Ukraine gas storage can handle zero Russian transit scenario – UTG director

Aura Sabadus

08-Feb-2024

  • Ukrainian storage interest in 2023 high despite war-related risks
  • UTG overhauling services, keeps tariffs low to draw further interest
  • Early injection season to help avoid congestion later in summer

LONDON (ICIS)–Ukraine’s natural gas storage facilities are prepared to handle injections and withdrawals even in a scenario where there is no Russian gas transit from 2025, the acting general director of operator Ukrtransgaz (UTG) told ICIS in an exclusive interview.

Roman Maliutin said the expiry of the Russian transit contract will have a minimal impact because the terms of operations agreed between itself and the Ukrainian gas transmission system operator, GTSOU, do not depend on the actual transit.

“One of the non-critical but foreseeable consequences is that in the absence of transit, pressure at the points connecting the transmission network and underground storage facilities may reduce, which will lead to an increase in gas consumption for production and technological needs during the period of [injections]. However, this will not affect the operator’s ability to fulfil its obligations to customers,” he explained.

Ukraine’s contract with Russia expires at the end of this year and local officials have insisted they would not be looking to renew.

Nevertheless, there had been suggestions that some companies may be looking to negotiate moving the delivery point from Ukraine’s borders with EU countries to Ukraine’s border with Russia.

All scenarios are closely analysed because companies are also interested in using Ukraine’s vast storage sites to help optimise portfolios and build backup supplies. Under current arrangements, some of the transit volumes were injected into storage.

If there is no transit, the gas would be physically imported from neighbouring EU countries into Ukrainian reservoirs.

EXPANDING IMPORT CAPACITY

Currently, Ukraine’s combined physical import capacity at borders with Poland, Slovakia and Hungary stands at 54mcm/day, but this could be increased if up to 7bcm/year of gas was imported from the Balkans via Romania and Moldova. This would amount to 11-19mcm/day of gas that could be shipped from LNG terminals in Greece.

More physical capacity could also be made available on western borders, subject to increases made by neighbouring Slovakia, Hungary or Poland.

Maliutin encouraged companies to start injections in April to avoid congestion later and noted that UTG was working to offer new services.

“We plan to reorganise the capacity types for booking, namely to add a possibility of booking firm capacity and conditionally firm capacity for periods of less than one year. Customers will be able to book capacity for several months during a year,” he said.

Furthermore, UTG intends to synchronise the allocation of capacity with transmission border capacity auctions and introduce day-ahead bookings of working capacity.

Although Ukraine’s storage facilities are the largest in Europe and storage tariffs have been some of the cheapest regionally, the country is facing challenges from growing global competition.

“Around 76 new gas storges are currently under construction, which should add 55bcm/year to the total global capacity and another 99 are under design,” he said.

To attract more consumers, Ukraine has decided to keep storage tariffs unchanged until April 2025.

STORAGE INTEREST

Maliutin said last year Ukraine had attracted bumper storage interest despite heightened risks linked to Russian missile and drone attacks against Ukrainian civilian infrastructure.

“A total of 1,266 agreements have been concluded with UTG, including 163 with non-residents, which is 36% more comparing to the beginning of 2023” he said, noting the interest was primarily driven by the fact that UTG was the second European storage operator to be certified under EU rules as an independent entity.

Attractive summer-winter price spreads also incentivised companies to store as much as 16bcm by the start of the heating season in 2023.

Of this volume, 3.3bcm was injected in the customs warehouse (CWR), a regime which allows companies to keep volumes for three years without customs clearance. Around 2.5bcm held in CWR were imported by non-resident companies, a fourfold increase in 2022, he confirmed.

He expects up to 700mcm of gas held by non-resident companies to remain in storage by the end of the heating season.

Maliutin said companies had been reassured by a stress test conducted last year which showed that both the transmission and storage systems could withstand extreme scenarios of full gas curtailments and physical attacks on infrastructure.

UTG has started a new simulation for 2024-2025 to take into account a zero transit scenario and the results will be published in mid-April.

“That is why we are preparing to provide capacities for quite substantial injection volumes from the non-residents, up to two times bigger comparing to last year, and we have a set of measures planned to attract additional volumes to the UGS,” he said.

In the longer-term, UTG plans to decarbonise its activities using renewable energy sources, including hydrogen for technological process as well as upgrade facilities to accommodate green gases such as hydrogen or biomethane, or convert some sites for carbon capture and storage.

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