Ukraine Storage Falls Year on Year
After a mild October and November, which saw the storage injection season continue, Ukraine drew heavily on its storage in December, state monopoly Naftogaz Ukrainy said January 3. This has lowered the total available reserves for this year to 13.8bn m³ as of January 1, compared with 14.7bn m³ on the same date in 2018. This is still 1.9bn m³ more than the 11.9bn m³ in store on the same date in 2017.
After the separation of storage and pipelines from trade and supply, the storage assets, Europe's largest outside Russia, will remain part of the state-run gas pipeline business Ukrtransgaz, outside the yet-to-be-established transmission system operator Magistralynye Gazoprovody Ukrainy (MGU), for which foreign investors are sought.
International consortium members interested in MGU have made it clear that they would focus on the gas transmission business only, as storage is a non-core, unprofitable asset with a toxic legacy, Naftogaz said December 28. A framework agreement is being prepared to enable European experts from consortium member companies to join in the creation of a high-quality and EU-certifiable TSO, said Naftogaz, summarising a meeting held a week earlier.
Naftogaz is urging the government to choose how to unbundle. As the company is pursuing an $11bn arbitration claim against Gazprom for transit payments not covered by the Stockholm award, and to which Naftogaz is the counterparty, it says that only the certified independent system operator model would allow it to represent its interests in court, a view endorsed by the European Commission and its own legal advisors.
As well as complete independence from Naftogaz and from Ukrtransgaz, the new TSO also needs to be capable of covering its costs and funding the investment program to modernise the high-pressure network.
Making the new TSO financially viable will require the regulator to ensure tariffs cover both operation and capital costs. However Naftogaz will have a battle on its hands as the interim tariffs set by the regulator are not sufficient, Naftogaz said, which puts the TSO’s viability at risk. Fighting the battle will be a former regulator, Clare Spottiswoode, who slashed the asset value of the British pipeline operator Transco in the late 1990s as chair of Ofgas [now Ofgem] and is now chair of the supervisory board of Naftogaz.
The chair of MGU's supervisory board is Walter Boltz, who is also a former energy regulator: he managed Austria's E-Control and took on the Austrian near-monopoly OMV.
The financial viability of the new TSO will also depend directly on the solution of urgent problems like unauthorised offtake in distribution networks; public service obligations; and other regulatory inconsistencies in the transmission segment.