Ukrainian gas demand falls in June

Ukrainian gas demand fell in June, enabling the country to continue storage injections despite the halt of Russian deliveries from 16 June.

June's consumption slipped to 1.19bn m³ from 1.49bn m³ in May and 1.61bn m³ a year earlier, according to system operator Ukrtransgaz. Imports fell to 2.04bn m³ from 3.71bn m³ in May, but up from 926mn m³ a year earlier. Imports were strong in the first half of the month until Gazprom halted deliveries to Ukraine. The Russian firm demanded prepayment from Naftogaz after failing to reach an agreement to end their dispute. Gazprom has said it will not resume discussions until Naftogaz clears its debts, which the Ukrainian company has refused to repay until a deal on pricing is reached. Gazprom says Naftogaz owes $5.3bn after failing to meet the deadline for June supply.

Ukraine continued injections after the halt to Russian deliveries. The stockbuild fell to about 20.8mn m³/d after 16 June from 115.2mn m³/d on 1 May-15 June. While injections have continued since the halt to Russian deliveries, they were not high enough to take stocks to the 18.5bn m³ Gazprom says Ukrainian needs in storage to ensure uninterrupted transit to western Europe. Inventories stood at 14.4bn m³ on 4 July, and if the recent stockbuild is maintained it would take reserves to 16.2bn m³ by 1 October.

But Ukraine could meet domestic demand this winter with reverse flows from Europe and gas from storage if consumption is cut by 20pc or about 6bn m³, Naftogaz chief executive Andriy Kobolev said last week.

"We are planning to launch an energy-saving campaign for households and industry and hope that this will reduce gas consumption by 6bn m³, or 20pc, for the 2014-15 winter," he said.

Ukrainian demand totalled 35.8bn m³ last winter, according to Ukrainian government data, although consumption has fallen sharply so far this year. Demand fell to 21.9bn m³ in January-June from 25.5bn m³ a year earlier, according to Ukrtransgaz.

Ukraine could meet demand of about 33.6bn m³ this winter, but this would require completely draining storage and importing from the EU at full capacity throughout October-March. Ukrainian production was broadly steady at about 54.1mn m³/d in January-April — excluding Chornomornaftogaz output — while the firm could import about 13.9mn m³/d from Poland and Hungary. Reverse flows from Slovakia are scheduled to start in September and could flow at up to 10bn m³/yr, which would allow about 5bn m³ to be delivered in the winter. Ukraine could also have about 16.2bn m³ in storage — given recent injection rates — although companies other than Naftogaz injected into sites last year.

But strong withdrawals, particularly in the event of cold weather, could reduce supply to meet demand later in the winter. And low stocks could reduce Ukraine's ability to ensure uninterrupted transit to western Europe, according to Gazprom. And while consumption of 33.6bn m³ would only be 2.2bn m³ lower than last winter, temperatures in Kiev were 1.69°C above the seasonal norm, curbing demand.

"There is a chance that Ukraine will begin stealing gas from transit volumes in autumn," Gazprom chief executive Alexei Miller said on 27 June. Ukraine has promised Gazprom and the EU that it will fulfill its transit commitments. But if Ukraine can reduce its domestic consumption enough to be able to meet demand through the winter it could prolong the dispute. And Russian imports remaining at zero would limit supply next summer for injections, which could reduce available supply heading into the following winter, unless a deal is agreed.

Ukrainian transit to western Europe fell to 5.88bn m³ in June from 7.11bn m³ a year earlier. Transit to western Europe fell to 35.1bn m³ in the first half of the year from 38.2bn m³ a year earlier.

vg/eb/cm

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