motivator for the company to examine and improve its system's own consumption and losses.

4.2 Domestic Environmental and Energy-Efficiency Policy

Another incentive for Ukrtransgaz's upgrades is domestic environmental and energy-efficiency policy. When it comes to the natural gas sectors these policies have similar goals.

To protect human health and the environment, the Law of Ukraine on Protecting the Natural Environment and the Law of Ukraine on Air Protection establish that certain emissions, such as methane, should be controlled. In case of methane, enterprises emitting more than 10 tonnes/year should account for their emissions and send data to the Ministry of Environmental Protection. Since 2009, Ukraine has regulated emissions and pollutants by charging an ecological tax. The principle of charging the emitter, however, dates back to earlier years.

For methane emissions, and other hydrocarbons, the charge is 81.08 Ukraine Hryvnia (UAH)/tonne, or $9.9/tonne, assuming annual average exchange rates for 1 UAH as $0.1221 in 2012. For carbon dioxide, the charge is 54.05 UAH/tonne, or $6.6/tonne [Government of Ukraine, 2010]. For comparison, methane is not taxed in other countries, with few exceptions, like the Russian Federation and Kazakhstan, and carbon taxes in other countries ranges from less than one dollar to over one hundred dollars per tonne of carbon dioxide.

Companies in Ukraine must fill out ecological tax forms quarterly and pay for their emissions. While the methodology for calculating the emissions taxes is unavailable and information about how much Ukrtransgaz has paid in ecological tax is difficult to find, we know that in certain administrative regions, Ukrtransgaz was among top payees of the ecological tax. For reference, in 2011, the Government of Ukraine collected 1.18 billion UAH (approximately $144 million) in ecological taxes [Verkhovna Rada of Ukraine, 2011].

Ukraine is also one of the most energy-intensive countries in the world, and thus, its energy saving potential is large. In addition, Ukraine has serious energy security concerns, especially when it comes to availability of natural gas. Its dependency on Russian energy imports (given the political tensions between the two countries and past natural gas price disputes) as well as EU's Energy Community Treaty requirements defined Ukraine's commitment to energy efficiency. Natural gas is an important strategic target for energy-efficiency improvements, and Ukraine now has detailed regulations to control the sector's emissions and losses.

Natural gas companies must comply with norms for activity and technical losses. The norms are established by the Ministry of Energy and Coal Industry for each company in the oil and natural gas sector, and are expressed as indices or percentages. Specialized, government-based organizations calculate and verify these norms. The Ministry of Energy and Coal Industry also issued a detailed methodology for calculating losses and activity emissions from natural gas transmission and storage infrastructure. Emissions above norms result in additional fines.

To summarize, the political will and domestic policies in Ukraine created a strong incentive to improve energy efficiency of the natural gas transmission system. In particular, the geopolitical factors drive Ukraine's commitment to reduce domestic natural gas consumption and energy in general, while the environmental taxation system sends price signals that encourage companies to reduce emissions and natural gas use.

4.3 Regional Energy Policy

In recent years, the Ukrainian government has wavered between closer affiliation with the EU and closer economic union with Russia. Between 2005 and 2013, Ukraine has been adjusting some of its policies to align with European legislation, and the Ukrainian government signed the Energy Community Accession Protocol [Energy Community, 2010]. The protocol set the terms and the schedule reforms, many of which pertain to natural gas, as prerequisites for joining the European Energy Community and EU. The EU accession agreement was called off at the end of 2013, leading to mass protests. The events of late 2013 highlight how conflicted Ukraine's policy has been. In March 2014, the new interim government of Ukraine signed an important piece of the EU accession treaty and revived the harmonization efforts.

The provisions related to natural gas market include conditions for nondiscriminatory access to pipelines; reform of Naftogaz to unbundle production, transmission, and distribution; guaranteeing independence of the regulator; more cost-reflective tariffs; and liberalization of the natural gas market. Ukraine's policymakers have already adopted some of these, such as providing greater independence of Ukrtransgaz from Naftogaz.

By fulfilling these conditions, Ukraine's leader hoped to deepen cooperation with the EU, strengthen energy security, and obtain EU funding for liberalization of the energy market and modernization and expansion of natural gas transmission system. Ukraine is a major transit country of the natural gas to the EU, and there is mutual interest in speeding up such upgrades. A number of European investment institutions committed to loan money for this purpose. In 2011, EBRD and EIB signed a Memorandum of Understanding with Naftogaz to finance $308 million of the $518 million required to upgrade and reconstruct the Urengoy-Pomary-Uzhgorod pipeline (main pipeline to Europe). However, the banks require that Ukraine implement more provisions before the first payment can be sent [IEA, 2012a].

Regional policy is an important factor in moving Ukraine to implement policy changes that will help facilitate longer-term energy-efficiency improvements to the natural gas transmission sector. Specifically, ensuring independence of the company's business operations from political motives, and increasing transparency and cost-reflective operations will ensure that Ukrtransgaz receives market signals that will enable the company to make decisions that are better for business and the environment.

4.4 International Environmental Agreements

Internationally, methane is one of the gases covered by UNFCCC's Kyoto Protocol. Kyoto's market-based flexibility mechanisms for trading in emissions allow countries, like Ukraine, sell certified emission reduction units (ERU) to other countries that committed to reducing its units. Ukraine is a party to the JI mechanism, and has been one of the most active countries on the market. By mid-2012, 41% of global ERUs are GHG-reduction units from Ukraine [IEA, 2012a]. This reflects the fact that domestic policies and institutions were developed to facilitate investments in emission reduction projects.

Ukrtransgaz prepared and registered a JI project in 2011. The projects consists of several components: reducing CO2 emissions by replacing equipment to reduce combustion of natural gas in compressors, auxiliary boilers, and heaters; reducing indirect CO2 emissions by reducing electricity consumption from cathode protection system; and reducing methane emissions from blow-down and venting that occurs during repairs. Such investments were certified to save approximately 2.87 million tonnes of CO2-equivalent per year, of which 2.5 million tonnes of CO2-equivalent, or [2,500,000*0.01428 =] 35.7 thousand cubic meters, are annual methane emissions. The company is still looking for investors, and given that the first implementation phase of Kyoto is over and the second phase has not set any mechanisms in place, the prospects for finding one are uncertain.

In addition to participation in UNFCCC mechanisms, Ukraine was one of the 14 countries that in 2004 founded Methane to Markets, which later became the Global Methane Initiative (GMI). GMI is a voluntary, public–private partnership of over 30 governments and 900 private organizations working to advance capture and utilization of methane in coal, agriculture, landfill, and oil and gas sectors. The partnership aims to overcome institutional and information barriers to reducing methane emissions in these sectors. Ukraine's natural gas transmission sector worked with GMI with support of the EPA and Pacific Northwest National Laboratory (PNNL). Ukraine's participation was endorsed by the Ministry of Fuel and Energy of Ukraine, and the Ministry signed a protocol to establish a working group to assess the potential for investment in methane leak mitigation.

In 2009, Naftogaz also joined EPA's Natural Gas Star International program. Under both partnership frameworks, EPA and PNNL provided seminars, trainings, and tools facilitating identification and measurement of methane leaks; provided targeted information on best practices in reducing methane emissions in natural gas industry; negotiated backing of senior Ukrainian policy-makers for methane mitigation; and supported Ukraine's participation in GMI annual meetings and workshops. For example, this collaboration helped Ukrtransgaz reduce methane leaks from valves and create ecological laboratories that regularly conduct DI&M to identify leaks from compressor stations and linear parts.

Participation in international initiatives helped overcome the informational and institutional challenges for methane mitigation in Ukraine's natural gas transmission sector, although such initiatives' ability to secure financing might not be as strong. Still, information sharing, technology transfer, peer networking, and public recognition of accomplishments can guide and encourage successful implementation of methane mitigation measures.

5 Discussion and Conclusion

Methane emissions are a global concern, and saving methane during industrial processes can be cost-effective. Yet examples of successful industry-wide methane savings are limited. Understanding the incentives for industry to overcome barriers to methane mitigation will help policymakers and sustainability professionals design better policies.

Ukraine's natural gas transmission system presents a valuable case study of an industry that managed to avoid combusting and releasing over two-thirds less methane in 2011 compared to 2005. As with other private company data, methane emission reduction data are challenging to obtain and evaluate. However, Ukrtransgaz is known to have saved about 153 million cubic meters of natural gas in direct losses and about 385 million cubic meters of natural gas in avoided combustion between 2007 and 2012. In total, these energy-efficiency improvements are valued by the company at over $415 million.

Many improvements and upgrades to the system are still under way, and the industry has overcome most of the barriers for methane mitigation, thanks to a number of incentives. In particular, the price of imported natural gas has increased to such a level that methane saving measures became very cost-effective, and this triggered interest among financiers such as the Deutsche Bank. Domestically, Ukraine's policy pursued energy-efficiency improvements. Comprehensive regulation and implementation have helped send the right signal to the sector. Environmental regulation in Ukraine is some of the most advanced in the world, as it requires companies to pay for their methane and carbon dioxide emissions, encouraging companies to seek ways to reduce their ecological taxes. These policies and incentives have been especially critical in helping build a comprehensive policy framework and facilitate financing. At the same time, regional energy policy pushed the industry toward independence from regulators and greater transparency, improving chances of success over the long term. Finally, international environmental institutions also provided resources to overcome informational and institutional challenges.

Ukrtransgaz has not exhausted its potential to reduce its system's methane consumption. For example, industry and sustainability experts recommend that Ukrtransgaz purchase and use an infrared (IR) camera to identify methane releases. Ukrtransgaz has recently expressed interest in obtaining an IR camera but has yet to find financing.

Ukraine's “Energy Strategy until 2030” emphasizes the importance of the national transmission system to the Ukrainian economy and energy policy [Ministry of Energy and Coal Industry, 2012]. Analysis of Ukraine's natural gas budget shows that Ukrtransgaz is the fourth largest consumer of natural gas in Ukraine, following industrial enterprises, households, and municipal heat companies [Energy Charter Secretariat, 2013]. As such, improvements in efficiency and reduction in emissions in the national gas transmission system are an important part of the strategy for national energy-efficiency goals, energy security, environmental policy, domestic energy pricing, and economic policy. The Energy Strategy envisions that in the near term Ukrtransgaz will continue replacing compressors, reducing leaks from components, and automating systems. As a result of these and other measures, the Ukrainian government hopes to reduce operational expenses on gas transit by 20-30% [Ministry of Energy and Coal Industry, 2012].

IEA's study found that the lack of a strategic, comprehensive framework to guide methane recovery and use is one of the most common challenges for methane mitigation across all energy sectors. Ukraine provides an example where strong policies can be impactful, and mix of multifaceted approaches can lead industry to examine and prevent its emissions.


The authors are grateful for research support provided by U.S. Environmental Protection Agency, Office of Air and Radiation. The Pacific Northwest National Laboratory is operated by Battelle for the U.S. Department of Energy under contract DE-AC05-76RL01830. The views and opinions expressed in this paper are those of the authors alone.