European companies have accelerated withdrawals of natural gas from Ukraine as demand for heating increases during the winter months, reducing the chances of the continent suffering another energy crisis.
They had turned to Ukraine, home to Europe’s largest tanks, to store their reserves earlier this year despite the war in the country following Russia’s full-scale invasion of 2022.
That decision helped energy groups and traders to make only relatively small drawdowns from repositories in the European Union, analysts said, keeping gas prices low and making refilling them easier next year.
“Ukraine is playing a key role for central and eastern Europe’s security of gas supply this winter,” said Natasha Fielding, head of European gas pricing at Argus Media, a price reporting agency.
Calling on gas stored in Ukraine “helps Europe to keep its domestic stockpiles high, reducing the risk of sites nearly emptying over any sustained cold in late winter”, she said.
Ukraine has more gas storage capacity than any country in the EU, a legacy of its role as a critical transit country for Russian pipeline gas, which accounted for nearly 40 per cent of the EU’s gas supplies before the invasion.
The bloc was plunged into an energy crisis in 2022, with natural gas prices rising to record highs over the summer as Moscow slashed supplies.
Ukraine emerged as an alternative for holding gas destined for neighbouring states as storage sites in the EU reached near maximum capacity as early as mid-October.
The country also offered incentives such as cheap storage tariffs and custom duty exemptions for three years, allowing gas to be easily reimported to the EU as Kyiv seeks to further integrate itself into the bloc’s energy market.
Most tanks in the country sit deep underground in western Ukraine, far from the front lines, and Kyiv has offered up to 10bn cubic metres, a third of national capacity, to foreign customers. That adds to the 115 bcm of existing storage capacity in the EU.
European entities stored about 2.5 bcm of natural gas ahead of the winter months, according to Naftogaz, the state energy company, a record high since the Russian invasion of Ukraine.
Names of companies storing gas there are typically undisclosed because of security issues, but commodity trader Trafigura revealed in its latest financial statement that it is among them.
Companies began taking gas out of Ukrainian storage in early November, with net withdrawals averaging around 10.7mn cubic metres per day, according to Argus Media. That pace accelerated amid a cold snap in December, with net drawdowns nearly doubling to an average of 26 mcm daily until mid-December.
Argus said Poland received more than half the gas pulled out of Ukrainian storage, with the rest used by Moldova, Slovakia and Hungary.
The EU’s storage levels, despite the cold periods of weather, have stayed at nearly 90 per cent even in late December, well above the previous five-year average, according to industry body Gas Infrastructure Europe.
Ample reserves have helped keep European gas prices low; the benchmark Dutch Title Transfer Facility in December has been trading at around a third of its level of the same time last year.
Withdrawals from Ukrainian storage were “definitely helping keep European storage around the 90 per cent region”, said Nikoline Bromander, senior analyst at Rystad Energy.
Keeping these levels high during the winter months is important because it affects the level of difficulty the EU would face in refilling storage during summer, ahead of the following winter.
The European Commission has a target of 45 per cent full storage on average across the bloc by February 1 2024, but said member states should “strive to reach” 55 per cent.
Rystad forecast that barring major supply disruptions, and if demand continues at current subdued levels, the EU will be left with 80 bcm of gas in storage at the end of March, or about 70 per cent capacity.
“Europe is in a quite healthy position,” Bromander said.
