EU's strategic gas reserves could also be held in Ukraine, Naftogaz proposes

Adequate natural gas reserves are an important factor in ensuring Europe's energy security, particularly during winter. The fill levels of local storage facilities have traditionally been closely watched, but their importance has grown even further since the recent energy crisis. Ukraine's Naftogaz is now urging the EU to establish strategic natural gas reserves and is offering space for their storage in its facilities.

Ukraine's state-owned energy company Naftogaz called on the European Commission early this week to consider the possible role of gas storage facilities in Ukraine in ensuring Europe's energy security. According to the company, establishing strategic gas reserves could also help meet the EU's recent commitment to purchase energy supplies from the US worth 750 billion dollars over the next three years.

"Given the fundamental importance of the energy sector to the economy, everyday life and national defense, the energy system must be sufficiently redundant and resilient to major climate-related, cyber or physical disruptions, which cannot be ensured purely through market instruments. The EU's initiatives related to strategic reserves should therefore be strengthened," Naftogaz said, according to S&P Global.

According to the company, Ukraine's underground gas storage facilities offer surplus capacity that can serve neighboring regions. Ukraine has significant storage capacity in the west of the country, which was also used in the past to balance Russian gas supplies given the seasonal nature of demand in Europe.

"These capacities should be considered for a share of the EU's strategic gas reserves, if they are established," the company said.

Strategic vs. commercial reserves

Naftogaz says it is necessary to distinguish between strategic reserves and commercial gas stocks managed by gas traders. While strategic reserves should be secured and managed by EU authorities, commercial stocks should be fully exposed to market forces.

The company is drawing attention to the EU's current system of gas storage filling targets and their effect on the attractiveness of storage facilities in Ukraine to European traders. Under these targets, gas stored commercially in Ukraine does not count toward them, which significantly reduces the attractiveness of storage facilities there for European traders.

"The continued application of EU gas storage filling targets, combined with their territorial restriction to the EU, undermines the operational and investment appeal of Europe's largest storage facilities, located in Ukraine," Naftogaz said.

Naftogaz is therefore calling for the regulation not to be extended beyond 2027, when it is due to expire under current plans. Such a move would, according to the company, level the playing field between gas storage operators in the EU and Ukraine and enable the market to operate as commercially as possible.