Ukraine in emergency gas outage; seeks solutions with Slovakia

Author: Aura Sabadus

2020/06/24

BUCHAREST (ICIS)--Flows at the Budince interconnection point on the Slovak-Ukrainian border will be stopped from 11 August until 1 October 2020 for urgent repairs, the Ukrainian transmission system operator (TSO) GTSO said on 23 June.

Over 50 European companies may be unable to export some 3 billion cubic metres (bcm) of gas for injection into Ukrainian gas storages or export to the domestic market throughout the maintenance period if GTSO and its Slovak counterpart eustream do not find a solution.

The announcement did not have an immediate impact on European hub prices.

August traded on the Dutch TTF at €6.00/MWh in early morning session on Wednesday, €0.113/MWh down from Tuesday’s ICIS closing price.

Two European traders said some companies had been aware of ongoing discussions between GTSO and eustream over the last two weeks and had started to factor the impact of the possible outage into August and September prices.

However, they conceded that hub prices could crash if the TSOs fail to reach a solution.

POSSIBLE SOLUTIONS

GTSO said on Tuesday it had approached eustream with two solutions to minimise the impact of the maintenance.

One option would be to merge the two physical interconnection points Budince and Velke Kapusany into a single virtual interconnection point, as is currently the case on Ukraine’s borders with Hungary and Poland.

Failing that, GTSO has asked eustream to allow free of charge transfer of capacities from Budince to Velke Kapusany throughout the maintenance period, and increase the capacity for reverse flows at the Velke Kapusany interconnection point throughout the maintenance period.

Earlier this month, eustream allocated 10mcm/day of backhaul at Velke Kapusany, which has a nameplate capacity exceeding 200mcm/day.

The Budince interconnection capacity stands at 42million cubic metres (mcm)/day of which 27mcm/day are guaranteed.

Up until last year, Velke Kapusany had been used only for the transit of Russian gas from Ukraine into Slovakia, while Budince was established some five years ago for physical imports from Slovakia into Ukraine.

With the expiry of a legacy Russian – Ukrainian transit contract at the end of 2019, GTSO and eustream have ample flexibility in how they decide to organise the allocation of capacities.

Earlier in June, eustream allocated 10mcm/day backhaul at Velke Kapusany, which means that some companies which had booked firm capacity at Budince may have it transferred to Velke Kapusany.

Even so, the capacity at Velke Kapusany is only interruptible and sources close to eustream say the company may be reluctant to offer more backhaul capacity.

This is because Slovakia imports Russian gas from Ukraine via Velke Kapusany and any backhaul capacity allocated for Ukraine would depend on the physical volumes entering Slovakia.

Market participants point out that the backhaul capacity of Velke Kapusany could be equal to the transit flow, which may be over 100mcm/day. This means that eustream has enough flexibility to increase backhaul to Ukraine and cover the capacities of Budince.

eustream did not comment by publication time.

EU RULES NEEDED

They also note that the current stand-off between GTSO and eustream would have been avoided if Slovakia applied the EU network codes on the border with Ukraine.

They say Slovakia would have been required to maximise the capacities allocated at Velke Kapusany and Budince and allocate them on open auction platforms according to Capacity Allocation Mechanisms Network Code (CAM NC).

Currently eustream allocates daily and monthly capacity at the two interconnection points (IP) on a first-come-first-served basis, which is highly criticised by shippers.

Market participants accept that Slovakia is under no obligation to apply the EU network codes at the two IPs since Ukraine is not an EU member state.

However, they say that other EU neighbouring countries such as Hungary and Poland have already done so at their borders with Ukraine.