Ukraine risks winter gas shortage after reducing EU, Russian imports

By ISIS ALMEIDA and ELENA MAZNEVA
Bloomberg

Ukraine risks not having enough natural gas in storage to last it through the winter after reducing imports from the European Union (EU) and suspending purchases from Russia.

Ukraine hasn’t imported gas from Hungary this month and cut supply from Slovakia by 27%, according to data from grid operators. The eastern European nation had 12.2 billion cubic meters (430 billion cubic feet) in storage this week, or about 15% less than at the same time last year, data from Brussels-based Gas Infrastructure Europe showed.

Domestic gas and imports from Europe are helping Ukraine to build inventories after halting supplies from Russia as the former Soviet nations failed to reach an agreement on prices in the third quarter. The countries and the European Union, which gets more than 10% of its gas through Ukrainian pipelines, will likely hold talks in September to resume supplies and avert disruptions as in 2006 and 2009.

“Reverse flows from the EU offer crucial supply diversification, though will not be sufficient to meet demand,” said Christopher Haines, a senior oil and gas analyst at BMI Research. “To get through the winter they will need to add at least 4 to 5 billion cubic meters to that total, which won’t be reached without Russian gas over the summer.”

Ukraine would be “comfortable” with storage at last year’s level of 16.6 billion cubic meters before the winter heating season starts in October, Energy Minister Volodymyr Demchyshyn said. The country needs at least 19 billion, according to Alexander Novak, his Russian counterpart.

If supply from OAO Gazprom doesn’t resume before the end of the summer, Ukraine would be “slightly short,” said Thierry Bros, an analyst at Societe Generale. He expects 17 billion cubic meters of inventories are needed.

Slovak Imports

Ukraine is only importing gas from Slovakia, after halting deliveries from Hungary on July 1 and shipments from Poland on May 1, according to data from grid operators. It increased gas orders from Slovakia for Wednesday by 21% to 16.5 million cubic meters, according to the Slovak network manager. That compares with 22.7 million on June 30.

The nation isn’t showing the “necessary efforts” to prepare for the coming heating season as it’s reducing the pace of gas stockpiling, Gazprom CEO Alexey Miller said in a statement. NAK Naftogaz Ukrainy couldn’t immediately comment on the reductions of European imports and how it planned to fill storage sites, said Aliona Osmolovska, a spokeswoman for the Kiev-based company.

Energy Fund

State-run Naftogaz would form this year a $1 billion energy fund with foreign loans under state guarantees for gas purchases, Ukraine’s government said Monday. Prime Minister Arseniy Yatsenyuk said that he’s concerned about possible moves from Russia in the cold season aimed to “destabilize” Ukraine amid the conflict with pro-Russian forces in its East.

“Ukraine still has time to prepare for winter,” Alexander Paraschiy, an analyst at Concorde Capital in Kiev, said by phone Tuesday. “The country is most likely waiting for international aid in financing, as well as for more favorable gas prices and exchange rates.”

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