Gas flush European traders look to store gas in Ukraine

Originally published at Europe in Review on March, 2024

European energy traders and utilities with excess natural gas supplies to meet EU capacity requirements and stave off a winter crisis are considering Ukraine as an option for storage.

Many companies are reportedly looking to store gas instead of selling it into the market to prevent a price downturn after a mild winter. European gas storage utilisation is currently at a record 62% for this time of year, and many energy companies and traders understand that planned 2024 gas imports will exceed continental storage capacity. [Bloomberg]

Ukraine has offered itself as an option to take additional storage. The war-torn country has significant storage capacity, which was used to store Russian gas before Moscow’s invasion in February 2022.

Ukraine touted 10 billion cubic metres (bcm) of storage in 2023, and the government hopes to expand capacity to 13 bcm this year. Analysts have noted that Ukraine can increase European storage capacity by 10%, and most storage terminals are in the western part of the country, away from the front line.

This storage may now be used not simply as safety reserve capacity but also as a trade resource to prevent market saturation.

Russia’s effort to pressure Europe by withholding energy supplies after Moscow’s invasion of Ukraine has been unsuccessful. Instead, Europe has primarily replaced Russian pipeline gas with seaborne imports of liquified natural gas and alternative pipeline gas sources.

New capacity

Over USD 290 billion in new natural gas projects are currently underway worldwide to expand global annual natural gas production capacity by nearly 300 million tons of LNG, equivalent to over 400 bcm of pipeline natural gas, a 70% increase over current levels, representing over 80% of current European gas demandThat is enough annual gas capacity to power half a billion homes and ensure natural gas’s relevance — and emissions — for decades to come. [IEA] [Bloomberg]

EU Energy Commissioner Kadri Simson announced that the EU could withstand a complete cutoff of Russian gas at the end of 2024 and did not encourage Ukraine to negotiate with Russia to extend the current five year supply agreement expiring in December. [SP]

Russia supplied 40% of European energy imports before the war. Russia supplied 155 bcm to Europe in 2021 but will supply 90% less in 2024 through one remaining pipeline, the Urengoy–Pomary–Uzhhorod Pipeline, otherwise known as the Brotherhood Pipeline, which runs through Ukraine. [Reuters] [Columbia U.]

(rw/gc)