BUCHAREST (ICIS)--The Ukrainian transmission system operator GTSO is working on 30 projects geared towards further integrating the market in the European gas system, supporting the internal liberalisation process and optimising the transmission system.
GTSO general manager Sergiy Makogon said some of the projects lined up for the upcoming months included offering border capacities on regional auction platforms, merging physical interconnection points with Poland and Slovakia and attracting more companies, including Russia’s Gazprom, to store gas in Ukraine.
Earlier this month GTSO and its Hungarian counterpart FGSZ merged the existing Beregovo 1400 and Beregdaroc 800 interconnection points into a single virtual interconnection point Bereg IP.
Now, GTSO is looking to establish similar virtual interconnection points with Poland and Slovakia later in September, merging the Hermanowicze-Drozdowice physical interconnection points on the Polish border and the Budince-Velke Kapusany points on the Slovak border.
Although Ukraine has made significant progress with its EU neighbours, launching new services such as short-haul or virtual reverse flows with Poland and Slovakia , it has been less successful with Romania.
It managed to sign only one interconnection agreement for transit, even though Ukraine and Romania share five border points. The Romanian transmission system operator Transgaz has been blaming differences in gas measurements on its borders with Ukraine for delays in signing further interconnection agreements.
“We are constantly receiving requests from traders about exporting gas to Romania since it is a premium market now,” Makogon said.
“From our side we are fully ready to sign interconnection agreements with Romania’s Transgaz. I even signed all such agreements and sent them to Transgaz already, but we have not received any response.
For us transit to Romania is not a very big business opportunity comparing to other directions. It is mainly Romanian consumers who are suffering from limited import possibilities and higher gas prices as a result. I think this situation should be investigated by the local regulator and competition authorities,” he said.
Makogon says GTSO will be reaching a key milestone on 6 July when it will offer its first ever annual capacities on regional auction platforms.
“We plan to offer annual capacities for gas year 2020/21 according to the [European Network of Transmission System Operators for Gas] ENTSOG calendar at all interconnection points, including entry points with Russia. Currently, we are assessing potential booking platfoms such as [Hungary-based] RBP and [Polish-based] GSA,” Makogon said.
Makogon anticipates record storage levels in Ukraine this year as many non-resident companies have been using the recently-launched short-haul services.
GTSO launched short-haul on its western borders at the beginning of the year, hoping to attract foreign companies to use the service either for short-distance transit between EU member states or to encourage companies to inject gas in Ukraine, using its 30 billion cubic metres (bcm) storage capacity.
Five months on, results exceed GTSO’s expectations.
Ukrainian gas imports rose to 3.9bcm in the first four months of 2020, a 59% year on year increase over the same period in 2019.
Some of the imports have been used for Ukraine’s internal needs, but just over 1bcm have been injected in customs warehouse regime, which allows companies to store gas in Ukrainian facilities for three years without requiring customs clearance.
Between January and April 2020, a total of 2.3bcm were injected into storages, a 33% year on year rise. Out of the total volumes 550 million cubic metres were injected by foreign companies, a 162% rise over the same period last year. When adding carryover stocks from last year, the total volume of gas held by non-residents in customs warehouse regime is just over 1bcm, according to data by storage operator Ukrtransgaz.
All imports throughout this period came from European countries, with volumes coming from Slovakia hovering around 2.4bcm, from Hungary around 0.9bcm and from Poland amounting to 0.6bcm. These represented year-on-year increases of 91%, 26% and 28% respectively.
Makogon anticipates even larger volumes to be imported into Ukraine in the upcoming months as European companies may be turning to Ukraine and its large storage capacity as a last resort to help clear the oversupply.
Makogon has suggested that even Russia’s Gazprom could take advantage of the country’s storage capacity to inject surplus volumes.
“Due to significant carryover gas stock in EU storages I think this year Ukrainian gas storages will be in high demand. Our new discounted short-haul transmission service to storages and low storage tariffs of about €1.00/MWh per storage cycle make our storages very attractive for shippers,” he said.
“As a result, I expect about 5-6bcm of gas from EU shippers to be stored in Ukrainian [facilities] this year. If Gazprom decides to store gas in Ukraine, storages might be filled. Some 7-10bcm might be available to Gazprom. However, for Gazprom [storing gas in Ukraine] would be more of a political rather than commercial decision,” he said.
Although Ukraine has not been importing any Russian gas for its domestic needs since November 2015, it has signed a five-year transit contract with Gazprom for a minimum 65bcm in 2020 and 40bcm/year from 2021.
However, transit volumes have fallen 47% year on year in the first four months of 2020, amounting to 15.5bcm. The steep drop has been linked to European oversupply and low demand, but also to the lack of transit to the Balkan region after Russian exports to Turkey, Bulgaria and Greece were diverted to the new TurkStream pipeline from January 2020.
“Our transmission system can transit 110bcm of gas [annually] but this year we expect only 50-55bcm of transit,” Makogon added, pointing out that volumes would drop even lower if Russia commissions Nord Stream 2, a 55bcm/year subsea pipeline designed to link Russia directly to Germany via the Baltic Sea.
Makogon said existing transmission infrastructure such as Ukraine’s network or the Yamal transit corridor via Belarus and Poland should fully satisfy Russia’s need to export volumes to Europe, without creating an additional need to bring Nord Stream 2 online.
He said Russia should open up its own network to third party access to allow both local as well as Central Asian companies to transit gas via Russia and Ukraine to Europe.
“Russia is not subject to the [EU’s] Third Energy Package, but because of the existing monopoly of Gazprom on exporting gas via pipelines not just other Russian and Central Asia gas producers are suffering, but also the Ukrainian TSO, since we cannot offer our infrastructure to other users [for transit],” he added.
GTSO’s long-term priorities however do not include only efforts to attract other companies to transit gas via Ukraine, but also supporting the opening of the local gas market.
Ukraine has made headway in deregulating the gas sector such as unbundling its transmission systems and stimulating the establishment of a wholesale market.
However, it still has an important obstacle to clear – the removal of its public service obligation (PSO) , which requires the incumbent Naftogaz to buy volumes from local producers and sell them on to households and district heaters at regulated tariffs. As much as 60% of market volumes are tied up in the PSO, which was due to be removed in May, but has been partially delayed until July.
The scheme has been a bone of contention between Naftogaz and distribution companies amid concerns that the latter were making unauthorised offtakes of cheaper gas with a view to sell it on to other consumers at higher prices. The practice has been blamed for skewing the daily balancing market, operated by GTSO, spawning discontent among market participants.
Makogon did not discuss how GTSO would seek to work with distribution companies once the PSO is lifted but added that the transmission network was fully ready for its removal.
“Our systems are fully ready for that. However, we believe some additional amendments should be done to the legislation to ensure interruptible supplies for vulnerable consumers: households and social infrastructure. Those changes are related to suppliers of last resort, the simplification of supplier switching procedures etc.”