Page 4 - FSUOGM Week 04 2020

FSUOGM COMMENTARY FSUOGM
Naftogaz showcases
spare gas storage
Ukraine wants traders to make use of its vast network of gas storage facilities
UKRAINE
WHAT:
Ukraine wants to offer European traders 10 bcm of gas storage space this year.
WHY:
Roadshows will be held in February and March.
WHAT NEXT:
Ukraine needs Russia’s blessing to find new suppliers to make use of its transit pipelines.
UKRAINE’S national gas company Naftogaz plans to stage two roadshows in February and March, inviting traders to make use of its vast network of underutilised gas storage facilities.
The country has the capacity to store around 31bn cubic metres (bcm) of gas, representing the largest storage base in Europe. But only around 17.2 bcm of this capacity was in use, as of January 26, and this is expected to fall to 13 bcm by the end of winter.
Many of the underground caverns were built during the Soviet era, to ensure stable gas supplies to other USSR members and east- ern bloc countries. But maintaining such an extensive network is costly, especially when underutilised.
Naftogaz’s invitation to traders comes at a time when gas prices in Europe are at a record low. The European gas market is facing a supply glut, as a result of rising LNG supply from coun- tries like the US and Australia, and soft prices in Asia.
Gas imports to Europe surged to 520 bcm last year, as an 88% growth in LNG supplies to 95 bcm more than offset a 5% decline in piped gas shipments. Oslo-based Rystad Energy pre- dicts average gas prices at the Netherlands’ TTF, Europe’s largest trading point, to drop to $4.5 per mmbtu in 2020, down from $4.9 in 2019 and $7.9 in 2018.
Naftogaz wants to capitalise on this trend, by inviting traders in central and eastern Europe to store cheap gas now that they can sell on when prices are higher.
“There are 20 to 30 potential clients who could use our storage in significant amounts and there are a 100 small ones,” Naftogaz CEO Andriy Kobolyev said in an interview with Bloomberg at the World Economic Forum in Davos last week.
Storage inventories in Europe are already high, as a result of companies stocking up last year to take advantage of low prices and safe- guard against a potential disruption to Russian gas transit via Ukraine at the start of this month. This disruption did not occur, as Naftogaz and Gazprom signed a new five-year transit deal on December 30, just a day before their previous contract was due to expire.
With continued supply now assured, storage
facilities in Europe are slowly emptying again. Naftogaz plans to offer around 10 bcm of storage space to traders this year – a similar amount to last year, company spokeswoman
Aliona Osmolovska told Bloomberg.
Transit capacity
According to Kobolyev, the future use of Ukraine’s pipeline network will depend on whether Nord Stream 2 is finished before the country’s new transit deal with Russia runs out at the end of 2024.
“If the US sanctions will not be lifted -- and we believe they should not -- we doubt Gazprom will be able to finish the pipeline,” he said. “We’re counting a lot on the support of the US. We’re very grateful for the sanctions in place, which I believe played a very important role in our ability to achieve the new contract.”
Ukraine’s gas transit capacity stands at 140 bcm per year, but the country handled under 90 bcm of Russian gas in 2018. Under the new deal, Russia is only required to send a minimum of 65 bcm of gas to its European customers via Ukraine in 2020, and 40 bcm per year between 2021 and 2024. Gazprom is diverting gas that would normally pass through Ukraine to its TurkStream pipeline to Turkey, which started up earlier this month. The company hopes to transfer additional volumes to Nord Stream 2 at a later point.
Naftogaz is therefore seeking companies to fill its transit system to ensure its survival. But getting new customers will require Russia’s blessing.
Gazprom currently has exclusive rights to Russia’s gas export pipelines, and Moscow would need to pass a law to end this monopoly. Russian government officials have discussed the prospect of liberalising the country’s pipeline exports for many years. But there are those that fear that doing so would drive down the price of Russian gas abroad as a result of competition.
“We’re looking to attract new users, but that will depend on whether Russia and Gazprom in particular will allow companies and producers in Russia or Turkmenistan to use our system,” Kobolyev said. “Then there could be more users and more flows.” ™
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w w w. N E W S B A S E . c o m Week 04 29•January•2020