Ukraine is struggling to meet its gas storage target for this winter, falling short of the 13.2 billion cubic meters (Bcm) goal it hoped to reach by November 1. Current gas stocks are sitting at 12.5 Bcm, and progress has essentially stalled, according to data gathered by S&P Global Commodity Insights on October 28.
This year’s storage levels are also noticeably lower than last year when Ukraine managed to fill its underground storage sites to over 16 Bcm, boosted by European traders who stored around 2.5 Bcm in the country. However, in 2024, European traders have been more reluctant to put their gas in Ukrainian storage facilities, opting instead to withdraw what was already there.
Russian missile and drone attacks on Ukrainian gas storage sites during March, April, and May have also discouraged European traders from using the facilities. On top of that, a narrower summer-winter spread made storing gas less financially appealing compared to last year.
Last week, Naftogaz CEO Oleksiy Chernyshov underscored the importance of being “rational” with energy use as winter approaches, emphasizing that getting through the heating season is crucial for national security. He said Naftogaz would work closely with local authorities to promote energy efficiency. “Every community should be focused on energy efficiency because it is not only a question of saving energy resources and money, but also a question of energy independence,” Chernyshov added.
Ukraine officially kicked off its heating season on October 15, though the timing for when heating systems are activated varies by region.
Despite the disappointing gas storage numbers, Ukraine’s Deputy Energy Minister Mykola Kolisnyk said on October 25 that the country has “sufficient” reserves of diesel, gasoline, and gas to fuel backup power generators throughout the winter. “As of today, the reserves have been formed at the proper level based on various resources for generation,” Kolisnyk said. A large number of backup power generators—powered by diesel, gasoline, or gas—were imported into Ukraine as an added safety net, with Kolisnyk stating that these resources should keep prices stable and ensure confidence in a steady heating season.
Ukraine is also pushing for another annual increase in domestic gas production to reduce its reliance on European imports. Gas production reached 18.7 Bcm in 2023, slightly up from 18.5 Bcm in 2022, with Naftogaz’s upstream unit, UkrGazVydobuvannya, leading the way. The Ukrainian gas industry group AGPU has indicated that production will continue to rise in 2024.
Kyiv’s key priority is eliminating the need for imported gas, particularly with the current high prices in Europe. The Dutch TTF month-ahead price was assessed at 43.47 euros per megawatt-hour (MWh) on October 25 by Platts, part of S&P Global Commodity Insights.
The International Energy Agency (IEA) warned in September that Ukraine might need to import another 0.6 Bcm of gas by the end of October to meet its target for winter storage. The IEA said that while Ukraine could meet its demand with domestic production and current storage under average weather conditions, a particularly cold winter could drive up demand by an additional 25%, equivalent to 1.5 Bcm more gas needed compared to last year’s winter season.
International financial support—including loans and grants—will be critical to help Ukrainian gas companies ramp up these imports before the winter intensifies. Based on spot prices from early September, the IEA estimated that importing 0.6 Bcm would cost around 250 million euros, or roughly $278 million.
The looming halt of Russian gas transit through Ukraine from January 2025 adds another layer of complexity. With the transit agreement between Russia and Ukraine set to expire at the end of 2024, the option of using backhaul, or virtual reverse flow, from the EU is also expected to end. This means Ukraine will need physical gas supplies from Central and Eastern Europe, which could raise costs due to transmission tariffs.
To make matters worse, the adequacy of supply will remain uncertain, given the ongoing threat of Russian attacks on gas infrastructure. Historically, traders have used virtual reverse flow to keep Russian gas in Ukraine instead of having it transported to Europe and then sent back again. However, with the transit agreement nearing its end, Ukrainian officials have indicated they have no interest in negotiating a new deal with Moscow, which means a significant shift in how Ukraine secures its winter gas supply.
