EU Traders Boost Gas Flows to Ukraine Eyeing Its Storage Sites

Ukraine expects a jump in natural gas flows to the country from the European Union as traders are interested in its spare storage capacity to stash fuel for the forthcoming winter.

(Bloomberg) — Ukraine expects a jump in natural gas flows to the country from the European Union as traders are interested in its spare storage capacity to stash fuel for the forthcoming winter.

With European inventories already fuller than normal, market players are looking at Ukraine — a risky destination but one with huge storage sites and lower fees. Capacity bookings that traders are making to ship fuel into Ukraine are expected to rise in the third quarter, according to the nation’s grid.

Read more: Europe’s Plan to Avert an Energy Crisis: Stash Gas in Ukraine

Bookings made with European networks, bordering with Ukraine, already signal a potential flow of 18.2 million cubic meters a day in the third quarter, the grid’s media service said. Capacity auctions held by the Ukrainian network have confirmed 6.9 million cubic meters a day for July, and 3.5 million cubic meters a day for the quarter, but more volumes could be reserved later, the grid said.

Ukraine has offered European traders the use of more than 10 billion cubic meters of its underground storage facilities — roughly a third of the country’s vast capacities left from the Soviet era and 10% of the EU’s.

With Europe’s gas inventories near record-high levels and on track to completely fill up before the end of summer, the region is considering whether it’s worth the risk to lean on underused storage sites in Ukraine to stockpile more of the fuel, analysts at BloombergNEF said Tuesday. Winter contracts trading at a premium to near-term prices are increasing attractiveness of storing as much gas as possible.

Yet, to make stockpiling the vital fuel in Ukraine viable, summer prices may need to fall further from current levels to justify the costs. The EU will also likely need to step in to provide a backstop against potential losses related to the conflict in the country.

–With assistance from Anna Shiryaevskaya.

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