Brussels is in talks with banks to offer guarantees to companies willing to store their gas in Ukraine’s massive underground gas storage facility, despite the possibility that it could be destroyed.
The war-torn country has the largest gas tanks in Europe and has offered its capacity to European companies facing potential oversupply next winter as storage levels within the bloc are already at record highs.
But companies are struggling to store gas reserves in Ukraine, even though 80 percent of underground facilities are located in the west of the country, furthest from the front lines. Russia has targeted Ukrainian gas pipelines in previous attacks, but so far no underground storages have been hit.
At the moment, only a few companies with a high risk tolerance use Ukraine’s storage. European Commission Vice-President Maroš Šefčovič told the Financial Times that to encourage use “on top of the competitive prices offered by the Ukrainians, we need to work on guarantees for international actors”.
The commission is in talks with lenders such as the European Bank for Reconstruction and Development “to develop this idea into a working project, which would further enhance Europe’s energy security,” he added.
Four EU officials also confirmed the talks. A commission official said Brussels was talking to both governments and financial institutions about providing “adequate insurance cover”, adding that this would help “lower the risk premium associated with the situation in Ukraine”.
The EBRD confirmed that it was in contact with the committee, but declined to comment on the discussions. The European Investment Bank said it had been consulted but said it would violate its policy of not financing fossil fuels.
Ukraine’s storage, owned by the state gas company Naftogaz, has a capacity of 31 billion cubic meters of gas. Of that, according to Naftogaz, it could offer up to 10 bcm to European companies with an opportunity to expand that to 15 bcm if Ukraine can recapture Russian-held territory. This will contribute to the EU’s underground gas storage capacity of approximately 115 bcm.
“Ukraine has the largest underground gas storage in Europe and an extensive transmission infrastructure, capable of supplying more than 15 countries,” Naftogaz told the FT. The storage capacity that Ukraine can provide “is extremely important for those European countries that do not have their own storage facilities and want to build up reserves for the winter,” it added.
Naftogaz subsidiary Ukrtransgaz, which operates the storage sites, was certified in April as a gas storage operator meeting EU standards – a prerequisite for using Ukrainian gas storage for the bloc’s strategic gas reserves.
Storing European gas in Ukraine’s tanks would be a way to provide Kiev with revenue to prop it up against Russia’s full-scale invasion. Before the invasion, 28 countries had gas in Ukrainian storage, but apart from Moldova, officials would not disclose which countries currently had gas stored in the tanks for security reasons.
EU gas storage tanks are 68 percent full, an unusually high level for June due to a lack of demand during the mild winter. Researchers at Columbia University’s Center on Global Energy Policy warned this week that Europe may be facing oversupply and that Ukraine’s “underutilized and readily available” storage was “a unique opportunity for Europe to use its current – but temporary – gas surplus. to continue through the winter and beyond.”.
But infrastructure risks amid ongoing Russian missile strikes on Ukrainian cities and Kiev’s partial ban on gas exports following last year’s full-scale invasion of Moscow have resulted in a loss of appetite among European companies.
“If the EU can come up with a scheme that would protect companies against potential losses related to the storage of gas in Ukraine, it could encourage a wider variety of companies to store gas in Ukraine,” said Natasha Fielding, head of European gas pricing at Argus. Media.
If Ukrainian storage “gains more appeal”, she added, it could provide “a greater buffer to meet demand in case of extremely cold weather or unplanned supply interruptions this winter or in subsequent winters”.
Additional reporting by Christopher Miller in Kiev
