Foreign Gas Companies Return to Ukraine

Foreign gas companies are returning to Ukraine to inject gas into storage facilities, despite the high risks associated with Russia's military invasion. In an interview with the English-language publication ICIS, Serhiy Pereloma, acting CEO of Ukrtransgaz – the operator of Ukraine's gas storage facilities – emphasized that some foreign companies are coming back, particularly due to the European Union's current push to increase supply security. The EU requires companies to stockpile more gas in storage before the start of the 2022/23 heating season.

Before the war, Ukraine was striving to become a European gas storage hub, attracting over 100 foreign companies from Europe, the US, and Asia, as well as more than 800 domestic companies, all seeking to store gas in its underground storage facilities, with a total capacity reaching 30 billion cubic meters. However, the geopolitical risks preceding the war and the imposition of martial law after Russia's invasion on February 24 led to foreign companies withdrawing gas stored in the Customs Warehouse regime. This regime allows companies to store gas in Ukraine without customs clearance for up to three years.

“At the start of the heating season (October 1, 2021), over 2.5 billion cubic meters of gas were in the Customs Warehouse regime,” Pereloma says. “At the beginning of the war, small amounts of gas remained in the Customs Warehouse.”

RISK

Despite the Ukrainian government imposing restrictions preventing companies from withdrawing gas from storage or exporting it, these restrictions had little effect, as foreign companies had already removed almost all the gas from the country. The remaining gas volumes could have been sold in Ukraine during the ban.

After April 3, when the government lifted the restriction, companies were allowed to continue injecting gas into storage and exporting it if necessary.

Serhiy Pereloma mentioned that some companies have already expressed interest in returning, but he refrained from providing any details about the current amount of gas stored or being injected into the underground storage facilities. Ukrtransgaz stopped publishing information at the onset of the war due to risks related to physical attacks on infrastructure or cyberattacks. He noted that several Ukrtransgaz facilities are located in northern and eastern Ukraine, including those in Chernihiv and Luhansk regions, which have either been or are still under threat. However, 80% of Ukraine’s underground storage capacity is located in the western part of the country, farther from the frontline.

INTEREST IN STORAGE

Pereloma noted that the EU's recent decision to introduce a storage quota (the creation of a mandatory gas reserve in underground storage) could be beneficial for Ukraine. Brussels mandated that storage facilities in the EU must be filled to at least 80% by November 1, 2022, and to 90% by the same date in the following two years.

Ukraine insists that its underground gas storage facilities be used to create a strategic reserve for the EU, which would serve countries in the region, particularly Central and Western Europe.

"Poland can store only 15% of its annual gas needs. The Baltic States also need storage capacity. Turkey has enormous domestic gas demand, but its storage capacity is too small compared to its consumption. We can collaborate with countries in the region to offer storage capacity," he said.

Pereloma added that Ukraine may also consider introducing quotas (creating a mandatory gas reserve in underground storage) for all domestic companies.

ENERGY UNITS

He mentioned that the government's plans to transition to energy units, which were set to be implemented in early May 2022, were delayed due to the risks and uncertainties associated with the war.

Pereloma noted that both the Ukrainian Gas Storage Operator and the Ukrainian Gas Transmission System Operator are already calculating volumes in both cubic meters and kilowatt-hours. However, the official transition cannot be made immediately, as it would require installing new measuring equipment, which may be impossible in areas affected by hostilities.

Serhiy Pereloma also confirmed that storage tariffs for natural gas in underground storage facilities are not planned to change for now. However, he noted that if tariffs change in the future, they will continue to strike a balance between Ukrtransgaz's costs and the commercial attractiveness for customers.

The head of Ukrtransgaz is confident that Ukraine will emerge victorious from the war and will see more foreign companies returning to the market. However, he acknowledged that the development of the situation will depend on political risks and international gas hub prices this year.