Friday

2nd Dec 2022

EU mulls involvement in Ukrainian gas storage

  • Ukraine has huge storage facilities for natural gas (Photo: naftogaz.com)

The EU could be prepared to pay Ukraine for use of its gas storage facilities instead of building new ones itself but only if Kiev cleans up its energy sector.

EU member states are to consider the idea in upcoming energy security discussions but implementation would depend on Ukraine's clear separation of storage and distribution companies, EU officials have said.

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In addition, EU governments have no appetite for paying the country's outstanding debt to Russia which could lead to new gas cuts.

The lack of sufficient gas storage facilities in the EU became evident during the January gas crisis, when Russia turned off the gas supply through Ukraine for ten days due to a pricing row.

With Ukraine hosting largely underused storage facilities of 35 billion cubic metres, almost as much as the total EU storage capacity, "the question is if instead of investing in new facilities, it would not be possible for Ukraine to act as a service provider for gas storage," said Jean-Arnold Vinois, an EU commission official in charge of energy security, at a debate on Monday (25 May) on this topic organised by Security and Defence Agenda, a Brussels-based think tank.

"But all this will depend on the Ukrainians creating the right conditions for the gas system to be in line with EU rules of transparency and clear separation between transmission and storage," he added.

Currently, Ukraine's state-owned Naftogaz provides for production, transmission and storage of both oil and gas, as well as drilling, construction and research work, according to the company's website.

It also says Naftogaz has disputed contractual agreements with Gazprom and non-transparent relations with energy intermediaries such as RosUkrEnergo importing Caspian gas via Russia.

A Russian diplomat present at the debate said Moscow was "in general" favourable to all "joint efforts to increase the security of supply", but pointed to the more pressing financial issue concerning Ukraine.

Unless the EU is ready to pay for Ukraine's debt together with Russia, "we will see the repetition of the situation we've witnessed in January," Alexander Krestiayanov, Russia's deputy ambassador to the EU, said.

Yet member states are reluctant to give in to Moscow's proposal to share Ukraine's financial burden, pointing to the existing commercial agreements with Gazprom, which stipulate that gas is traded at the EU border, meaning that the Ukrainian dispute is solely up to Kiev and Moscow to sort out.

"Gazprom is under the contractual obligation to sell its gas at the EU border, how you [Russia] deal with Ukraine is your problem and yours alone. This January you've tried this trick already, we refused to pay for it. We paid a fair price at the EU border and you'll have to deal with Ukraine yourself. Good luck," the Czech ambassador-at large for energy security Vaclav Bartuska said at the event.

During the January gas crisis, Gazprom reportedly lost some €1.4 billion in the ten days it cut off supplies via Ukraine, which accounts for 80 percent of the Russian gas exported to Europe.

Gazprom also lacks the large storage facilities Ukraine has. These were set up during Soviet times after the gas fields in Ukraine were exhausted and new fields were developed in northern Russia. The Russian state monopoly reportedly had to flare up some of the gas it could not store or export to Europe, at a time when gas prices were much higher than now.

Meanwhile, Ukraine, whose economy shrank by 20 percent in the first three months of 2009, faces new debts to Gazprom as it needs some €3.5 billion to fill its gas tanks, emptied during the January crisis.

"Right now, gas must be pumped into underground gas reservoirs because with gas storage facilities empty, Ukraine's economy and community services will not be able to operate in the autumn-winter period," Russian Prime Minister Vladimir Putin said on Monday.

A deal signed in March between the EU commission and the Ukrainian government to help modernise the transit and storage facilities sparked Moscow's anger, with Mr Putin now pushing for guarantees that Gazprom will take part in this undertaking.

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