Gas prices drive traders to risky Ukraine storage options

Despite risks of potential hits due to the war, traders have started to store natural gas at storage sites in Ukraine, taking advantage of the lower costs and high available storage capacity.  

Europe’s benchmark natural gas prices are lower for the summer months compared to the winter of 2023/2024, making storage worthwhile for traders willing to risk holding gas in Ukrainian storage, oilprice.com reports. 

Some natural gas traders and energy groups in Eastern Europe are already holding natural gas in Ukraine, and are comfortable with doing so, executives have told Reuters. 

The commodity can be bought anywhere and sent to Ukraine via reverse flows in pipelines from Hungary, Slovakia, and Poland.  

“EP Commodities transports natural gas to Ukraine and uses Ukrainian gas storage facilities,” EP Commodities chairman Miroslav Hasko told Reuters.

Another firm operating close to Ukraine, Slovakia’s state-held SPP, is also looking at opportunities to store natural gas in Ukraine, the company told Reuters. 

“We consider gas storage in Ukraine as one of the interesting business opportunities that we are currently considering.” 

SPP supplies most of the gas on the market in Slovakia, including partly Russian gas that still flows via one pipeline through Ukraine. 

Despite the risks of the Russian invasion of Ukraine and the possibility of a direct hit or a deliberate attack on Ukrainian gas infrastructure, some traders believe that the risk is worth taking—costs for storage are cheaper and capacity is available. 

The front-month futures for September at the TTF hub, the benchmark for Europe’s gas trading, settled at $34.08 per megawatt-hour (MWh) at the end of the trading day on August 8. At the same time, the futures for the first quarter of 2024, the height of the winter, were at $54.72 (49.85 euros) per MWh.

For traders waiting for higher gas prices in Europe next winter, Ukraine is a good bet for storage sites, especially because EU storage is filling and very close to hitting – well in advance – the 90% full target by November 1.  

Unlike in the previous two years, EU gas storage levels are high—much higher than the five-year average and the levels from this time last year, easing concerns about Europe’s gas supply.  

The EU has set a target to reach 90% full gas storage by November 1, 2023. Not only will it hit that target ahead of schedule, but it could also fill its storage tanks to 100% by early September, according to Morgan Stanley.   

The EU gas storage sites were 87.7% full as of August 7, according to data from Gas Infrastructure Europe. Ukraine’s storage, on the other hand, was 26.6% full.

With the EU storage nearly full, Ukraine’s available capacity could help the bloc ease gas supply concerns ahead of the winter, Brussels-based think tank Bruegel said in an analysis last month. 

Ukrainian gas storage could help Europe’s security of supply, as the EU can use spare capacity in Ukraine to top up stored gas volumes for the coming winter, Bruegel said. 

There are risks to storage, of course, war risks being the biggest, but Ukraine’s available storage capacity in volume terms currently exceeds the as-yet unfilled storage capacity in the EU, according to the think tank. 

“Ukrainian storage could be an option for gas during October, with the result that the EU would enter winter 2023-24 in a more comfortable position,” Bruegel’s fellows said.  

Ukraine has a 100 TWh capacity available for natural gas storage. If the EU uses it or part of it, this “will provide a nice boost to Europe’s winter outlook, and a welcome boost to Ukraine’s income.”