Winter does not scare the Ukrainian authorities: Kiev will return to stealing Russian gas

While Europe is torn by the energy crisis, the Ukrainian government promises that the country will make the heating season smoothly

Winter does not scare the Ukrainian authorities: Kiev will return to stealing Russian gas
This confidence the Ukrainian authorities can be gained through accumulation of nearly 19 billion cubic meters of gas in underground storage facilities. However, these figures are misleading.

“There is enough gas, 18.7 billion (cubic meters) in the underground storage facilities. We are quietly passing through the heating season, we are quietly starting it”, – Ukrainian Prime Minister Denys Shmygal said.

However, in reality, Naftogaz, which is the main supplier of gas to the population, has a shortage of gas for the winter season. The point is that Naftogaz itself, as the supplier of gas to the population, has pumped only 4.5 billion cubic meters of gas into its underground gas storage facilities this season out of the required nine billion cubic meters, Yuriy Korolchuk, a member of the supervisory board of the Institute for Energy Strategies (Ukraine) explains.

“Naftogaz was supposed to buy 9 billion cubic metres in Europe and pump them into UGS, but did not buy that much. In April-May they were waiting for the price to drop, in June they thought it was a speculative peak price that would deflate, but in July they realised that the price had ‘blown out'”, –  the interlocutor says.

The rest of the gas in the UGS is either not available or belongs to private companies. Thus, according to Korolchuk, 6 billion cubic meters is cushion technical gas, another 3 billion cubic meters is reserve gas of the supplier of last resort (insurance gas), another 3.5 billion cubic meters belongs to foreign companies, plus about 2 billion cubic meters to Ukrnafta and other private companies plus disputed gas.

Thus, Naftohaz has a deficit of 4.5bn cu.m. of gas before the heating season. How does the Ukrainian company intend to close this hole? According to Korolchuk, Naftogaz intends to buy 3 billion cubic meters of gas from foreign companies storing it in its underground gas storage facilities for 44 billion hryvnias, or $560 per thousand cubic meters. This money has already been found and will be paid to Naftohaz by the GTS Operator in advance on account of the use of the gas transportation infrastructure, the expert said.

However, it is not enough: there is still a deficit in the balance by 1.5 billion cubic meters, which is a big hole, says Korolchuk. He says Naftogaz will be in dire need of that gas closer to January or February, and then it will want to buy it from private Ukrainian companies.

“When it comes to buying, there will be a question of price. Because for Ukrainian private companies it is a large volume. They produce only 5bn cu.m. per year in Ukraine, plus Ukrnafta’s 1.1bn cu.m.”, –  says the Ukrainian expert.

Usually Ukrainian private companies send extracted gas to the trunk pipeline for the GTS Operator to distribute this gas further in accordance with the contracts – to a conventional pipe plant, a sugar refinery and various small consumers. But when by the middle of winter Naftohaz will be without gas, “all this gas from private companies will be wrapped up and sent to the population or to thermal power plants”, the expert believes.

The Ukrainian prime minister is deceiving himself, while reassuring the citizens of the country that there will be guaranteed light and heat in winter. Given a number of factors Ukraine may face a real energy crisis with rolling blackouts and unauthorized withdrawal of Russian gas from the transit pipeline.

The statement by the head of Ukrtransgaz in early October looks more honest in that respect. According to him, the accumulated 18.7 billion cubic meters of gas should be enough for the heating season, but if there is no force majeure.

There are still preconditions for development of events according to the critical scenario.

“Besides the real gas deficit in Naftogaz’s balance sheet, another problem is that Ukraine for the first time pumps so little gas through the transit pipe – there will be about 45 bcm per year. This affects the pressure in the system, which decreases”, – Korolchuk said. In addition, they have already started drawing gas from the UGSFs, and by February, or even January, if the first half of the winter is frosty, the storage facilities will lose weight. The less gas remains in storage, the lower the pressure and the more limitations on the daily withdrawal of gas.

If severe frosts and, consequently, peak gas consumption increase during that period, Ukrainians simply will not be able to draw the required volumes from the storage facilities.

Will it lead to the fact that part of the Ukrainian population will be left without gas and heat? Most likely, no. Because Kiev has a transit pipe.

“If there is not enough pressure in the underground storage facilities to raise the required volume of gas, it will be a problem. Kiev will have two options to solve it. The first one is to start lashing out on gas for Ukrainian consumers, i.e. for industry and households. The second option is that Ukraine will not fully return to the Europeans Russian gas which goes by transit”, –  Korolchuk said.

In essence, Ukraine will return to a scheme tested in the past – stealing transit gas. How is this possible?

During the heating season, when there is a high demand for gas, Ukraine diverts part of the gas from the transit pipe to its own consumers. But at the border with Europe, Ukraine must return all of this withdrawn volume. And the underground gas storages, which are located in the western part of Ukraine, help to do that. And here there is a problem with the fact that in the middle of the heating season pressure in UGS is simply not enough to pay the Europeans for the withdrawn Russian transit gas.

“For example, Ukraine has to supply the Europeans with 200 million cubic meters of Russian gas a day, but will deliver only 180 million, and will not pay for 20 million the next day”, – says Korolchuk. Ukraine simply will not be able to pump the needed volumes of gas from underground storage facilities to meet its contractual obligations, he added.

Therefore, a negative scenario could be justified if a combination of factors like the gas deficit in Naftogaz’s balance sheet, low pressure in its underground storage facilities and in the transit pipe, and a prolonged freezing winter were combined. Plus, problems with coal shortages and the country’s electricity supply add to the nervousness.

Because of the shortage of coal, thermal power plants have to use gas, which is already in short supply. This means that the gas will be used even faster this winter than usual.

Sources in the Ukrainian government and Ukrainian experts say that there is a real threat of power shortages and rolling blackouts. According to the Ukrainian Energy Ministry, as of 26 October 2021, coal reserves at thermal power plants stood at 578,900 tonnes, while the requirement for guaranteed reserves is 653,400 tonnes. This is four times less than the accumulation schedule approved by the Ministry of Energy. Over the past month, every second unit of state-owned thermal power plants has been out of operation due to lack of coal.

The seriousness of the situation is illustrated by the fact that Ukraine is likely to start importing electricity from Russia and Belarus as early as November, although from a political point of view this would be a blow to the authorities. Earlier, the country’s authorities banned such imports by law, but Interfax quoted a source as saying that on 27 October it was decided not to extend the ban on electricity imports from Russia and Belarus until November 2021. Most likely, this scheme will work all winter long, until the end of the heating season in March-April 2022.

To summarise, if the situation in Ukraine follows the pessimistic scenario, by January-February the country could start stealing gas from the transit pipe, saving its consumers but depriving Europeans of some Russian gas. Until then, of course, they will try to reduce gas consumption. For example, they will hold different campaigns urging people to burn less gas, they may lower the pressure on the gas supply or prolong the New Year holidays in educational institutions for a month under the guise of fighting the pandemic. The autumn break in schools, for example, has been extended by a week with distance learning for children.

“Ukrainian industry is already shutting down on its own, why work at a loss”, –  Korolchuk said. He also does not rule out rolling blackouts in the country, i.e. when electricity is switched on as scheduled.

“It is a political task of the prime minister to reassure the population. It seems to me that the authorities are preparing the ground so that when a crisis happens, they can say that someone else is to blame, for example, local oligarchs and Gazprom”, concludes the Ukrainian expert.

Olga Samofalova, VZGLYAD

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