Ukraine storage operator to offer new products as it seeks another bumper year

LONDON (ICIS)–Companies are advised to start pumping gas into Ukrainian storages as soon as the injection season kicks off at the beginning of April to avoid causing congestion later in the year, the acting CEO of storage operator Ukrtransgaz (UTG) said.

Speaking to ICIS, Sergii Pereloma said UTG was dealing with a constant stream of requests from domestic and non-resident companies looking to sign storage agreements.

Between mid November 2020 and January 2021 the total number of companies, which had signed contracts rose from 711 to 848, while that of non-residents from 79 to 91.

Interest in Ukrainian storages soared throughout 2020 when domestic and foreign companies sought to take advantage of the country’s comparatively cheaper tariffs as well as of its customs regime, which allows them to keep gas in storages without customs clearance for three years. The introduction of the short-haul transmission tariff was an additional benefit, which attracted non-residents to Ukrainian storage system, he said.

This meant that by the end of the injection season Ukrainian storages were 93% full, with 28.3 billion cubic metres injected in facilities of which 10bcm were held in customs warehouse regime by non-resident customers.

Many companies rushed to snap up cheap gas in Europe and export it to Ukraine for storage, causing some congestion in August and leaving UTG unable to fulfill all clients’ injection requests.

Now, he is urging companies to stagger their injections throughout the upcoming season.

“The best advice is start early to give everyone plenty of time and not create any last-minute congestion,” he said.

However, much of how companies will decide to organise their storage injections this year will depend on the fullness level of European storages at the end of the heating season and their strategies over the the summer.

SUMMER INJECTIONS

As of mid January, the aggregated fullness level of European storages stood at 65% compared to 80% a year ago.

In contrast, Ukrainian storages were 58% full in mid January 2020 and 73% this year.

With faster depletion rates in Europe, shippers expect storages across the continent to end the heating season at around 25% fullness, which means that some of them may be looking to inject gas in local facilities before considering exports to Ukraine.

“For many companies it depends on their financial health and strength and how long can they afford to keep this gas and not convert into cash,” he said.

“Some companies would like to sell and seek cash by the end of the heating season, others would want to keep it [in Ukrainian storages] for another heating season,” he added.

However profile consumptions shape up and gas prices evolve over the coming months, Pereloma is confident that Ukraine would continue to attract interest.

NEW PRODUCTS

Firstly, he notes that Ukraine has become an attractive gas market, with a growing number of foreign companies looking not only to inject gas in storages, but also trade internally.

Secondly, UTG, just like its transmission counterpart, GTSO, have been working to offer new products to attract more companies. Last year, GTSO launched short-haul transmission services, which meant that companies looking to use storages could import or export gas at reduced tariffs.

This year, UTG and GTSO would be looking at ways to streamline the process of signing storage or transmission agreements.

UTG has also been working with the local energy exchange, UEEX, to launch a new product that would allow shippers to trade gas held in storages. This could happen as early as mid February, he said.

Thirdly, UTG has also been in talks with banks for monitoring and information exchange. Under latest arrangements that are put in place, banks may be granted powers to limit the ability of clients to withdraw gas in case of credit-related issues.

Pereloma said UTG was in discussion with the regulator NERC and Ukrainian authorities for ongoing amendments to the storage code to guarantee more flexibility and compliance with EU regulations.

He said an agreement had already been reached with shippers regarding the average gross calorific value (GCV) of gas held in storage.

The issue had raised concerns at the end of 2020 because Ukraine is currently preparing to amend legislation to ensure the switch from old style cubic metre measurements to energy units and the GCV that was proposed at the time for the conversion formula was 10.35.

Some shippers feared they could not withdraw as much gas as they had injected if the GCV that was initially suggested had been upheld.

The CEO said the new 10.595 GCV was accepted by companies and those who may have had a higher average figure could withdraw the gas until the law may be enforced at the beginning of May.

2021 PLANS

Pereloma dismissed claims that some storage facilities may be shut down this year to help UTG to optimise the system.

His predecessor told ICIS in an interview last year that some capacity may be mothballed to bring greater efficiency.

However, Pereloma said that although two sites in central and eastern Ukraine may be inefficient, there were no plans to close them down this year.

He added that UTG would focus on guaranteeing predictability, including working with the regulator to ensure storage tariffs would remain at competitive level without major changes.

Pereloma stressed however that Ukraine may be looking to introduce a storage obligation for suppliers with end consumers in their portfolios.

“Such practice exists in many EU countries. We can go into examples and can be sure it’s not some kind of Ukrainian invention.

“It’s necessary to have a minimal amount of gas in storage in two cases.

“The first relates to companies with end consumers. This won’t affect wholesalers but it’s important for suppliers. The second scenario relates to force majeure cases.”

Pereloma said the storage obligation could be set at up to 10% of the volumes supplied to end consumers in one month, but added that nothing has been decided yet.