Capacity bookings suggest quick Ukraine stockbuild

Strong demand for May monthly exit capacity towards Ukraine at the Polish and Hungarian borders could indicate strong injection demand next month.

Around 88 GWh/d of monthly capacity at Beregdaroc was sold yesterday, on top of an earlier 106.4 GWh/d of second-quarter capacity in an auction last month. The monthly capacity auction result was the highest at the point since at least November 2018, and left booked capacity close to the point's current capacity of 206.7 GWh/d. But this will expand dramatically to almost 975 GWh/d from 1 May with the introduction of backhaul through the merging of this and the adjacent Beregdaroc point carrying flows to Hungary into the Bereg virtual interconnection point (VIP).

And yesterday's auction for monthly capacity at the Drozdowice point with Poland was oversubscribed, with capacity sold at a high premium to the starting price. About 40.5 GWh/d of the 40.7 GWh/d offered at the point was allocated. And there were even stronger bookings earlier at the adjacent Hermanowice point, with all of the 45.3 GWh/d capacity allocated.

Capacity at Ukraine's border with Slovakia is marketed bilaterally. Bookings this quarter may be weaker than in recent previous years, when Ukraine's state-controlled supplier Naftogaz held most capacity long term and nominated strong imports at Budince. The firm said this week that it plans to minimise imports as it has sufficient gas in storage — and access to production — to meet demand until the end of winter. But other firms could book capacity instead of Naftogaz.

Quick imports feed stockbuild

Ukraine's stockbuild has outpaced that of its adjacent markets this month (see stockbuild graph). This may be as a result of Ukrainian storage being cheaper than in neighbouring markets and the flexibility provided by the country's short-haul and customs free-warehouse programmes — which give firms access to Ukraine's vast storage capacity to store and re-export gas.

Quick imports have helped feed these injections, especially as production slid on the year, rising to 35.5mn m³/d on 1-27 April from 29.3mn m³/d in all of April 2019. Ukrainian net injections were 23.5bn m³/d over the same period, quicker than the 21.9mn m³/d in April last year, when Naftogaz probably played a large role in adding to inventories. Stockbuild at this pace for the rest of summer would lift stocks to 20.1bn m³ on 1 October. This would be just 400mn m³ below last year's 1 October figure.

Ukrainian import capacity is now more directly tied to Gazprom transit through the country, as virtual backhaul at some physical border points depends on physical exports, which are mostly Russian deliveries. And Russian transit this year has fallen well below the 178.1mn m³/d bookings made under its five-year deal with GTSOU and Naftogaz (see transit graph).

Transit through Poland could fall next month, as the long-term contract between Russia and Poland along that route expires on 17 May, which could result in more supply being initially sent through Drozdowicze and allow more of the booked backhaul capacity to be used. Some of the other flow volumes currently transiting Poland could be re-routed to other Ukrainian border points, depending on the location of the end-user. And some of Gazprom's customers may not need quick deliveries as measures taken to contain the Covid-19 outbreak continue to cut into demand.

Imports from Slovakia have fallen this month compared with March, in contrast to flows at other points (see imports graph). But this could change next month, if Eustream begins offering discounted daily capacity towards Ukraine.

Hungary's gas transmission system operator FGSZ began discounting monthly and daily exit capacity towards Ukraine from 9 May, following a decision of Hungarian regulator Mekh, which may have encouraged the quicker flows at the point this month and strong bookings for May. Ukraine and Hungary's gas transmission system operators said today that both of their shared border points will be merged into a single VIP from 1 May.

A VIP arrangement is planned to be implemented this quarter at the Polish-Ukraine border points. And GTSOU and Eustream also intend to merge the Budince and Velke Kapusany points into a VIP, although long-term bookings on the Slovak side of Velke Kapusany are complicating efforts.

By Paul Martin

Gazprom transit flows through Ukraine rising mn m³/d

Early-year imports quicker GWh/d

Ukraine stockbuild so far largest TWh