How Ukrainian gas storage facilities will help the EU become energy independent from Russia

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“Ukrainian underground gas storages are the largest among the EU countries, the total capacity of Ukrainian underground gas storages is almost 29% of the volume of all gas storages in the European Union. Ukraine may well become the power bank of Europe.” – notes Oleksiy Chernyshov, CEO of Naftogaz Group.

Against the background of Russia’s gas blackmail, the European Commission launched REPowerEU – an initiative to end dependence on Russian gas by EU countries by 2030 in response to Russia’s full-scale armed aggression against Ukraine. The EU countries decided to take measures to increase the security of gas supply, create reserves in case of crisis situations and accumulate the necessary amount of gas for a sustainable heating season. Last year, Brussels for the first time set a minimum level of filling storages on the eve of winter. For 2023, this is at least 90% of the gas storage volume.

The main requirement for repositories is to be independent from structures associated with Russia. Therefore, all operators must be certified and prove it.

The operator of Ukrainian gas storage facilities Ukrtransgaz, which is part of the Naftogaz Group, was one of the first to start the certification procedure according to the new procedure and became the second gas storage operator in Europe to successfully passed certification

According to the head of Naftogaz, Oleksiy Chernyshov, this gives Ukraine the opportunity to store gas for EU countries in its storage facilities and thus become an important component of Europe’s energy security.

What opportunities will this open up for Ukraine and what role can our gas storages play in EU energy security and what will Ukraine gain from this?

Possibilities of Ukrainian PSG

Ukraine has 12 underground gas storage facilities with a capacity of about 31 billion cubic meters. 10 of them were created on the basis of exhausted gas deposits and two – in the water-bearing underground horizon.

The capacities of underground gas storage facilities are located in the western, central, southern and eastern regions of Ukraine.

The largest is the PSG cluster, which is located in the west of the country and unites about 80% of the underground capacities of the entire Ukraine. The location of gas storage facilities near borders makes gas storage more convenient for EU countries.

In 2020, Ukraine’s subways were 90% full. In other years, this indicator fluctuated at the level of 50-60%.

Taking into account the decrease in gas consumption in Ukraine due to the war, the need for gas for the country’s internal needs will decrease even more on the eve of winter this year. This means that Ukraine can offer free storage capacity to neighboring countries.

“Ukraine can provide European countries from 10 billion cubic meters of free space in gas storage facilities to prepare for the heating season,” says Oleksiy Chernyshov, head of the Naftogaz Group.

This is especially relevant for European consumers, who previously depended on direct gas supplies from Russia and did not have enough capacity to store gas.

For example, Poland can store about 15% of its annual gas needs. In Lithuania, Estonia and Moldova there are no underground storage facilities at all.

Rate for gas in storage

Last year showed that the most reliable way to stay with gas in winter is to accumulate it in storage in advance.

Therefore, in June of last year, the European Parliament approved a new regulation that the mandatory minimum level of gas in storage should be at the level of 80% by November 1, 2022. And in the next two years, the minimum volume will be 90%.

To solve this issue, in July 2022, the EU introduced a procedure for mandatory certification of gas storage operators.

The main purpose of the certification is to prove that the operators of underground gas storage facilities are not influenced by third parties, in particular representatives of Gazprom or other Russian beneficiaries. The Belgian Fluxys Belgium NV was the first to undergo such a procedure

What does certification mean for Ukrainian gas storage facilities

The Ukrainian operator of underground gas storages JSC “Ukrtransgaz” became the second in the EU to certify its gas storages according to the new procedure.

On April 7, the National Commission for State Regulation in the Fields of Energy and Utilities (NKREKP), after approval from the EU, made a final decision on the certification of JSC “Ukrtransgaz” in accordance with European rules regarding the safety of gas supply.

The decision was made so quickly thanks to the coordinated work of JSC “Ukrtransgaz” with JSC “Naftogaz”, people’s deputies, the regulator NKREKP and the Ministry of Energy.

The law on certification of gas storage operators entered into force on January 1, 2023, and on January 24, the NCRECP adopted the necessary by-law act – Procedure for the certification procedure of gas storage operators. On January 27, JSC “Ukrtransgaz” submitted a request for certification.

“There was a preliminary decision on certification accepted already on the twenty-third working day instead of the legally prescribed 60 working days. Although the European rules for the EC Secretariat and the national regulator generally provide for no more than 50 working days between the preliminary and the final decision, it is thanks to the responsible position and urgent actions of the Commission that the same path was completed in half the time.” – says Roman Malyutin, head of Ukrtransgaz.

The certification confirms the right of “Ukrtransgaz” to store gas not only of Ukrainian companies, but also of non-resident companies.

Also, Ukraine received the official right to store in its warehouses not only commercial gas reserves of European companies, but also gas reserves formed in case of crisis situations by EU countries.

Without certification, Ukrainian PSGs would lose the opportunity to work with gas from EU countries and non-resident companies.

The deepening of cooperation with the EU will make it possible to maximally load the capacities of the Ukrainian PSG network and significantly increase the profit from the operation of storage facilities for Ukraine. This is also beneficial for European consumers, because the tariffs for gas storage in Ukrainian storage facilities are lower than in EU countries.

“Tariffs for gas storage in Ukrainian gas storage facilities remain at a very “attractive level” – they are the lowest in Eastern Europe and, even together with the cost of transportation, are more profitable than those of our European colleagues.” – explains Oleksiy Chernyshov.

Additional revenues from storage of larger volumes of gas than in previous years will increase the competitiveness of underground storage facilities and create prerequisites for replenishing the state budget. In particular, it will strengthen the energy security not only of Ukraine, but also of European partner countries.

War risks and guarantees for companies

Before the war, more than 100 non-resident companies from Europe, the USA and Asia and more than 800 Ukrainian companies stored gas in Ukrainian underground storage facilities.

After February 24, most foreign companies selected their gas reserves, which were stored in the “customs warehouse” mode, and practically did not inject new volumes, taking into account the geopolitical risks associated with the invasion of the Russian Federation.

The war year showed that it is safe to store gas in Ukrainian underground storage facilities. A few months after the introduction of martial law, some foreign companies again showed interest in cooperation with the Ukrainian operator PSG.

According to Roman Malyutin, last year, despite all the challenges it had to deal with, the Ukrtransgaz company did not reject any customer nominations and never referred to force majeure.

Currently, the possibility of introducing financial guarantees that will help level the risks associated with war is being discussed. The EU can provide multilateral financial guarantees against war risks for companies planning to store gas in Ukrainian gas storage facilities.

In particular, this issue was discussed in detail during the meeting of the head of Naftogaz Ukraine, Oleksiy Chernyshov, with the European Commissioner for Energy, Kadri Simson, in Brussels.

Currently, “Ukrtransgaz” together with “Naftogaz” is developing the idea of ​​creating an Eastern European gas hub in Ukraine.

The technical possibilities for this already exist. Cluster of underground gas storages of large capacity with a good geographical location near the borders will become an integral component of the energy security of Ukraine and the united Europe in the near future.

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