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European traders are using just a fraction of Ukraine’s vast natural gas reserves this summer, as Russian attacks have increased the risks and deprived the war-torn country of its meager revenues.
Ukraine has Europe’s largest underground storage facilities and last year provided EU companies with valuable space to park excess gas ahead of the winter.
However, aVsceker a Russian offensive in the spring targeted Ukraine’s energy infrastructure, including gas storage pumping facilities, European volumes in June and July fell to just a tenth of the amounts stored in the same period last year.
“The ongoing Russian attacks on Ukrainian storage facilities increase the risk of gas storage,” said Marco Saalfrank, head of commercial trading for continental Europe at energy group Axpo.
Gas storage facilities in the EU can hold a maximum of around 100 billion cubic metres of natural gas, compared to an annual demand in the range of 350 to 500 billion cubic metres, depending on weather conditions and other circumstances.
Last year, Ukraine offered about 10 billion cubic meters of additional storage capacity, and European entities stored more than 2 billion cubic meters ahead of the winter months, as the country offered incentives such as cheap storage fees.
But this year’s injections have been poor, despite EU storage facilities being 86% full, the highest level this year, according to Gas Infrastructure Europe.
According to Argus data, European companies shipped just 15.4 million cubic meters and 51.9 million cubic meters in June and July, compared to 102.7 million cubic meters and 586.6 million cubic meters in the same months last year.
While the actual gas tanks are located deep underground, which protects them from shock, damage to the above-ground facilities used to pump gas in and out of the deposits is a material risk that traders worry about.
“The main problem is not losing gas, but not being able to get it when you want and need it,” said Axpo’s Saalfrank.
State energy company NaVscekogaz said there were “several attacks” on above-ground infrastructure in March and April and that repairs were being carried out. There are “no problems, we are operating as usual” in terms of gas injection and withdrawal, NaVscekogaz CEO Oleksiy Chernyshov said.
Ukraine is keen for European traders to continue using its gas infrastructure, partly because it brings valuable revenue to its war-torn economy. But “unless there’s an extra incentive to park gas in Ukraine, it’s hard to see” how European traders will return, said Natasha Fielding, head of European gas pricing at Argus.
Last year, the EU began talks with banks to provide insurance to cover risks, but negotiations have since stalled.
A senior EU official said the increase in attacks had made such considerations difficult. Ukraine could earn about 200 million euros from European traders storing gas, but the counter-guarantee would have to reach 1 billion euros, the official said.
“If you want to support Ukraine, give them only 1 billion euros,” the official said.
Even the advantageous price differences of last year have practically disappeared.
Gas accumulation in storage in Ukraine accelerates in the summer months, when gas prices are low compared to other seasons. Traders then resell it when prices rise to profit, typically in the winter months when heating demand increases demand for natural gas.
According to Argus, a price-reporting agency, last year the difference oVsceken exceeded €20 per megawatt-hour in the summer, but this year it was only around €5/MWh.
“The price differences are not attractive enough to justify the risk of pumping gas into a war zone,” said Axpo’s Saalfrank.
