Almost 90 kilometers from Ukraine’s border with the European Union, a network of pipelines and pumps hints at what could become an important component of the EU bloc’s efforts to secure its energy supplies and thwart Vladimir Putin’s plans.

The gas storage facility in Bilche-Volitsko-Ugerskyi (western Ukraine) can store four times more natural gas than Germany’s largest storage facility and is easily connected to the bloc’s pipeline network thanks to Ukraine’s decade-long role as a transit route for Russian energy.

A condition for gas storage in Ukraine to become viable

Keeping important fuel in a country that has been targeted for missile attacks may seem like a crazy idea. But the idea is gaining supporters, who believe the facilities are far enough from the front lines to be considered safe, and some traders say the risks are acceptable.

European officials are now considering whether to maintain links with Bilche-Volitsko-Ugersky and other storage facilities located in Ukraine, which has the largest network of underground caves where gas can be stored for winter use. Given that the level of gas reserves in the EU already exceeds 70%, gas storage in Ukraine could help avoid a crisis in the coming months.

“Fields in Ukraine could help balance supply and demand in the second half of this summer, given the excellent connections with EU gas markets,” said German energy group RWE AG, which has already used Ukrainian capacity in the past.

For gas storage in Ukraine to become viable, prices must fall enough to justify costs. In addition, the EU will most likely be forced to intervene and provide a guarantee against potential losses related to the conflict in Ukraine.

What is the capacity of Ukraine’s gas storage facilities?

The current initiative is part of an effort to avoid last year’s panic that caused record gas prices and forced states to intervene. To protect companies and consumers, EU governments have allocated €646 billion in aid, according to Bruegel’s thin tank, and they cannot afford a repeat of last year’s scenario.

Storing gas for Europe would not only allow Ukraine to generate much-needed liquidity, but also strengthen ties with the EU bloc and counter Russia after the Kremlin tried to use energy as a weapon to weaken Kiev’s support for the government.

Ukraine’s gas reservoirs, located at depths of up to two kilometers, contain more than 30 billion cubic meters. Ukrainian operator Ukrtransgaz will supply a third of these capacities, which is equivalent to approximately 10% of EU gas demand in the fourth quarter of last year.

“The Ukrainian market offers storage at a fixed price, which makes gas storage in Ukraine a very attractive and competitive option,” says Marko Zaalfrank, director of the Swiss trading company Axpo, but adds that risks must be reduced.

Although the insurance industry avoids Ukraine, the willingness of traders to store gas in Ukraine depends on the price and the willingness of the EU to provide a guarantee. Discussions on this topic continue.

Last week, Commission spokesman Tim McPhee said that the European Commission is “analyzing whether and how guarantees provided by public institutions can support the unblocking of access to natural gas fields in Ukraine.

For its part, Ukrtransgaz is working on implementing safeguards to reduce the risks associated with war as it seeks to become a “battery for Europe”, the Ukrainian company said, adding that the requests received exceeded its initial estimates. (Source: Agerpres)