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    Naftogaz Springs into Era of Reform

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Summary

Ukraine’s gas market is moving forwards fast, following the adoption of a number of measures that are now becoming established features of the EU pipeline.

by: William Powell

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Natural Gas & LNG News, Corporate, Corporate governance, Import/Export, Political, Tax Legislation, TSO, Infrastructure, Pipelines, News By Country, Hungary, Poland, Russia, Slovakia, Ukraine

Naftogaz Springs into Era of Reform

Ukraine’s gas market is moving forwards fast, following the adoption of a number of measures that are now becoming established features of the European Union's pipelines.

Naftogaz’ pipeline subsidiary Ukrtransgaz has adopted operational balancing accounts with pipeline operators of connected systems, and introduced virtual reverse flow at border crossings where there is no conflict with Gazprom, which has reserved transport capacity in eastern and central European countries.

“These practices will apply where the Ukraine system and the pipeline systems of neighbouring countries meet: Budince in Slovakia, Drozdowicze in Poland and Beregdaroc in Hungary,” it said.

Earlier this month it announced virtual reverse flow from Budince in Slovakia of 19mn m³/day firm and another 5mn m³/day interruptible capacity (equivalent annually to 6.9bn m3 and 1.8bn m3 respectively), saying this could make its giant storage assets more attractive to traders as they could now safely take their gas out of the country.

Naftogaz subsidiary Ukrtransgaz set up these operational balancing accounts with neighbouring operators on April 1. The account reflects the difference between the amount of gas nominated for delivery and what has technically been transferred at cross-border points. This innovation introduces civilised ways of regulating technical imbalances and so reduces the shippers’ financial risks.

Virtual reverse flow, whereby the lesser flows in one direction are subtracted from the greater flows in the opposite directions so that only the excess physically flows in one direction, increases the efficiency of capacity at cross-border points.

The first advantage of these innovations is better conditions for diversification for Ukraine, since it makes trading less risky for companies wanting to deliver gas. Since the start of the year, more than 20 companies have delivered gas to Ukraine through EU border crossings. Naftogaz Ukrainy says that introducing standard EU working practices is bound to increase the number of suppliers, in turn fostering a more competitive and liquid gas market in Ukraine.

Having bi-directional capacity allows the Ukrainian TSO to offer additional transit services across its territory. For example it can transport gas from Poland to Hungary. The need for such a service may grow after the Swinoujscie LNG import terminal in Poland reaches full capacity, it says.

This step makes Ukrainian underground storage a lot more attractive since until now there has been no guaranteed exit right. Now European traders will have guaranteed ability to bring gas into Ukraine for storage and bring it out afterwards.

Naftogaz and Ukrtransgaz hope that the energy ministry will in the coming weeks approve tariffs for new physical and virtual capacities.

The companies also thanked parliament for supporting changes to the law on the customs code reflecting changes to the gas market which allowed Ukrtransgaz to make these changes and bring the Ukrainian gas market a step closer to the European Union’s. Naftogaz Ukrainy has already published a draft Ukrainian-language translation of the EU network code for balancing, inviting comments for improving it.

Gazprom has booked capacity in the main part of the Slovakian system operated by Eustream, and so it has been able to prevent virtual reverse flow into Ukraine through those major pipes but not to stop physical reverse flow through the small one at Budince. That line was recommissioned for that purpose in 2014 as Ukraine sought to buy gas from suppliers in the European Union

Gazprom told NGE that it has also booked transit capacity through Belarus and Poland to Germany through Yamal-Europe. But it said it had no position on what gas flows might do between Ukraine and Hungary or between Ukraine and Poland.

 

William Powell