German utility RWE expects higher utilisation of Ukrainian gas storage by western European infrastructure users this summer and in the coming years.
The Ukrainian system "works", with various European companies having already tested it, RWE's chief commercial officer, Andree Stracke, told Argus. "The question is, why not?", Stracke said, when asked whether European firms were expected to store gas in Ukrainian facilities this summer to help Europe balance amid low injection demand elsewhere and strong anticipated LNG imports.
RWE already used Ukrainian storage this winter, Stracke said.
RWE assumes that European infrastructure users will "step by step" make more use of the Ukrainian gas and storage system in the coming years. In a new market, it is necessary to build up "trust and experience", and individual companies will have varied opinions on whether they feel comfortable relying on the Ukrainian system, he said.
Ukrainian storage was historically used by Russia and Ukraine to help wider Europe balance, before additional European gas storage capacity was built up in the mid- to late 2000s, Stracke said.
Ukrainian energy regulator Nerc last month approved a discount for cross-border gas transit fees that would reduce the cost of using the country's grid to transfer gas between markets, while the state-owned storage operator today said it will seek to set storage tariffs on a fixed, multi-year basis to encourage higher use of its facilities. Ukrtransgaz also has a customs-free storage programme enabling firms to reserve Ukrainian storage for up to three years without paying taxes or customs duties on gas subsequently re-exported to neighbouring European countries.
And the signing of a new transit agreement with Russian state-owned Gazprom removed "legacy bottlenecks" that "existed in relationships" between previous system operator Ukrtransgaz and neighbouring system operators, Naftogaz chief executive Andriy Kobolev said last month. Gazprom and Naftogaz signed a deal on the continued transit of Russian gas through Ukraine in 2020-24, with the previous agreement having lapsed at the end of last year.
Naftogaz earlier this week said it does not plan to inject into its storage this summer. But Naftogaz's commercial decisions, in any case, are irrelevant to the question of whether European firms will make more use of spare storage capacity, given that Naftogaz has not used Ukrainian storage to its full extent in recent years, Stracke said.
Ukrainian stocks have peaked in recent years at nearly 21.8bn m³, which was reached in late October 2019 when Naftogaz built up especially high inventories to mitigate the risk of a disruption to transit flows. But this was still well below working gas capacity of about 31bn m³.
European firms storing more supply in Ukraine than in previous years could help offset a drop in European injection demand this summer, with facilities across the region firmly on track to enter April with a large overhang.
But Stracke raised the question of when European firms would need to withdraw the extra supply that can be held in Ukrainian storage. In order to clear stocks, "at some point we need proper winter weather", Stracke said.
Extremely cold weather in previous years has "exhausted the entire gas infrastructure", with little gas left in storage by the start of the summer. Sustained below-average temperatures late in the 2012-13 winter and into the first week of April 2013 left storage sites almost empty, he said. But this was "not foreseeable" for this winter, which is almost at an end, he said.
