02.04.2025
Today we are summarizing the results of the talk show “Ensuring Ukraine’s gas balance on the eve of the 2025-2026 heating season” at 01.01.2025, which was hosted by Energy Club and experts and specialists in the gas production and distribution sectors, as well as representatives of relevant departments.
Maxim Nemchynov, Vice President of Energy Club, former Deputy Minister of Energy of Ukraine:
“Good afternoon, dear participants of our round table, as well as our listeners and viewers. Today we have a very important topic for discussion – ensuring the gas balance of Ukraine on the eve of the 2025-2026 heating season.
Perhaps someone will say: “But the 2024-2025 season is not quite over yet.” But I want to disappoint such people and say that usually gas workers, and, in principle, not only gas workers, but also the entire heat generation, begin to prepare for the new heating season the day after the end of the previous one. And this year, in my opinion, it has a very, very important.
Because after the more or less successful completion of another heating season in conditions of a full-scale war, and by the way, this happened primarily thanks to the work of energy specialists, as well as the work of our Armed Forces of Ukraine, the critically important issue of ensuring stable gas supplies for the next heating season arises.
Therefore, this online meeting is aimed at analyzing risks, determining strategic priorities and developing effective mechanisms to guarantee Ukraine’s energy security, which we will be able to propose or advise the responsible authorities.
So, the purpose of our meeting is to assess the projected deficit, perhaps a surplus, although, in my deep conviction, it is precisely the deficit of gas resources, and its potential impact on the preparation for the 2025-2026 OGP, to identify key factors that complicate the formation of the necessary volume of gas reserves, to develop strategic recommendations to ensure the country’s energy sustainability, to discuss ways to integrate the Ukrainian gas market with the European one, and in fact – the return of this integration, because, again, in my conviction, our market has been working quite well.
And I am pleased to name our speakers today: they are Maksym Bilyavsky, my colleague, Vice President of Energy Club, Andriy Myzovets, President of the Association of Gas Traders of Ukraine, Roman Storozhev, founder of the Association of Gas Traders of Ukraine, Volodymyr Omelchenko, Director of Energy Programs of the Razumkov Center, Artem Petrenko, Executive Director of the Association of Gas Producers of Ukraine, Leonid Unihovsky, General Director of Naftogazbudinformatika LLC, as well as Kyrylo Brazhko, Head of the Market and Trading Analytics Department of D.TRADING.
As you can see, our speakers today are maximally involved in this topic, maximally expert, and few people in this country know the details of preparation for the OGP and accumulation of the necessary amount of natural gas for its passage better than these people.
Therefore, I would like to give the first floor to my colleague Maksym Bilyavsky, Vice President of Energy Club, so that he can share his thoughts on the issues we want to discuss today.”
Maksym Biliavsky, Vice President of Energy Club, Director of Integrated Communications of NJSC Naftogaz of Ukraine (May-December 2021):
“Dear colleagues, thank you for this opportunity to take part in a truly expert discussion. Given that our dialogue is public, for my part, I will avoid details that may play against us as much as possible. First of all, I would like to return to the beginning of 2025, to remind all of us of what, in fact, the year began with, primarily from the point of view of the operating modes of the European gas network, the network of European gas storage facilities.
If we compare with the reserves of blue fuel at the beginning of this year, they were 23% smaller than in the previous, in fact, period on the same date. About what does this say? This suggests that in fact in the second, third and fourth quarters all countries of the European Union will be in the so-called process of active replenishment of gas reserves. This, in turn, will cause some pressure on pricing policy, and also, in my opinion, will affect the availability of gas volumes, including for the gas market of Ukraine, given that we will continue to resist a full-scale invasion of the Russian Federation.
The war continues, and, in my opinion, in our calculations, in drawing up a forecast balance, we need to be guided both from the point of view of the physical sufficiency of natural gas volumes and from the point of view of prices by the trends that will take place on the European gas market. For example, the International Energy Agency warns in its reports that the global gas balance, including in the European Union, will remain fragile in 2025, that is, demand will grow, and supply will not keep up with the growing demand, despite all the energy saving programs that have been introduced by the European Union.
Therefore, we need to understand that, in my opinion, the European Union market will operate in the so-called conditions of low reserves, that is, we will have problems, in my opinion, both with the availability, the physical availability of free volumes of natural gas, and against this background, there will be an increase in spot prices. Thus, the European Union gas market even now, in my opinion, remains in a state of increased tension. The situation will be affected, among other things, by competition for liquefied natural gas with the Asia-Pacific region.
Undoubtedly, purchases of liquefied natural gas will increase, and Qatar and the United States of America will remain the main suppliers, at least everything indicates this, since in 2024 a lot of money was invested in the infrastructure or development of LNG terminals, special programs were allocated at the European Union level. In particular, I am more than sure that this trend will continue in 2025.
Given our interest and need for blue fuel, we need to take into account the fact that we will actually import liquefied natural gas, and we can already see how some leading private companies have signed contracts for the supply of liquefied gas. Therefore, the situation on the European gas market will be determined by both the geopolitical factor of influence and the actual competition for liquefied gas, I repeat, with the Asia-Pacific region.
Well, and undoubtedly, the third factor of influence, which will determine both the volumes and the price situation, is the weather factor, no one has canceled it. Mr. Maksym absolutely correctly noted that despite the fact that today is April 1 on the calendar, we are already preparing traditionally and have always prepared from year to year for the heating season, even a hot summer, as all the experts present know, will affect, among other things, the supply of free natural gas resources, and will determine, in fact, the price.
What else would I like to pay attention to – the balance of natural gas in the European Union itself. In fact, I believe that it is extremely necessary for us for our analysis today, since in fact it is the main, in my opinion, reserve for balancing our gas transportation system. So, in 2024, the consumption volume was at the level of approximately 332 billion cubic meters in the European Union as a whole, which is actually 20% less.
At the same time, in the fourth quarter of 2024, there was a slight increase in demand for natural gas, approximately 8%. You may remember when there was active work on pumping natural gas into European storage facilities, and demand was growing. What do the statistics actually say? I believe that in 2025, there will be no further decrease in demand for natural gas in the European Union; on the contrary, a certain recovery is possible, given the actual transition of the economies of individual countries to military rails, and we also need to take this into account from the point of view of the sufficiency of the resource itself in general.
To summarize, the European Union is actually starting the second quarter of 2025 with significantly low levels of blue fuel reserves in storage, and, accordingly, this will actually cause some tension in the gas market. In terms of domestic production in the European Union, I think the situation is clear. Last year, in 2024, this indicator decreased by 15%, that is, the reduction in domestic production continued. 2025 will not be an exception.
Therefore, once again the problem of dependence on imported resources, imports of liquefied gas, is becoming more acute, and this is also a challenge for us. Therefore, perhaps even long-term contracts, not only those that were signed between individual private companies, perhaps long-term contracts that will be signed with state-owned companies, will be a guarantee of balancing our system.
Well, and in general, I would like to add that, reflecting on the issue of balancing the system, I can say the following: we have sufficient technical and technological reserves to enable additional cells, I will call them that, to be used, but this is not the topic of our public conversation today. Glory to Ukraine! Glory to the Armed Forces of Ukraine!”
Leonid Unihovsky, General Director of Naftogazbudinformatika LLC:
“Finally, on March 28, the Cabinet of Ministers of Ukraine adopted a resolution that at least removed uncertainty in the near future of our gas market. This resolution is valid until October 31, 2025. Initially, it was planned until the end of October 2026, but this indicates that both the Cabinet of Ministers, and largely thanks to the signed memorandum with the International Monetary Fund, understands that something needs to be done with the gas market. But, it seems to me, such a decision by the Cabinet of Ministers is quite balanced and at the moment correct.
Why? There is a lot of uncertainty now in the general situation in the country, with the economic situation, including with the gas market, and with other circumstances that directly affect and relate to this gas market. Does this mean that we need to wait until October and make some decision? No. Preparing for the next heating season is certainly necessary and urgent, because this is the process and procedure that takes a fairly large amount of effort, money, and time.
But still, first of all, according to the resolution that has been adopted. In my opinion, there are certain differences. Well, for example, “Ukrnafta” will sell gas at a higher price than “Ukrgazvydobuvannya” will do. Probably, there is some sense in that. I do not directly know what the cost of producing this gas is in one company or another. But, let’s say, could something have been changed? Well, probably yes.
My point of view is that what concerns gas turbine generation and gas compressor generation could be left under the auspices of a supplier with special conditions, leaving only utility companies, for example, water utilities, the rest could be attributed to the general commercial segment. And I think that there would not be a big difference in terms of efficiency and energy security for our country.
What, let’s say, should we do now? You know that a memorandum has been signed, according to which Ukraine has undertaken to develop a roadmap for the modernization of the Ukrainian gas market. What should we do for the six months that we still have? I’m not talking about imports now, this is a separate issue, I’ll talk about it a little later. But as for this time that we have for preparation, there are two possible solutions.
And although some experts say that we should come to, say, a competitive market model only after the end of hostilities, my opinion is that it can still be prepared in parallel and done, because we do not know when it will all end, unfortunately. So, the first is the so-called roadmap. I want to say that back in 2016, representatives of the Energy Community Secretariat provided us with proposals on how, using the program for rebuilding a competitive natural gas market, we can take gradual steps without completely eliminating, without abolishing the PSO regime.
This was in the report of the then Director of the Secretariat, Mr. Kopac. Unfortunately, in 2016 we did not make such decisions, but, in my opinion, this could be used to a large extent as preparation, and from, well, let’s say, maybe not from October, but next year, we can start implementing these models within the existing PSO system. I can say that there is another option. This option is also quite interesting. It was tested at one time. This is an option when the price of gas for households changed depending on the volume of gas consumed. This was used in Naftogaz, and, in my opinion, the administration of such regimes was quite interesting and effective.
Regarding imports, at least, Naftogaz says that we need to import 4.5-4.6 billion cubic meters. In my opinion, we need a little more. This is due to the fact that we no longer know when the military operations will end. And besides, we understand, and these have already been arrivals and underground storages, compressor stations, control centers, there have been arrivals and gas production. According to various estimates, and this is in the open press, from 30 to 40% drop in production. I do not exclude, and no one can exclude, that this will happen in the next heating season. Therefore, in my opinion, we need to have more.
How and in what way to have this gas? In my opinion, we need to consider different options and different strategies for purchasing this gas. Well, for example, you can buy something with delivery in November-December, it is not necessary to deliver it right now. November-December, and maybe even January. Such procedures exist, and, by the way, the price for this gas will be lower than the current price for summer gas supplies. And, by the way, I want to say that as far as I know, both traders and Naftogaz purchase gas, and yet some cooperation between them is possible here.
And when we say that we need to have 4.5-4.6 billion of this gas in our storage facilities, perhaps we should simply have some of it and even in underground storage facilities, like in Europe. Well, for example, in Germany, there is a certain reserve, or in Hungary, where this gas can also be stored. Next, we must understand that gas will be more expensive in the summer than in the winter. If we now look at the website, for example, TTF, what is the price of gas for supply now and for supply in January 2026, we see that the price of gas in January is lower than the price of gas now. And, well, we understand that this gas will be expensive.
But here, too, it seems to me, the distribution of the gas procurement strategy is very optimal and interesting. That is, not everything needs to be purchased, in my opinion, now. We need to divide these opportunities between storage in Europe, supply, well, let’s say, during the heating season, starting from November onwards, and what needs to be pumped into our underground storage facilities now.
Further, what else can be said? I completely agree with Mr. Bilyavsky. The situation is quite tense. I can say that on March 28, European underground storage facilities had 33.5% of their total capacity, while that year it was 60%. That is, there is a struggle, and there will be a struggle for this gas. And that is why, and again, this is exactly what Mr. Maksym said, we need to have long-term contracts, if possible. I understand that this is quite difficult, and it is quite a lot of work, but where possible, such long-term contracts should be concluded.
Well, I think I can say everything. I think that such a tense situation with gas will not only be in this heating season. Well, for example, I can say that in Europe in the period from October 1 to December 31, 2024, there were 859 days when heating was needed. This was 7% more than it was during the same period in 2023. Therefore, we must understand that this competition and this tense situation with free gas will definitely last for several more years.
“And finally, I want to inform you that on June 17-18 this year in Kielce, in Poland, we will hold our ninth international energy forum, and at this forum we plan to discuss, first of all, with our Polish colleagues, the situation of preparations for the next heating season.”
Andriy Myzovets, President of the Association “Gas Traders of Ukraine”:
“Really, I am very pleased with the composition of our experts today, because it seems to me that we can definitely compete and present a team of our experts in Europe, and we will definitely take, well, a prize place. I am more than sure of this. I am glad to see and hear everyone alive and healthy. I thank our Armed Forces for this.
Returning to the topic of discussion, there are several points. If we go thematically, regarding the assessment of the deficit, what it consists of, we need to understand what our current state of affairs is. Of course, I confirm this and support the previous speakers regarding the fact that we should definitely not name absolute figures, because we are on the air. But After all, the market should know this information in a measured way, and in principle, consumers should know this information. We somehow completely forgot about them, but this is still the basis of the market.
So, and accordingly, what factors influence it? We all understand that missile and drone attacks have a rather serious impact on our production, which has already decreased. Since they will continue, this is a huge question, and it is definitely impossible to derive this figure. And again, the issue of consumption. On the one hand, the huge number of people who emigrated, in principle, left its mark on the fact that consumption has decreased. On the other hand, those facilities that are still being put into operation are quite energy-efficient and often do not need, or even produce, energy. So, after all, we also need to know consumption in order to fill in the other half of our table regarding our energy balance.
Well, in this case, we need to speak frankly with the population, because I think the authorities will definitely not inspire trust when, in the middle of the next heating season, God forbid, of course, they come out and say, sorry, we will be forced to limit supplies, right down to the population, because we simply do not have enough resources. It seems to me that the good saying that the sleds need to be prepared in the summer is already overripe here. Indeed, I support everyone, we must work now. Therefore, the first thing is really the balance of our consumption, the balance of our capabilities for filling, for the receipt of gas, and this is both production and import, this is a frank conversation in the part in which it is possible to do so that it is not unexpected for our consumers.
Again, if we understand that our share of gas may be smaller, in order to produce energy, we must understand that other types of generation will also incur higher costs, greater wear and tear, and these are also risks, both safety and technical, and so on. Therefore, this is also a big point that needs to be taken into account, and the feasibility of developing and making greater efforts in some areas of energy should be taken into account.
As for the second question, the key factors that complicate the formation of our reserves for the next heating season and, in principle, and in the future, safety risks – I have already mentioned this. The second point, of course, is financial resources. We are talking about the fact that yes, indeed, we need to purchase and so on, but these are all funds, and the funds are quite considerable. Because, indeed, the price of gas in Europe has become practically stable throughout the year. It does not fluctuate, there is practically no spread between the summer months and the winter months, as it was before. That is, everyone is conscious, everyone is looking ahead, everyone understands that it will be necessary to replenish stocks, everyone understands that there will be no cheap resource. Yes, this is indeed a problem, and this is only one of the problems. Because the first problem, indeed, is volumes, and the second problem with finances, which is quite critical and quite serious for us.
This is the logistics of this product. We must be sure that by purchasing gas on the spot market, by purchasing gas there now on futures, say, for the next heating season, we will receive it. And here we need to conduct a normal substantive mutually beneficial dialogue with our neighbors. Because there are flows, there are import opportunities. We must be sure that at the most necessary moment of our consumption, these import capacities will still be available to us. If with Poland, perhaps, our relations there are a little simpler, then with two other neighboring countries: Hungary, Slovakia. Therefore, of course, the political component in relations with these countries is quite serious, and we should not forget about it.
But still, if we put business relations as the basis for our relations, and it seems to me that we will find common ground with the Hungarians, with the Slovaks in terms of importing the resource we need in the required volumes through their gas transportation networks.
As for the recommendations, of course, maximizing our own production is the best way that can be to ensure our energy independence. The flip side of this process is the security aspect, and it is unlikely that there will be many investors who will come and say: “Okay, we are ready to drill at this time, given that we are constantly under the threat of attacks.” Therefore, at a minimum, In the short term, we need to consider imported resources in order to meet our country’s needs. And this includes contracting volumes, working with capacities, and perhaps, as an option, applying the European perspective of joint procurement again, returning to it and intensifying work in this direction. This is possible, indeed, it would be a pretty good joint initiative.
And the last point is that we must be sure that we have action plans for gas supply shortages, including even consumption schedules, restriction schedules. Therefore, this is not something bad, but we must be aware that the most negative, the worst scenario has also been considered by us, we have also calculated it, and we are also ready for it.
And briefly, regarding how we are integrating and what remains for us in terms of integrating our market with the European ones. If we take the export ban out of brackets, it seems to me that in principle there is not much left to do here. We just need to switch to energy units, certify our operators, and by and large, liberalize currency relations, because these are also moments that are more often resolved on our own experience. And in terms of the country’s energy supply, I think that here the state should meet companies that have the opportunity to import, providing Ukraine with resources, and do so. And it seems to me that there should only be assistance in this regard.
Therefore, thank you to all our soldiers, thank you to the energy workers, really, who provide us with the opportunity to even communicate now. Therefore, I really support everyone, together we will really win.”
Artem Petrenko, Executive Director of the Association of Gas Production Companies of Ukraine:
“Good afternoon, colleagues. I am very glad to see you. Thank you for participating. I will briefly talk about the situation with production. Of course, I cannot say everything publicly due to martial law.
In fact, the last two years, they were very interesting, namely 2023-2024, because we actually did not import gas. It was pumped for storage in underground gas storage facilities. It was gas from our own production that was used. This OZP became different. Firstly, on January 1, Russian transit stopped for us. Plus, the Russians began to very actively attack gas production facilities.
In fact, they attacked gas production facilities, starting from the first day of the full-scale invasion, but for two months this year they became very aggressive and active, and this directly affected the production indicators.
Therefore, unfortunately, this year, despite the fact that in 2024 we recorded an increase in production, unfortunately, the situation this year is variable. And therefore, the state has already announced the need to import natural gas. There are different scenarios and different indicators of how much import will be needed.
In fact, I think that no one can say until the end, in fact, how much it is needed, because there are a lot of factors, including the military factor. Because mathematics is an interesting, exact science, but, of course, the war factor, it greatly affects the figures. And, of course, we are already seeing statements that about 4+ billion will have to be imported. Of course, these are changes that have not been there over the past two calendar years.
What can I say in general about production? State-owned companies, they have increased production. Private companies, they stopped their decline and started to restore their numbers. But, again, the strikes, they affected production, because they hit not only state-owned companies, but also private companies.
I even talk about the numbers, I think we saw it publicly that the Naftogaz group said that their facilities alone were attacked eight times in three months of 2025. These are various combined strikes, both with drones and missiles, which was just what there was. But, I repeat, they also hit the production facilities of private companies.
What we see, continuing our messages, what our colleagues said, NAC has already urgently imported about 800 million cubic meters of gas this year, which was, as it was noted, no longer for final consumption, balancing the system. This is a decrease in production indicators, and this gas will be used for the 2026 OGP.
And we see the government’s actions, how changes were made, and from April 1, Ukrnafta was added to the PSO group. Accordingly, this means that the need for imports is reduced by the volume that Ukrnafta produces, precisely by the indicators that Ukrnafta produces. Let me remind you that in a year they produce more than 1 billion cubic meters of commercial gas of gross production. Therefore, this means that half of this production will be purchased by Naftogaz in order to ensure preparation for the heating season.
Therefore, summing up on imports, how much we will need to purchase, we already see, yes, already public figures, about 4 billion. But, again, all this will depend on the pace of restoration of the destroyed production facilities, directly on the Russians, how they will or will not strike at oil and gas production facilities. Well, and, of course, the situation on the front, whether it will be in some format of a truce, or a halt, or vice versa, there will be an aggravation.
Well, and we see all this public news that the EBRD approved a loan for Naftogaz of 270 million, plus the Norwegians also gave 140 million in grants. That is, certain funds are starting to arrive in order to import natural gas. But, I repeat, I have already said this publicly, if we look at the situation in Europe, we do not expect there to be any cheap gas there.
And, in fact, the situation will be that in the summer gas, it will actually be more expensive than it was in the winter. Because, again, Russian transit, it disappeared, the capacities in terms of pipeline transportation of Russian gas, they are limited, the Turkish stream is clogged too and has certain limitations. Plus, we see all these geopolitical wars that are developing now, it is generally unclear what will happen to the resource and where it will go. Therefore, unfortunately, there will be no cheap resource.
And that is why the Europeans are saying that, perhaps, the obligations that they have indicated and established for themselves since 2022, that by the beginning of the heating season the subways should be clogged to 90+, they are saying that, perhaps, this needs to be liberalized a little, because they are running out of money a little, and they understand that if you pump so much gas, there is simply less and less money physically.
But, at the same time, I am grateful to absolutely all representatives of all mining companies, who, despite these absolutely terrible conditions, are constantly restoring and working to maintain and increase their own production.
Regarding, in addition to the situation with the figures, which has affected our production, we are also talking about the issue of imports, and we also understand that they have beaten companies, they have beaten their infrastructure. After all, according to the current legislation, they have obligations regarding what gas quality indicators should be submitted to the gas transportation system.
In fact, the current legislation, it was approved in 2015-2016. These were the norms that were actually written down in the contract with Gazprom. That is, these are the general indicators of Russian gas that was transported to Europe. And now we see that the operator of the gas transportation system, the Ministry of Energy, is already publicly stating that they are holding certain discussions, perhaps, after all, in Eastern Europe to create different conditions for gas quality indicators.
Because if you take the capital investments that the producing countries and companies need in order to bring certain indicators into line with these standards that were with Russian gas, then the economy there simply does not take off. That is, the economy there is negative. And so we see that this is a very important story, and Eastern Europe is starting to produce. You also see the news about the shelf. They understand that the resource will be needed, the resource will not be cheap. The world is completely unstable, it is not clear at all what will happen tonight or tomorrow. Therefore, even having certain limited resources, they rely on their own reserves.
As for quality, how did this affect it? Due to the fact that a number of facilities were destroyed, which were responsible for certain quality indicators, the resource that is currently being extracted by some companies that were affected by shelling, their indicators have ceased, so to speak, to meet the requirements specified in the current legislation. That is, in simple terms, companies invested in facilities, invested in deposits, invested tens of millions of dollars in facilities so that they meet quality indicators, and because of Russian attacks, they physically ceased to be able to meet them.
There are two questions here: either stop supplying gas, or, of course, supply it with certain restrictions and restore it. Therefore, yes, we have appealed to the regulator and to the Ministry of Energy, so that during the restoration period, in such force majeure conditions, companies without fault are not liable for these obligations, and to find a certain compromise mechanism so that companies do not pay the fines that they are now forced to pay, and so that these funds can be invested in the restoration of direct facilities.
We are conducting a dialogue with the regulator and the ministry and hope for a successful resolution of this issue.
Therefore, in fact, the elimination of the consequences of Russian attacks in general, it actually requires very important issues. There are a number of things that we are simplifying from a legislative point of view, in particular, in the area of simplifying construction or connection in order to be able to let gas into the system faster.
But, of course, what is very important, I repeat, in wartime, companies are forced to invest not only in drilling or exploration, or the search for new areas, they are also forced to direct funds to restoration work, to strengthen protection. Because, again, without details, but protection, it helps from a number of attacks. Of course, not 100%, but I can say that in some cases it has shown its certain effectiveness.
And, unfortunately, I repeat, all this will affect the indicators. Because in two years, companies have laid 300 new gas wells. For two years, they demonstrated an increase in production, but, unfortunately, due to Russian strikes this year, we predict a certain stagnation.
But my simple key message is that production must continue. We have returned to a situation with a gas deficit in Ukraine. Gas must enter the system. But the situation with qualities, with fines, it is still completely inappropriate. After all, in this case, they will be forced to spend less money on restoration, which will again take time to let more gas into the system.
I can say that everyone understands now that our own Ukrainian gas is the basis. Therefore, of course, the gas market, which has undergone enormous changes, must still continue to work as much as possible.
And, of course, in the conditions of closed exports, I will remind you that over the past two years, one of the important mechanisms that we had in terms of gas sales by private companies was precisely the buyout by NJSC Naftogaz of Ukraine on the stock exchange.
And, of course, for the industry, for private companies, it is extremely important to be able to understand this process in the future. Because it was carried out transparently and clearly, but there was no guarantee that it would continue in the future.
Therefore, we still expect that this year Naftogaz will continue to carry out buybacks in some format, and this buyback will be long-term so that companies can plan for the possibility of operation and increase production rates.”
Kyrylo Brazhko, Head of Market and Trading Analytics Department, D.TRADING:
“During the heating season last year, from November to March, Ukrainian consumers used almost 15 billion cubic meters of gas. And a rather cold winter led to the fact that consumption was 5% higher than in the same period last year.
Which, accordingly, pushed Naftogaz to emergency import of gas in February-March in the amount of 800 million cubic meters, which was sent to maintain pressure and can also be used in the next heating season.
Preparations for the new heating season begin on April 1. Today is the beginning of the new gas year, and accordingly According to the information presented by Naftogaz representatives at the Verkhovna Rada Committee on Energy and Housing and Communal Services last week, imports should amount to approximately 4.5-4.6 billion cubic meters by the end of the year.
And at current prices, current futures on European hubs, this amounts to about $2.8 billion, or UAH 115 billion. And here, of course, the question also arises, as already mentioned, of the availability of funds necessary for financing. And so far, Naftogaz has found only part of the resource, probably less than a third of the necessary funds.
But the question also arises in the schedule of these imports. Because there are about 200 days left until the heating season, a little more. And in order to bring the necessary volume of imports into the country by the end of the year, it is necessary to import 22 million cubic meters per day every day.
And this is, as if, over the past years, we have already forgotten what such imports are and how, in principle, to ensure them. And therefore it is very important to start importing now. After all, this process is more stretched out in time, it means both a more gradual increase in gas supply and the leveling of certain risks of attacks.
And, secondly, uniform demand does not lead to a frantic increase in prices in Europe. Because we know that Ukraine imports gas from the nearest countries. These are Hungary, Poland, Slovakia. And these are quite small markets. And, in principle, such a sharp demand from Ukraine, as it was in the winter of this year, led to a sharp increase in prices in these countries. And the price changed from a negative spread to a positive one.
And therefore, a more gradual, systematic import will not allow for a frantic increase in prices. And, secondly, these opportunities, import capacities are limited. We know that the cheapest routes are Hungarian and Polish, and they are physically limited. That is, the guaranteed capacity for the Hungarian route is 8 million cubic meters per day, and in Poland it is even less – 6.4.
And therefore, accordingly, we see that these volumes are not enough even with daily imports, starting from today. And, accordingly, it will be necessary to use both the Slovak and Romanian routes, where the tariffs of the relevant GTS operators are higher. Therefore, if this import schedule is shifted closer to winter, it will be necessary to overpay more for imports from these countries.
And, as Mr. Artem mentioned, the price of gas will definitely not be low. With this competition, the spread that we are observing now is atypical, where winter is cheaper than summer. Well, of course, it should level out over time, because incentives for traders should also arise in Europe to pump gas into underground storage facilities. Well, and, in principle, these seasonal patterns, yes, usually work quite rhythmically. Therefore, in my opinion, there will be no cheaper gas in Europe on the eve of the heating season.
As for the solutions, as, in principle, all of our expert colleagues have already voiced, one of the basic and main steps here is, of course, market liberalization. This is a key step for creating a competitive environment, attracting investments, even in conditions of military operations, and ensuring energy security.
Further development of gas exchange trading will contribute to setting fair prices and increasing the market, and will also ensure transparency of transactions and reduce risks for market participants. And, in turn, the harmonization of EU legislation and standards will contribute to attracting foreign investors and increase trust in participants and in the Ukrainian gas market as a whole.
In addition, regarding exclusively current structural problems, an artificial imbalance between segments has been created in the gas market, when Naftogaz is in deficit with the PSO segment and is forced to import gas at the hub plus price. At the same time, the commercial segment remains in surplus. Well, we hope that the transfer of Ukrnafta to the PSO segment may stabilize this situation a little.
But this commercial surplus segment is traded at the hub minus price, which, in principle, systematically destroys private production and does not create incentives for investments in its expansion. And this situation was created artificially by regulatory methods. Therefore, it should be balanced only in an appropriate way.
These may be separate additional steps, for example, transferring gas generation to the commercial segment. Because we see that last year the demand for has increased significantly, by more than a billion cubic meters in this segment. And, accordingly, such a step will reduce the deficit of the PSO segment. And thanks to this, part of the money for imports will be financed from the commercial segment. At the same time, this will help balance and create market-based prices in the commercial segment.
And, in addition, there may be another condition, such as a ban on the sale of gas to state-owned companies in the event of a deficit in the PSO segment. That is, a situation where a company simultaneously buys expensive imported gas and sells its own production on the market at a price 10,000 cheaper is probably not rational from a business point of view and does not create any incentives for private players.
Therefore, Ukraine needs a stable demand for gas in order to restore its own production. And the measures that I have just mentioned can stimulate this demand. And, accordingly, in the future, this will increase incentives for domestic production and allow in the future to create additional jobs, rent payments, improve the currency balance and in the future will only increase energy security and reduce domestic prices.
It is extremely important to fulfill the necessary import plan in order to get through the next heating season. But, of course, as Artem Petrenko said, everyone should probably already understand that, if, private or state domestic production is always, if, a more appropriate and better source of guaranteed resources than imports. Therefore, production must be supported.”
Roman Storozhev, founder of the Association “Gas Traders of Ukraine:
“Good afternoon, colleagues. I cannot but agree with my colleagues, it is very nice to see everyone, we have not seen each other for a long time. Thank God, everyone is alive and healthy. Cheers to everyone, victories! Glory to Ukraine! Glory to the Armed Forces of Ukraine!
I would concentrate my report more on the structure of imports, because it is obvious that we will be able to ensure the gas balance for 2025 and the heating season of 2025-2026 only by, of course, restoring production capacities. All other measures will have their impact, positive, but now we can get out of the situation only thanks to imports.
That is, if we look at the volumes that is planned to be imported, and this, according to various estimates, is from 3 to 5 billion cubic meters, then we can see that at the moment we have funds for imports of about 1 billion, provided by the EBRD and the Norwegian grant program. Thus, we need funds for at least another 2.5-3 billion cubic meters.
I would say that the idea being discussed in the European Commission regarding the creation of a strategic gas reserve for countries bordering Ukraine, and in the amount of about 10 billion cubic meters, and the placement of this gas in Ukraine, is very interesting. It is being discussed. If this is decided, then, of course, this will stabilize the Ukrainian gas transportation system for the period of the next heating season. And, of course, this removes some political factors regarding Slovakia, Hungary. Well, but for now, this is just an idea that is only being discussed.
From a practical point of view, of course, the commercial segment should also be involved in the import of natural gas. And, as practice shows, provided that prices are market-based, Ukrainian business will also take an active part in importing natural gas volumes.
As we could see, and therefore, if the price distortion between the commercial segment and the import parity is eliminated, then, in principle, I think that Ukrainian traders will be very active in importing natural gas volumes to ensure both current consumption and the accumulation of certain volumes to ensure their portfolio in the heating or autumn-winter period.
Thus, we must move away from a highly concentrated market model. And how can this be done? Yes, indeed, the release of generation can be a positive step, but we must also remember that in recent years Naftogaz has been very actively entering the commercial segment and concentrating industrial consumers on itself. And in some periods these were even unprofitable operations. Therefore, I think that in such a situation, freeing up commercial consumers and bringing the price to import parity would be a way to reduce the financial burden on the Naftogaz group.
Another point that could be implemented, regarding the liberalization of the natural gas market in Ukraine, is, as one of the European officials said, that in order for the Ukrainian gas market to work, we simply need to return what was already working. Therefore, I think that, in principle, this would be very effective.
I understand that exports are currently impossible, but even without exports, we understand that the commercial segment and what does not concern PSO should work at market prices. Currently, we see a difference of about 25-30%.
So, well, another option for ensuring the inflow of capital from commercial players is, perhaps, the exemption of imported resources from VAT. But I understand that the tax authorities and the Ministry of Finance will actively oppose this mechanism, so they do not currently consider it as real, but as one of the options, this can also be discussed. Because this will cover the difference, almost cover at this stage the price fluctuations that we see. And prices, in principle, are quite stable, so perhaps this would also be one of the options.
Well, and of course, the resumption of production, the development of production, but, again, if prices are distorted, this will systematically cause losses to Ukrainian production and reduce investors’ appetite for investing in new projects or existing ones. Therefore, exclusively market prices should also work in this segment.
And yes, indeed, we see the next heating season as quite difficult. We understand that prices will not be low, we understand that the occupancy of storage facilities in Europe at the end of the heating season is very low. That is, we expect that in April, early May, active work will begin on pumping natural gas into both European storage facilities and, I hope, Ukrainian ones.
Therefore, we see that we need to work very actively, because currently we have only about 30% of the financing from the minimum required import volumes. And if we are talking about the stability of the system, then it is desirable that there are even more volumes in the storage facilities.
Here, of course, I would place more hope in the fact that it is necessary to create conditions when Western companies, European or any other international ones, will be interested in storing natural gas volumes in our storage facilities. Of course, if the energy truce talks are implemented in practice, there will be interest in this, given that the volumes of natural gas storage in Europe are almost 100% booked for the next period, then Ukrainian storage facilities look like a very interesting place to store natural gas. Given that demand will grow.
Thank you again for the invitation to the Energy Club and I am very glad to see everyone. Have a nice day.”
“What can we say? First, we all came to the conclusion that we will have a gas deficit this year, approximately at the level of four to 5 billion cubic meters.
Second, we will have a deficit of funds. While I do not see the source of funds, then, perhaps, they will appear. How to cover this deficit? Well, we now need to cover the deficit to cover the gas deficit, somewhere around 2 billion dollars, and we found only somewhere 500, well, up to 500 million. That is, somewhere 1.5 billion still needs to be found somewhere. And this is not such an easy task.
As for Naftogaz, we all see that all bets were made on it, but on the one hand, it performs the task of PSO for the population, on the other, it really imports gas, so one by one price, more expensive, sells for a lower price on the market. These are also unprofitable operations. Therefore, in practice, Naftogaz, well, I think, will not survive.
Just as Bolivar will not survive two, so Naftogaz will not survive the PSO for the population and these operations, which means they are unprofitable on the domestic market for gas installations and for industry. We see these operations, especially not related to imports. This is the second problem.
The third problem is the sources of natural gas supplies. Because, indeed, competition on the European market for gas will increase. Our throughput capacity is limited. Unfortunately, we did not expand the corridor through Poland at one time, but, unfortunately, the State Gas Transmission System Operator was unable to do this. And now we will have a certain deficit of capacity and capabilities in general for delivering this gas.
Moreover, I would say that Slovakia will not be able to fully satisfy its demand through the Turkish Stream. I have this information. So, they will be forced to compete and enter the market, buy additional volumes on the European market. Therefore, there will also be quite serious competition here.
What to do in such a situation? Well, you know, in my opinion, it was a very serious mistake that we came to a liberal, more or less, model in 2016, in 2017. We had a lot of traders here. We also had a gas shortage, but we solved this issue through market liberalization, through market openness.
That is, you remember when supplies from Russia stopped in 2015 due to military operations, a shortage arose, we didn’t know what to do. But we liberalized the market, and everything is somehow normal, everything is, so to speak, good. And we were able to balance our market. And, unfortunately, we moved away from this model. We decided to regulate this market administratively. We decided that we could invent our own Ukrainian gas market bicycle. Yes, that is, we have been inventing this bicycle for a very long time.
You know, back in 2000, when I was at the Ministry of Economy, I was involved in market liberalization with programs of the IMF and the World Bank. And then I was involved. But there are such powerful forces in our country, which are internal, which do not want liberalization, want cheap prices, politicians, certain businesses. As a result, we have big debts, big problems. Therefore, it seems to me that market liberalization is also timely.
But today the main problem is still where to find money, where to find resources, where to find the best gas corridors to receive this natural gas. And, in my opinion, it is necessary to connect not only Naftogaz, but also other companies to this process, and those that are the largest consumers of natural gas, so that they have the opportunity to buy and import gas either independently or through traders.
It is also necessary, perhaps, to create such a more liquid exchange, to let European traders in. Well, of course, we should eliminate the significant difference between the Ukrainian market and the European one. We should destroy this Chinese wall that we have built between the European market and the Ukrainian market. It does not lead to anything good. In conditions of a shortage of natural gas and funds, I think that this time has come.
That is, I think that we should move in these directions: find some money, involve not only Naftogaz in the purchase of imported gas, because Naftogaz does not have such opportunities, but also include consumers and traders from Ukraine and Europe, and look for sources of gas supplies.
But one more question. I think that after all, we are unlikely to be able to completely, as it is not a shame to say, 100% fill the underground storage facilities, as we would like, by the autumn-winter period. These are high risks that we will not fill them in the required quality, therefore quantity. Therefore, it is necessary, perhaps, to think about reserve types of fuel in order to use them more widely in winter. This should be coal, and fuel oil, and, perhaps, some other types of fuel. Because the situation is really critical.
We do not have an understanding of the clear balance of our gas for 2025, for 2026 and further by year. I understand that it is probably difficult to say now about the following years, but nevertheless. Since we do not have figures from the worst scenario to the best, we will one hundred percent make mistakes in the formation of our economic policy.
As for the development of this idea, when will we understand, and when will consumers will understand that in any case, in the next season and in general, prices will increase, because their needs will be met only by imported resources, they will build their economic plans taking this into account. And especially those who have a high share of natural gas in the cost of production. Based on the fact that prices will increase.
If we are talking about the fact that the commercial segment, that is, industry, in fact, in other words, will be supplied at the expense of imported resources. That is, yes, the population, heat and power utilities, most likely, if everything goes well, will be covered by the resource of their own production by state structures. But as for industry, its fate is only an imported resource. Therefore, there must be, probably, some voice of the industry, the state, which will clearly say that, please, dear gentlemen and ladies entrepreneurs, prepare for the fact that the price of the resource will be much higher than you are receiving it now. Please adjust your plans, prepare, become energy efficient, and so on, and so on.
Since this is not the case, it could be a rather serious unexpected event when it snows in December or November. That’s why it seems to me that a clear, understandable voice from the state for consumers, I mean the same ones, the population, and the same segment of the district heating and power industry, well, industry, here they have always been in the commercial segment and have always bought at commercial prices, everyone should be aware that given the deficit, the problem of energy supply with gas itself, this is a rather serious process and this is a rather serious task for the coming years.”
