EU Taps Ukraine Storage Facilities to Secure Gas Supply

The European Union had about 3.53 trillion cubic feet (100 billion cubic meters) of stored gas as of this week, only six percent short of reaching capacity.

While this level shows the region is moving toward stabilizing the market, the EU has started sending gas to Ukraine for future re-export to the bloc to help secure supply, EU Energy Commissioner Kadri Simson said Thursday.

The 27-member group had a month ago already reached its annual target of restocking gas storage facilities to at least 90 percent of capacity. On August 18 the EU Directorate-General for Energy reported 3.28 trillion cubic feet (93 billion cubic meters) or 1,024 terawatt hours (tWh) in store, 90.12 percent of capacity.

"This week, EU-wide storage level is at over 94 percent of capacity", Simson told a forum in Warsaw Thursday, according to a transcript on the European Commission website. "Having in storage approximately 100 bcm [billion cubic meters] sends an important signal to stabilize markets.

"Additional volumes are now flowing towards Ukraine, and Ukraine's significant storage capacity is already being used by customers".

Simson added she is working with Ukraine Energy Minister German Galushchenko "to facilitate further regulatory de-risking, to allow EU companies to tap fully into the potential of Ukraine's very big gas storage".

The EU had used storage facilities in Ukraine for extra supply in 2020, as confirmed by Ukraine's state-owned gas storage operator Ukrtransgaz JSC. The EU accounted for the majority of the 353.15 billion cubic feet (10 bcm) non-resident contribution to Ukraine's 2020 injection of 999.41 billion cubic feet (28.3 bcm) that year, the highest level over the last decade, Ukrtransgaz said in a press release November 17, 2020.

That was before Russia invaded Ukraine February 2022, but Simson said in the Poland forum "gas can be re-exported back [from Ukraine] to the EU even under stress conditions".

Eighty percent of Ukrtransgaz' total storage capacity of 1.09 trillion cubic feet (30.95 bcm) is "close to EU", Ukrtransgaz said in a report to the EU-led Energy Community agency dated September 1, 2021. "Ukraine's compliance with the requirements of the Third Energy Package proved its intentions for integration to EU gas market and, accordingly, developed the business interest of international players", it said in the report, referring to a set of EU rules adopted 2009.

Non-government research organization Bruegel warned July that at the pace of replenishment this year, EU storage facilities "will be full [as early as September] and winter demand will not yet have picked up".

"This capacity limit could undermine the EU’s ability to carry gas over from gas-abundant summer months to potentially gas-scarce winter months", it reported July 18, telling the EU to again seek Ukraine's spare capacity of 100 tWh.

"Historically developed to ensure stable flows from the Soviet Union to Europe, the storage facilities in Ukraine are large and located on the country’s western borders", Bruegel said.

But it noted "European traders might worry that Ukraine will not send the gas back to the EU in a very cold winter". However, Ukraine's desire for accelerated membership with the EU should give the bloc confidence the country reexports gas in time of need, Bruegel said.

In her speech at the Energy Security Beyond 2023 conference Thursday, Simson warned "volatility is still weighing on energy markets".

"It's true that we're in a much more comfortable position. But the EU is now more reliant on LNG [liquefied natural gas] imports", she said. "And this leaves markets more wary of any potential supply disruptions".

Simson said gas prices in Europe had risen eight percent last week following news of a strike at LNG facilities in Australia. Workers at Chevron Australia Pty. Ltd.'s LNG facilities started their planned strike of at least three weeks on September 8 after the two sides failed to reach a bargaining agreement. The Chevron Corp. subsidiary confirmed the commencement of so-called protracted industrial action at the Gorgon and Wheatstone facilities in an emailed statement to Rigzone on Monday, saying it was formally asking Australia's Fair Work Commission for the tribunal to exercise the government's legal option to enforce its own terms of employment.

"Beyond market volatility, we also need to factor in warm summers, cold winters, unplanned nuclear outages, or limited hydropower supply", Simson added. "All of this could lead to a higher use of gas for electricity production here in Europe".

"For now, however, the outlook is much better than last year and looks stable", she assured, saying the EU is continuing its efforts to ensure security in supply and independence from Russian fossil fuels.

Besides filling storage facilities, these include reducing demand such as through "structural energy-efficient measures", accelerating renewables deployment and boosting "diplomatic relations" for LNG trade, she said.

To contact the author, email jov.onsat@rigzone.com