Gas storage interest in Ukraine picks up despite war risk – Ukrtransgaz CEO

Aura Sabadus

03-May-2022

LONDON (ICIS)–Foreign gas companies are returning to Ukraine to inject gas in storage despite the high risk linked to Russia’s military invasion of the country.

Speaking to ICIS, Sergii Pereloma, acting CEO of storage operator Ukrtransgaz (UTG), said some companies were looking to return particularly as the EU was now looking to boost security of supply by requesting companies to hold more gas in storage in time for the heating season.

Up until the start of the war, Ukraine had been gearing towards becoming a European storage hub, attracting more than 100 non-resident companies from Europe, the US and Asia and over 600 domestic companies looking to inject gas in its facilities which have a total capacity of 30 billion cubic metres (bcm).

However, the geopolitical risk preceding the war and the introduction of martial law when Russia invaded Ukraine on 24 February meant that foreign companies withdrew the gas held in customs warehouse regime. This regime has allowed them to store gas in Ukraine without customs clearance for three years.

“There were over 2.5bcm in customs warehouse regime when the heating season started (1 October 2021),” Pereloma said. “By the start of the war, there was a very small amount of gas left in customs warehouse.”

RISK

This meant that even though the Ukrainian government introduced a ban, preventing companies from withdrawing gas from storage and exporting volumes, it did not have a tangible impact, as foreign companies would have shipped almost all the gas out of the country by then. The remaining volumes of gas could be sold in Ukraine during the ban.

With the government lifting the ban on 3 April companies can now start injecting gas in storage and export it, if needed.

Pereloma said some companies have already expressed an interest to return but declined to give any information on how much gas was currently in storage or being injected.

UTG stopped publishing information at the start of the war because of risks linked to physical attacks to the infrastructure or cyberattacks.

He said that with the exception of small facilities in the northern and eastern parts which were at risk in the Chernihiv and Lugansk, the remaining 80% of Ukrainian underground storage capacity which is located in the west of the country is protected and firmly under Ukrainian control.

STORAGE INTEREST

Pereloma said the EU’s latest decision to introduce a storage quota could benefit Ukraine. Brussels has mandated that EU-based storage facilities need to be at least 80% full by 1 November 2022 and 90% by the same date over the next two years.

Ukraine is pushing for its own underground facilities to be used to create an EU strategic stock that would serve regional countries.

“Poland can only store 15% of its annual gas demand. The Baltic countries also need more storage capacity. Turkey has a huge domestic gas demand but its storage capacity is still small compared to its consumption. We can work with regional countries to offer storage capacity,” he said.

Pereloma added that Ukraine itself might be looking to introduce storage quotas for all domestic companies.

ENERGY UNITS

He said government plans to enforce the switch to energy units which were due at the start of May 2022 had been postponed because of risks and uncertainties linked to war.

He said the storage operator and transmission system operator, GTSOU, were already calculating volumes both in cubic metres and kilowatt hours but added that the official switch could not go ahead immediately as this would involve introducing new metering equipment which may not be possible in areas affected by combat.

Pereloma also confirmed there were no plans to change storage tariffs for now. However, he said that should tariffs change in the future, they would continue to reflect the balance between UTG’s expenses and the commercial attractiveness for customers.

He said he was hopeful Ukraine would emerge victorious and would see more companies returning to the market but conceded that much will depend on the political risk as well as the evolution of hub prices this year.

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