Cars and trucks drive on a highway in Frankfurt, Germany, Jan. 27, 2023. European Union governments tentatively agreed Friday, Feb. 3, 2023, to set a $100-per-barrel price cap on sales of Russian diesel to coincide with an EU embargo on the fuel — steps aimed at ending the bloc's energy dependence on Russia and limiting the money Moscow makes to fund its war in Ukraine. AP file photo by Michael Probst.
Nearly one year into Russia’s full-scale invasion, Ukraine is looking to entrench its footprint in Europe’s energy economy. On Jan. 27, Ukraine’s national gas storage operator, Ukrtransgaz, accelerated the certification process to use its underground gas storage sites to hold a portion of the European Union’s strategic gas reserves.
Ukraine maintains 12 underground gas storage facilities with a total capacity of about 31 billion cubic meters. Those facilities, which have been underutilized for years, will also be opened for foreign companies to store their gas for delivery to Europe.
“Successful certification will give Ukrtransgaz the right to store not only gas of private foreign companies, but also strategic gas reserves of EU member states in Ukrainian gas storage facilities for the first time,” Ukrtransgaz said in a Monday statement.
On Wednesday, the EU’s underground gas storage capacity was 72% full, according to data from Gas Infrastructure Europe. At that time, Ukraine, which is not an EU member, was using only about 20% of its overall underground gas storage potential.
A fuel truck drives along a highway in Frankfurt, Germany, Jan. 27, 2023. European Union governments tentatively agreed Friday, Feb. 3, 2023, to set a $100-per-barrel price cap on sales of Russian diesel to coincide with an EU embargo on the fuel — steps aimed at ending the bloc's energy dependence on Russia and limiting the money Moscow makes to fund its war in Ukraine. AP file photo by Michael Probst.
In terms of terawatt hours, Ukraine’s underground gas storage capacity represents about 30% of the EU’s available reserve gas storage volume. By that measure, Ukraine’s underground storage sites, if fully filled, could potentially boost the EU’s overall strategic gas reserves by about 20%.
On Jan. 24, Ukraine’s National Energy and Utilities Regulatory Commission adopted a resolution to approve Ukrtransgaz as a European gas storage operator. On Jan. 27, Ukrtransgaz officially requested the project’s certification — a process that involves European regulators and could take several months.
Anticipating approval, Ukrtransgaz has already started repair work at some of the gas storage sites. According to a Ukrtransgaz statement, its underground gas storage facilities “remain under enhanced security and continue to operate as normal.”
In 2021, the EU imported around 155 billion cubic meters of Russian gas, composing roughly 45% of the bloc’s total natural gas imports. Yet, Russia’s invasion of Ukraine reshaped Europe’s energy market. By August 2022, only 17% of the EU’s natural gas imports came from Russia.
Ukrainian President Volodymyr Zelenskyy, center, European Commission President Ursula von der Leyen, right, and European Council President Charles Michel shake hands during the EU-Ukraine summit in Kyiv, Ukraine, Friday, Feb. 3, 2023. Ukrainian Presidential Press Office via AP.
Moscow also withheld energy exports to Europe, intending to coerce Western leaders to withdraw their sanctions against Russia and rethink their support for Ukraine. However, Russia’s energy blackmail backfired, spurring the EU to accelerate its divorce from Russian fuel exports. The EU’s subsequent Russian oil ban and price cap have cost Russia about $180 million per day, according to the Center for Research on Energy and Clean Air, or CREA, a Finnish research group.
“The EU has taken massive steps over the past year to cut off its dependence on fuel imports from Russia and cut off financing for the Kremlin’s unprovoked and illegal assault against Ukraine and Europe,” CREA reported on Jan. 11.
“Further cuts to Kremlin’s revenue will therefore materially weaken the country’s ability to continue its assault and help bring the war to an end.”
Anticipating energy shortfalls this winter, the EU mandated its member states to begin stocking up on gas reserves over the summer. In June 2022, the European Parliament passed a resolution mandating that the EU’s underground gas storage sites be filled to at least 80% capacity by November.
A truck at a gas station in Frankfurt, Germany, Jan. 27, 2023. European Union governments tentatively agreed Friday, Feb. 3, 2023, to set a $100-per-barrel price cap on sales of Russian diesel to coincide with an EU embargo on the fuel — steps aimed at ending the bloc's energy dependence on Russia and limiting the money Moscow makes to fund its war in Ukraine. AP file photo by Michael Probst.
According to the European Parliament’s website: “In response to Russia’s war against Ukraine, this law aims to refill Europe’s strategic gas reserves more quickly before winter to ensure energy supplies are secure.”
Apart from benefiting Europe’s energy security, Ukraine’s extra underground gas storage capacity will also generate valuable revenue for Kyiv, now that the flow of Russian gas to Europe has slowed to a trickle.
For decades, Russian gas primarily reached Europe through Ukrainian pipelines. That arrangement generated a lot of cash for Kyiv. Before 2019, Ukraine was making about $3 billion a year in Russian gas transit fees.
Russia reduced its gas transit through Ukraine after 2019, but the flow never ended. According to a 2019 agreement, Ukrainian pipelines were to transit 65 billion cubic meters of Russian gas to Europe in 2020, and then 40 billion cubic meters of gas each year thereafter until 2024, providing Kyiv a source of revenue worth about $7 billion over five years.
Istvan Szekeres, engineer of the Hungarian Oil and Gas Company checks the receiving area of the Druzhba oil pipeline in the country's largest oil refinery in Szazhalombata, south of Budapest, Hungary, Jan. 9, 2007. Several countries in Europe dependent on Russian energy suffered another blow with confirmation Tuesday, Aug. 9, 2022, that oil shipments have stopped through a critical pipeline. Russian state pipeline operator Transneft said it halted shipments through the southern branch of the Druzhba oil pipeline, which flows through Ukraine to the Czech Republic, Slovakia, and Hungary. AP file photo by Bela Szandelszky.
Even after Russia’s full-scale invasion in February 2022, Russian gas continued to flow relatively unabated through Ukraine to European clients. It wasn’t until May 2022 that volume dropped by about 60%. And that dip wasn’t the result of war-related damage to Ukraine’s pipelines; it was due to a contractual double-cross by Russia’s state gas company, Gazprom.
“Gazprom … is reducing supplies through all available transit routes without explanation, even resorting to burning gas but not transporting it to the EU. There are no technical reasons to limit gas supplies to the EU. Nevertheless, Russia is reducing its export volumes,” Ukraine’s gas transmission system operator, GTSOU, reported in August.
As of December 2022, Russian gas still flowed through Ukrainian pipelines to Europe, according to a GTSOU statement.
By opening its gas storage facilities to European clients, Kyiv might recoup some percent of its reduced transit pipeline revenue. In a Dec. 29 statement, Ukraine’s gas transmission system operator, GTSOU, pushed for countries in southeastern Europe to use Ukraine’s gas storage facilities, as well as its transit pipelines, to transfer natural gas throughout the region.
“By opening new opportunities for the existing gas infrastructure, we make a joint investment in strengthening the region’s energy security, not only [for] Ukraine,” Olga Bielkova, GTSOU’s director of government and international affairs, said in the statement.
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