EU plans to stash its gas reserves in Ukrainian underground storages

The European Union (EU) plans to store its gas stockpiles at the Ukrainian underground gas storage facilities (UGS).

The matter concerns the Bilche-Volytsko-Uherske storage facility in Ukraine, which is located 96 kilometres from the border with Poland and can hold up to 17 billion cubic metres of gas, according to Bloomberg.

Tucked between farm fields and forests, the Bilche-Volytsko-Uherske storage facility can stockpile more than four times as much natural gas as the largest site in Germany and connects easily to the bloc’s grids, thanks to Ukraine’s decades-long role as a transit route for Russian energy.

Storing vital fuel in a country subjected to missile strikes and attacks on critical energy infrastructure may sound like a crazy idea. But it’s winning backers as the facilities are far enough from the front line to be deemed safe, and some traders reckon it’s worth the risk.

European officials are now contemplating whether to support links to Bilche-Volytsko-Uherske and other facilities scattered across Ukraine - home to the continent’s biggest network of underground caverns that can hold gas for when demand and prices spike in the winter. As EU storage capacity is already close to capacity limits (currently more than 70 per cent full), fuel storage in Ukraine could prevent an oversupply in the coming months.

“Ukrainian storage can help to balance supply and demand during the second half of summer 2023, given their excellent connection to EU gas markets,” German utility RWE AG, which has used Ukraine’s storage in the past, said in a statement to Bloomberg.

Storing gas for Europe would not only generate much-needed revenue for the country, but it would also strengthen ties with the bloc and serve as a snub to Russia after the Kremlin sought to use energy to weaken support for Kyiv.

The country’s gas storage capacity - located in relative safety as much as 2 kilometres below ground - totals more than 30 billion cubic metres. Operator Ukrtransgaz is making available a third of that space - equivalent to about 10 per cent of the EU’s fourth-quarter demand last year.

“The Ukrainian market offers storage at a fixed cost rate, which makes gas storage in Ukraine a very attractive and competitive option,” said Marco Saalfrank, the head of continental Europe merchant trading at Switzerland-based Axpo, but noting that the risk needs to be low.

In addition, consultants of the London-based Energy Aspects company said the use of Ukraine’s facilities would help avert a crash in prices ahead of the winter. “But if the usage is “unexpectedly high”, it also presents downside risks to rates next year,” they added.