EU gas flows to Ukraine almost halve at start of new month

Ukrainian natural gas imports from EU markets were set to drop considerably on Friday, reducing buying demand at European traded hubs.

Transmission system operator (TSO) data from Slovakia and Poland showed that on 1 May, nominations to flow volume into Ukraine was just 21 million cubic metres (mcm)/day, down from a physical flow of 38mcm/day on Thursday.

Slovakia’s Eustream network has the largest interconnection with western Ukraine, with a capability to deliver 40mcm/day over the Budince point. Over April, flows through this point averaged 38mcm/day, but on 1 May they were set to fall to 21mcm/day.

The Polish GAZ-SYSTEM grid was flowing steadily at 1mcm/day last month at the Hermanowice point to Ukraine, TSO data showed, but on Friday flows were set to cease completely.

Ukrainian incumbent Naftogaz has in recent months been purchasing as much volume as possible from EU markets, as this has tended to be cheaper than gas delivered from Russia’s Gazprom. Often the purchase contracts from EU hubs have been for monthly delivery.

Anglo-Dutch Shell, Germany’s RWE and E.ON, and Paris-based ENERGIE (formally GDF SUEZ) have all recently been named by Ukrainian prime minister Arseniy Yatsenyuk as exporters.

Unlike the hub-priced EU gas, Naftogaz’s purchase contract with Gazprom is indexed to oil, with a time-lag. The fall in Brent crude over the last nine months is therefore likely to have reduced the price paid by the Ukrainian incumbent.

Last month the two companies agreed an average delivery price for Q2 of $247.18/thousand cubic metre (kcm), inclusive of a $100.00/kcm discount (see ESGM 15 April 2015). Following the conclusion of that deal, the Ukrainian energy ministry referred to the agreed price as “an economically reasonable market price, which is lower than the price of reverse gas,” from Europe. This suggested at some point over the quarter Kiev intended to reduce flows from the EU.

The assessed Czech May ’15 contract expired on Thursday at €20.950/MWh, according to ICIS data, while the same product in Austria ended at €21.175/MWh. The month-long, trades-based VTP May ‘15 Index out-turned slightly higher at €21.715/MWh.

Although neither Austria nor the Czech Republic border Ukraine, they are the closest traded hubs.

The Gazprom-Naftogaz contract was equivalent to €20.971/MWh, on Friday’s exchange rate.

Hungary is the only other EU market that is capable of delivering gas to Ukraine, although data from TSO FGSZ showed that no gas was nominated to be sent eastward at Beregdaroc on Friday. With the exception of Thursday – when a fractional volume was shipped over the point – no gas has been exported from the Hungarian MGP hub to Ukraine since 7 April. tom.marzec-manser@icis.com