Ukraine has a chance of becoming the biggest gas hub in Europe

The EU is discussing a possibility of storing its gas in our country: this could turn Ukraine into the biggest gas hub in Europe.

The European Union wants to use the biggest Ukrainian underground gas storage facility to store its gas. What needs to be done to turn this idea into reality and will the war be an obstacle?

Our gas storage facility for European gas

Ukraine has the biggest number of gas storage facilities in Central and Eastern Europe. However, in order to become a gas hub for the EU, the country needs to rebuild its ruined energy infrastructure, and that will require billions of euros in investments. It is also necessary to agree political actions on the EU level, alleviate negative social and economic consequences, and make deliveries safe.

At the same time, Ukraine has an underground gas storage facility that has not been destroyed by the war – the Bilche-Volytsko-Uherske facility. It is the largest in Europe, and is located 60 km from Lviv. It was created on the basis of two exhausted gas fields in 1983-1992. Experts estimated that the facility is capable of storing more gas than the largest storage facility in Germany. The thing is that gas storage facilities in the EU are 70% full. To avoid a gas price hike in winter, it is necessary to accumulate as much reserves as possible to be able to use them during the heating season. Europe could build another gas storage facility in the EU, but it would be cheaper to use the Ukrainian storage facility, which is already in operation.

Ukraine can store around 30 billion cubic meters, and is prepared to provide a third of this volume to the EU. Overall, gas stored in Ukrainian storage facilities can cover 10% of the European consumption, which is quite a lot.

“Ukrainian underground gas storage facilities can help. Balance supply and demand during the second half of the summer 2023, given their excellent connection to EU gas markets,” German company RWE AG, which has used Ukraine’s storage in the past, stated.

The project is real

The war Russia is waging against Ukraine could become an obstacle for the implementation of this idea. Although the storage facilities are located deep underground, and far away from active combat actions, the war-related risks remain high. Therefore, the decision to store gas in Ukraine should be made at the level of the EU, and this issue is currently being actively discussed.

Despite war-related risks, the use of these storage facilities could balance the gas market in Europe, according to Bloomberg.

Ukrainian experts believe that this project can realistically be implemented and that it is indeed very beneficial for Ukraine.

Oleksandr Okhrymenko, President of the Ukrainian Analytical Centre, believes that it is a good idea. It would have been good for Ukraine in general to implement it, as the operation of the gas transport system in the country is currently weak. The expert believes that the war will not interfere with the project, because the big storage facility is located in Western Ukraine, far from the front line, where the fighting is happening. The important thing in this is that Europeans pay good money. It would be good for us to have this income.

In turn, Ivan Nikitchenko, Director of Crane IP Law Firm, reminds that the project of creation of a gas hub on the basis of Ukrainian underground facilities has been actively discussed since 2013. In 2020, a letter of intent was even signed with the US-based Louisiana natural gas Exports, Inc.

Compared to the situation of 2013-2020, Ukraine hasn’t gained any more advantages. Earlier, we were between the EU and Russian gas. Now, Europe is reducing purchases and no longer wants to import Russian gas. The EU is starting to purchase more gas from the U.S., Qatar, South Africa using the infrastructure of Western Europe, Poland, and Lithuania.

Theoretically, Ukraine has the potential of becoming a place to store gas coming to the EU through the terminals in Poland and Lithuania. However, we do not have our own LNG terminal and cannot build it quickly. At the same time, it is also not quick and cheap to build new gas storage facilities in Europe. Meanwhile, Ukraine has an underground gas storage facility, and if it is not used, the infrastructure of our gas transport system for supplying Russian gas to Europe will be idle. Of course, it is doubtful that Ukraine could become a central player in the gas storage market, but we do have a chance to receive payment for stockpiling gas at our facilities instead of keeping them idle. The expert believes that a lot depends on how long the war continues. If Europe arranges routes and infrastructure for gas supplies and storage in the near future, the interest to change something afterwards will be much weaker.

If the EU decides to use the Ukrainian gas storage facility to store its gas, it will be an important political decision and will allow Ukraine to earn profits from storing gas. After the EU fully abandons the use of Russian gas, the Ukrainian gas transport system risks of being left without gas. Using it as a storage hub could be a solution to the situation.

In turn, Maksym Oryshchak, analyst at the Centre of Exchange Technologies (CET), believes that loyal and reliable western partners will continue to show financial generosity, supporting our country during difficult times. In light of the impending termination of all agreements to transport gas through Ukraine from Russia in 2024, there is an opportunity to leverage our infrastructure and use the existing capacity to store gas.

It is also necessary to consider the interests of our partners in the West. They genuinely wish to continue their cooperation with Ukraine and support mutually beneficial partnership. We are well aware that the Ukrainian economy will need time to recover, and, we will probably not be able to stop being a subsidized country right away. However, this should not keep us from looking for ways to cooperate and develop.

Using the existing infrastructure is a smart solution that can be supported by the European Union, because it will not only allow us to use our resources effectively, but will also create possibilities of developing cooperation in the energy sector. This will allow us to continue on the path towards economic recovery on the path towards stability, with confidence in the support of our valued partners in the West.

Not only store, but also produce

Interestingly, Ukraine wants not only store gas for the EU, but also produce it. Ukraine has the second or third largest natural gas reserves in Europe. However, it would require billions in investments to start producing gas.

“In terms of reserves and resources of natural gas, Ukraine is second-third in Europe,” stated Oleksiy Chernyshov, CEO of Naftogaz Group. He believes that we should become self-sufficient and start supporting the outside world, specifically the EU, with higher output of natural gas in the coming years.

He also calculated that the rebuilding of ruined energy infrastructure of Ukraine will cost billions, but the accumulation of money will help the EU complete its withdrawal from Russian energy.

“Ukraine should be rebuilt not out of mercy, but out of practical business interests,” he said.

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