Ukraine set to miss 13.2 Bcm gas storage target by start of November

Ukraine is set to miss its target of having 13.2 Bcm of gas in its underground storage sites by Nov. 1, with just 12.5 Bcm currently in stock and storage levels having plateaued, data compiled by S&P Global Commodity Insights showed Oct. 28.

Storage levels are also well down on last year when Ukraine built stocks to just over 16 Bcm by the start of November, boosted by European traders that stored around 2.5 Bcm in the country.

But in 2024, European traders have failed to inject as much gas into Ukrainian storage facilities, instead opting to net withdraw volumes.

Ukrainian gas storage sites were also targets of Russian missile and drone attacks through March, April and May, dampening the appetite of European traders to store gas in Ukraine over the summer.

A narrower summer-winter spread also made storage economics less attractive in 2024 compared with last year.

Last week, the head of Ukraine's state-owned Naftogaz called for the "rational" use of energy over the coming winter, stressing that making it through the heating season was a matter of national security.

In a statement, Naftogaz CEO Oleksiy Chernyshov said the company would work closely with local authorities on energy use.

"Every community should be focused on energy efficiency because it is not only a question of saving energy resources and money, but also a question of energy independence," Chernyshov said following a meeting with regional authorities.

Ukraine's heating season officially began on Oct. 15, although the timings of the different regional district heating companies vary.

Power generators

Despite the low overall gas storage levels, Ukraine's deputy energy minister Mykola Kolisnyk said Oct. 25 that Ukraine had stored "sufficient" volumes of diesel, gasoline and gas to fuel back-up power generators in the country.

"As of today, the reserves have been formed at the proper level based on various resources for generation," Kolisnyk said, according to a ministry statement.

A significant number of generators running on diesel, gasoline or gas were imported into Ukraine as backup power sources.

"For all these groups of consumers, a sufficient level of stocks has been formed so that prices do not fluctuate during the winter, and we have seen clear confidence in the possibility of a stable heating season," he said.

Ukraine has also targeted another annual increase in its own gas production in 2024 to be able to meet demand over the winter without resorting to European imports.

Total Ukrainian gas production rose to 18.7 Bcm in 2023, from 18.5 Bcm in 2022, with Naftogaz upstream unit UkrGazVydobuvannya leading efforts to raise domestic output.

Ukraine's gas industry group AGPU said Oct. 17 that gas production would increase again in 2024.

Eliminating the need for imported gas this winter is a key priority for Kyiv not least given the current high cost of gas in Europe.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price on Oct. 25 at Eur43.47/MWh.

Cold winter

The International Energy Agency said Sept. 19 that Ukraine could need to import some 0.6 Bcm of gas before the end of October to meet its target of 13.2 Bcm of gas in stock by Nov. 1.

The IEA said that while under average weather conditions Ukraine could potentially meet all its demand from domestic production and storage, a colder-than-average winter could also increase import requirements through the season.

"A particularly cold winter -- similar to the one Ukraine faced in 2016-17 -- could increase gas used for heating in households by 25% (or 1.5 Bcm) compared with the 2023-24 winter season," it said.

The IEA said international support, including via loans and grants, was needed to support Ukrainian gas companies to ramp up imports ahead of the winter season.

It said that, based on spot prices at the beginning of September, the cost of procuring 0.6 Bcm of gas would be just over Eur250 million ($278 million).

The IEA also said the expected halt of Russian gas transit via Ukraine from January 2025 would mean the end of the use of backhaul -- or virtual reverse flow -- from the EU.

"This means physical west-to-east gas supplies from Central and Eastern Europe will be needed to bring additional gas into Ukraine, which could raise procurement costs due to transmission tariffs," it said.

The adequacy of supply is also subject to risks from further Russian attacks on gas infrastructure.

Traders have in the past used virtual reverse flow, where Russian gas transiting Ukraine is retained in Ukraine for storage rather than flowing all the way to Europe just to be physically sent back into Ukraine.

But the five-year gas transit agreement between Russia and Ukraine is due to expire at the end of 2024 and Ukrainian officials have repeatedly said Kyiv would not be party to talks with Moscow on any contract extension.